The current student loan system is “out of control” according to Professor Andy Green, with students taking on debts of up to £50,000, which many will never pay back in full because they do not pass the wage threshold requirements for repayment.
It means that taxpayers currently face meeting an estimated 43 per cent of the student loan bill.
Prof Green, who is a professor of comparative social science at UCL Institute of Education and head of its Centre for Learning and Life Chances in Knowledge Economies and Societies, has set out his proposals in his new book The Crisis for Young People: Generational inequalities in education, work, housing and welfare.
Prof Green proposes restoring the system of maintenance grants and part-funding higher education with a graduate tax.
Under this plan, both past and future graduates, when earning more than £21,000 would pay an additional 2.5 per cent in income tax. This would substantially reduce the average future repayments of young people who started their degrees after 2012, thus limiting their financial burdens through their 30s and 40s when family finances are most stretched.
A graduate tax of 2.5 per cent would see graduates on average earnings above £21,000 paying back £812 per year, compared to the £2,025 per year loan repayments for the same group under the current system.
Prof Green estimates that an all-age graduate tax today would generate annual tax revenue of £3.8 billion. The total cost of higher education, including restored maintenance grants, is thought to be around £11.8 billion, meaning the £8 billion shortfall would be met by taxpayers – similar to that estimated for the current system. However, the burden on taxpayers would be lower both in the short term and in the longer term, Prof Green argues.
Prof Green said: “The case for an all-age graduate tax has not previously been set out or evaluated. Now that we know the extent of the problems with our fees and loans policy, this would be a good time to debate it. It would place higher education funding on a much more stable foundation, as well as making an important contribution to reducing intergenerational inequity.”