Official Report 307KB pdf
Welcome to the eighth meeting of the Education, Lifelong Learning and Culture Committee in this session of the Parliament. Agenda item 1 is an oral evidence session as part of our stage 1 consideration of the Graduate Endowment Abolition (Scotland) Bill. We will hear from two panels of witnesses.
Good morning. As you know, the bill aims to fulfil a manifesto commitment to abolish the graduate endowment fee. It will abolish the fee for all students who have successfully completed their course since 1 April 2007 or who will successfully complete their course in future. Graduates are not asked to pay the fee until 1 April after they successfully complete their course, so the next cohort of students who would become obliged to pay under the current arrangements would be those who successfully completed their course on or after 1 April 2007, who would become liable to pay on 1 April 2008. There are no plans to abolish the fee in respect of those who became liable to pay in 2005, 2006 and 2007.
Thank you for keeping your statement short so that we can have the maximum time for questions. You said that the bill will fulfil a manifesto commitment from the new Government. What is the policy intention of the bill?
Other than simply the removal of the graduate endowment, there is a wider policy to reduce student debt.
Is the belief that students have been deterred from entering higher education because of the additional financial burden that the graduate endowment places on them the reasoning behind the bill?
Yes. Research from the Joseph Rowntree Foundation shows that student debt is one of the biggest contributors to people not wanting to undertake higher education courses.
What evidence is there to suggest that the graduate endowment deters potential students from entering higher education?
There is not any particular evidence on the graduate endowment.
So we have no evidence to prove that, if the bill is successful, the number of students entering higher education will increase.
It is clear that abolishing the graduate endowment will reduce overall student debt.
It will reduce the amount that students have to spend, or the amount that they will have to pay back if they take out a student loan, but do you have any evidence that suggests that the endowment has deterred young people or mature students from entering higher education? Is its abolition likely to encourage those people to enter higher education?
The evidence from the age participation index shows that the proportion of young Scots in higher education has fallen since the graduate endowment was introduced, between 2001 and 2006.
Has any breakdown been done of the reasons why those young people might not have entered higher education? Is it possible that, due to growing employment in this country, some people might have decided to go straight into employment rather than on to university? Has there been any analysis of that information?
I am not aware of any such analysis.
So it is just an assertion, rather than being based on any facts.
It is based on the figures in the age participation index.
It is a fact that participation has decreased, but there is no explanation of the many and varied reasons why that has happened. Is that correct?
I am not aware of any evidence of that.
So there is no evidence to suggest that the abolition of the graduate endowment could lead to greater participation in higher education.
The fact that it will reduce overall student debt—connected with the age participation figures—indicates that more people will want to enter.
In the calculation of those figures, were students asked directly what their reasons were for entering higher education? Has any assessment been done of the reasons why others chose not to go into higher education?
The Joseph Rowntree Foundation survey is the evidence that is being used to support that.
So we have got one study, on which all this is based.
Regarding the evidence from the Joseph Rowntree Foundation—which is used in the policy memorandum—is it correct that that report predates the graduate endowment, and that it is a United Kingdom-wide report rather than a Scotland-specific report?
Yes, that report was published in 2003.
So we are basing the policy on evidence that is not only out of date, but does not reflect the position in Scotland.
The figures from the age participation index show a drop.
We have covered that issue—we might want to pursue it with the minister when she comes to the committee.
I thank Alex Young for his opening statement and his view that the endowment is part of the mounting level of student debt.
The bill will potentially widen access to higher education by reducing overall student debt. Perhaps the Cabinet Secretary for Education and Lifelong Learning will want to discuss wider issues with the committee. However, one potential barrier to access will certainly be removed.
It is clear from what you have said that student debt is a deterrent to accessing higher education and that the graduate endowment fee is part of that deterrent. The Student Awards Agency for Scotland has shown that the graduate endowment fee is often paid off through loans, so graduates require an extra loan to pay off their debts. Removing the graduate endowment fee will therefore remove the need for the vast majority of graduates to take out another loan.
Yes. The average loan debt of £11,000 for a student on a four-year degree course is clearly a potential barrier to accessing higher education.
Any reduction in that figure—by £2,200 or whatever, plus the interest that would have to be paid on any loan—would be a positive step for students.
Yes. You could argue that.
Some people have suggested that the option of charging a means-tested graduate endowment fee should have been considered. Was that option considered?
We considered other options apart from abolishing the fee. Loan repayments themselves are means tested.
