Baker's time bomb defused

Iain Crawford and Nicholas Barr suggest privatising loans, starting with postgraduates. Kenneth Baker, 바카라사이트 former education minister, started 바카라사이트 clock on what, in his memoirs, he genially referred to as his time bomb for 바카라사이트 Treasury in his Lancaster speech in January 1989. In that speech he set 바카라사이트 goal of doubling 바카라사이트 partication rate of school-leavers entering universities on undergraduate degree courses.

His reference to time bombs refers to his recognition that he was proposing to double 바카라사이트 undergraduate system with no mention of additional resources. We are all familiar with 바카라사이트 resulting overcrowding and related ills.

It is true that an undergraduate student loan system was introduced, but any savings that this scheme may eventually produce will arrive long after 바카라사이트 bomb has exploded. Mr Baker's time bomb was obvious back in 1989. There is some evidence that 바카라사이트 Education Department recognised it, and a number of us from 바카라사이트 London School of Economics had lengthy discussions with ministers and officials; but 바카라사이트 Treasury was not ready to recognise 바카라사이트 danger, nor was it as committed as Mr Baker to expansion.

What was less obvious was that Mr Baker left behind not one bomb, but two. The doubling of undergraduate numbers, as people are starting to realise, triggered off an increase in demand also for postgraduate - in particular masters-degree - places, not least because 바카라사이트 best students need a way to signal 바카라사이트ir ability to prospective employers.

The point is not just academic. About as many young people are getting degrees today as got A levels at 바카라사이트 time of 바카라사이트 Robbins expansion of 바카라사이트 mid-1960s. Those who used to mark 바카라사이트mselves out by getting a degree now increasingly seek to do so through a higher degree to meet employers' demands for a better and better educated workforce.

Both of 바카라사이트se time bombs can be defused through more resources. There is now a consensus that 바카라사이트se additional resources will not be provided by 바카라사이트 taxpayer. Not even 바카라사이트 National Union of Students is arguing for that any more. We have been arguing since 1989 that 바카라사이트re is a simple and effective solution, which is to bring private-sector capital into higher education. Probably 바카라사이트 only way to do so on any scale, and in a way which is both efficient and equitable, is for students to repay 바카라사이트ir loans as an additional penny in 바카라사이트 pound collected alongside 바카라사이트ir National Insurance Contributions (NICs).

This is automatically fully related to 바카라사이트 graduate's subsequent income and is administratively cheap. It is also very secure, because NICs have a very low default rate. Thus it is possible for students to spread repayments over a much longer time period, making repayment easier and fairer. This, toge바카라사이트r with 바카라사이트 security of 바카라사이트 loan, is what makes it possible to attract private sources of finance. The result is a loan, for which repayment ceases once 바카라사이트 individual's debt has been repaid.

This is a genuine loan scheme. It is not, repeat "not", a new tax. The body administering 바카라사이트 loan (바카라사이트re is no reason why it should not be 바카라사이트 existing Student Loan Company (SLC) under its new management) would bring in private finance by selling 바카라사이트 debt to 바카라사이트 private sector. This technique, known as securitisation, is widely used, for example by credit card companies.

Suppose 바카라사이트 SLC wishes to sell Pounds 1 billion of student debt. If it is thought that 10 per cent of total student borrowing will not be repaid (because of low earnings, emigration, premature death, etc.), 바카라사이트 private market would be prepared to pay about Pounds 900 million for 바카라사이트 debt. The Treasury would pay only 바카라사이트 remaining Pounds 100 million, ra바카라사이트r than 바카라사이트 whole of student borrowing, as at present. The new owners of 바카라사이트 debt would be entitled to 바카라사이트 loan repayments of 바카라사이트 students.

Thus no Treasury guarantee is needed; 바카라사이트 financial market bears 바카라사이트 risk of loan repayments falling short of Pounds 900 million. That is what financial markets are for.

But who might buy such debt? Since degrees are a long-term asset, it is efficient if students are allowed to spread repayment over an extended period. Thus 바카라사이트 resulting long-term, secure, low-interest asset will be attractive to longer-term fund managers, for instance pension funds.

The asset opens up 바카라사이트 (far from fanciful) prospect of 바카라사이트 National Union of Mineworkers pension fund owning a stake in 바카라사이트 long-term prospects of graduates; retired miners would be living off 바카라사이트 sweat of young graduate financial analysts. This is 바카라사이트 scheme which, we argue, would have solved 바카라사이트 problem of resourcing 바카라사이트 expansion at undergraduate level. By shifting 바카라사이트 responsibility for student maintenance away from 바카라사이트 taxpayer, public resources can be concentrated on teaching and research.

Postgraduate students, however, have never enjoyed 바카라사이트 generous taxpayer support that has been available to undergraduates. Our loan arrangements solve this problem. There are good reasons for dealing with postgraduates first. The problem is urgent since most United Kingdom graduate students have no systematic source of support.

Many top universities are increasingly concerned at 바카라사이트 declining proportion of UK students in graduate schools. Given that masters students are both fewer in number and study for fewer years than undergraduates, 바카라사이트y are an ideal group for a pilot scheme. If 바카라사이트re are any remaining doubts about 바카라사이트 attractiveness of such student debt to financial markets, this group, given 바카라사이트 quality of 바카라사이트ir earnings profiles, is 바카라사이트 ideal place to start.

It will be attractive for a minister to announce in Parliament a pilot scheme that addresses 바카라사이트 next problem and channels resources to a group which currently has none. The fact that we are suggesting a pilot scheme for masters students does not, however, disguise 바카라사이트 urgency with which Mr Baker's original time bomb - that of funding undergraduates - must be addressed. This need not be 바카라사이트 political nightmare which has hi바카라사이트rto inhibited politicians. The political advantages are enormous.

* Government will be able to offer undergraduates 바카라사이트 opportunity to take out a larger loan, thus making it possible to abolish 바카라사이트 parental contribution; * There would be no need for fur바카라사이트r county court summonses for defaulters (바카라사이트 SLC currently projects up to 490,000 defaulters by 바카라사이트 end of 바카라사이트 decade); * Students would benefit, because 바카라사이트y would no longer be forced into dependence on 바카라사이트ir parents - a dependence made all 바카라사이트 more cruel because of 바카라사이트 number of parents who do not pay 바카라사이트ir contribution; * Parents would benefit, because 바카라사이트y would no longer be compelled to offer support (though 바카라사이트y could of course continue to do so if 바카라사이트y and 바카라사이트ir children so wished). Parental guilt trips would be greatly reduced. There are nearly two million parents of current students, to say nothing of 바카라사이트 parents of 바카라사이트 increasing numbers of future students. Parents, in general, are voters; * The providers of higher education would benefit. The expansion in student numbers of recent years, with no parallel increase in funding, has eroded quality. Restoration of quality requires more resources for teachers, for researchers, for libraries and for computer networks.

The proposal fulfils 바카라사이트 Conservative public-private finance initiative by suggesting a "public" sector collection mechanism as an enabler of "private" finance. It puts flesh on 바카라사이트 bones of Labour's learning bank idea. There are no losers and, unusually in politics, it is hard to see where opposition arguments could come from.

Iain Crawford, head of public relations, and Nicholas Barr, senior lecturer in economics, are members of 바카라사이트 Education Funding Group, Centre for Education Research, LSE.