Radical proposal for uni funding would slash student debt and cut graduates’ repayments by two thirds

A new report published today has analysed a proposed ‘employer levy’ as a fairer way of funding universities that would abolish tuition fees and save the exchequer as much as £8 billion a year.

The proposal is published in the Higher Education Policy Institute’s (HEPI) ‘How should undergraduate degrees be funded?’, a collection of ideas, edited by Rose Stephenson of HEPI, the higher education think tank, and including contributions from two former universities ministers and leading experts. 

The report includes five proposals for funding, which have been modelled and costed by economists and subjected to a poll of potential students, among whom the employer levy proved the most popular suggestion.

Johnny Rich, an education expert who has devised the employer levy proposal, explains that it would replace the current system of tuition fees in England with smaller contributions from any organisations that employ graduates. 

These contributions would be channelled back to the universities where they had studied, giving universities a stake in the long-term employability of their students and giving businesses some influence over course availability.

London Economics, the team behind the financial modelling, calculate that, compared to the current system, the employer levy would reduce the cost burden to taxpayers by £8 billion for each year of students going through the system. 

Students would still take out loans to cover their living costs, but average debts would fall from over £50,000 to £22,000 and graduates’ repayments would be cut by two-thirds. 

HEPI said that higher education institutions would not see their income change in the short term and in the longer term, they would be less reliant on political tides for their financial security. 

The report includes polling by UCAS of current and potential applicants to UK universities about their views of the five proposals. The employer levy was their preferred choice with 78% of potential applicants saying they would apply (“probably” or “definitely”) to university under these arrangements (compared to 68% under the current scheme and a range of 41-74% for the other proposals).

Johnny Rich, whose roles include leading the Engineering Professors’ Council and the award-winning outreach organisation Push, first proposed the employer levy in another HEPI report titled Fairer Funding in 2018. Since then, it has been gaining popularity. 

Mr Rich commented: “It sounds too good to be true: a system that cuts costs for students, secures income for universities, aligns graduate employability with labour market needs, and also delivers a massive cost saving to taxpayers, and yet, the employer levy does do all that. 

“What’s more, it may even reduce costs for employers who indirectly pay the 9% cost of student loan repayments, which would drop to 6%.

“The reason this proposal would work so well is that it distributes who pays for higher education more fairly according to the balance of interests and benefits. It also balances what students want to study with the labour market which doesn’t happen now.

“Ahead of the general election, political parties cannot ignore this issue. University funding is in crisis. Many students face dire financial pressures and we must do more to support fair opportunities for anyone to be able to study. The employer levy is an innovative and cost-saving solution to a tough problem in tough financial times.”

Among the other proposals modelled in the report are: 

– Abolition of fees and reintroduction of means-tested maintenance grants (Chloe Field, National Union of Students)

– Increasing fees for universities with highly rated teaching (Jo Johnson, former Universities Minister); 

– Stepped loan repayments or a graduate tax (James Purnell, Vice Chancellor, University of the Arts London); 

– A tuition fee proposal for Scotland (Alison Payne, Reform Scotland).