A loan or a grant?

Deborah Orr, in today's Guardian, has neatly summarised the financial aspects of the Government's proposals for student loans as part of an article on u-turns. Is it worse if these financial consequences were identified before the policy was announced but the government hoped for the best or if they were not considered at all? The full article is here.

Take the student loans fiasco. Massing in the streets, railing against Clegg and Cameron is all very well. But it would have been more effective to march under a banner saying: "Think! This will actually be much more expensive, especially in the short-term, regardless of ideology!" Most of the debate was about what sort of protest was legitimate and what sort of policing, and it was easy for the right to suggest people were marching in self-interest anyway. The fact that the scheme just didn't make any practical or logical sense got lost in the melee.

This major flaw in the coalition's tuition-fees plans has become glaringly obvious anyway, almost immediately. The block grant was slashed, so that the government didn't have to hand over a big lump sum to the universities. To make up the shortfall, universities could charge much larger fees, up to £9,000.

But students would not be expected personally to hand over fees of up to £9,000 to universities, despite all those tearful declamations about people's children and people's children's children not now being able to go to university. Instead, the government would lend larger fees to the students, who would then give them to the universities. How much of this money, at some point in the future, the government would then recoup, well, only a wise seer with a lot of time on her hands could run the numbers on that.

But this government didn't even get its short-term number predictions right. It presumed that the university market would immediately start operating like a low-end retail market, competing on price to attract custom. But the early signs are that the university market prefers to operate like a high-end retail market, with steep prices part of an elite image. Of the 16 universities that have set their fees so far, 13 have plumped for top whack. The government is likely to shell out more money in loans than it would have on the block grant that it just slashed, if the present trend continues. Another self-imposed obstacle crash-lands in the way of wiping out that deficit in a single government term.