Indeed. Obviously, we must support bursaries and so on. Some people have suggested that the means-tested graduate endowment should have been linked to that, but I presume that that is being ruled out in the bill and that bursaries will be dealt with separately.
We are ruling out a direct link. However, the abolition of graduate endowment fees will not have any effect on the provision of bursaries.
Fine. Thank you very much.
If I heard you correctly, Mr Young, you said that a number of other options have been considered. Is that correct?
I should have said that no other options have been considered. I apologise.
We must be very careful with our language, as it will be on the record. The Official Report of the meeting will show that you said in answer to a previous question that other options were considered. I see that you are now reading the policy memorandum, which you have seen that I have been reading from.
I apologise.
Okay. You said that no other options were considered and that part of the purpose of the bill is to relieve students' debt burdens. I have a practical question. Why should students with a liability to pay the fee in 2005, 2006 and 2007 remain liable if part of the policy intention is to relieve graduate debt?
The cabinet secretary took that decision. Perhaps she will want to answer that question when she appears before the committee.
Did you give advice on what the cost would be if students' liability to pay the fee in 2005, 2006 and 2007 were cancelled?
I am not aware what the cost of that would be, but my colleague Chris McCrone might know.
The cost would be around £13 million, given that the actual cash that has been paid to date would have to be paid back. As far as I am aware, that would be about £12 million, plus the £57,000 repaid in loans.
So the figure would be £13 million.
Around £13 million.
That would be the cost of removing the liability of all students.
As you know, there is a liability of approximately £41 million at the moment, as people have been given loans. We would also have to cancel the loan debt, for which there would be a cost.
So what would the overall cost be?
It would be £41 million, because the Scottish Government has accounted for that income already. In fact, the actual cash repayment would be £13 million to people who had paid cash, but the Scottish Government would have to bear the full cost of the £41 million because we have already accounted for that income in normal accounting practices in the year in which it arises.
Would it be fair to say that the number of students who have deferred their graduate endowments on to their loans and have not started paying them back, or who have just started paying them back because they are at the earnings threshold, is lower than the number of students who have paid off the fee in one go? You said that the policy intention is to relieve the debt burden for students. There could well be students who have yet to pay because they are likely to be earning less than or just more than the £15,000 threshold.
The threshold for loan repayment is £15,000. As soon as a student earns more than £15,000, their loan repayment should come in—that is, if HM Revenue and Customs has indicated to their employer that a loan is repayable. There is sometimes a slight delay until HMRC tells the employer, then the employer works it into their payroll systems and automatically calculates what is repaid.
I appreciate that; it is helpful. However, my point is that although a number of the students who are liable—is it approximately 2,400?—do not yet earn that amount of money, the Government still says that they have the burden of paying back the graduate endowment, whereas there could be rich students who could quite easily pay back the fee but who will be exempt.
I do not have the figures for that, but I have the total number of people who are liable for the graduate endowment to date, which is approximately 21,000.
Ah. My apologies—I was about tenfold out. So the figure for those who are not yet earning £15,000 is 21,000.
I cannot say how many are repaying.
Right. So you do not know how many students who are now liable are repaying.
Correct. You would have to ask the Student Loans Company, which will give evidence today.
Has the Government not asked the Student Loans Company? You ask us to ask it, but one would have thought that you might have asked it when you were drawing up the financial memorandum and policy memorandum.
We asked it how much of the graduate endowment had been repaid in loans, and the answer was £57,000. We did not ascertain the total number because we have £1.8 billion-worth of loans outstanding in Scotland.
You did not ask how many students.
No.
Okay. Is there any guarantee that the access bursaries for which funds will be raised will continue?
Yes, there is. We can guarantee that they will continue.
Will that be reflected in the bill? The current statute means that funds are raised for access bursaries, but there is provision in law to guarantee that funding. You said that you can guarantee their continuation, but you cannot guarantee what the next Government will do. The bill makes no legal provision to guarantee that access bursaries will be funded. Is that correct?
Paragraph 24 of the financial memorandum states:
That is helpful, but you have answered a question that I did not ask. What provision will there be in law to ensure funding for access bursaries for poorer students?
There is nothing in law to make any Administration fund anything at a certain level. It is up to each Administration at each funding review to decide what it funds.
The current legislation means that, by law, money is raised and spent on access bursaries. Is that correct?
The money is used to provide and pay for loans, as given by the legislation.
So it is paid for—
The current income is applied to the cost of student loans. The budgets for the young student bursaries were already pump primed when the legislation was introduced.
So there was, previously, no provision in law for access bursaries to be funded by the graduate endowment.
Section 2(2) of the Education (Graduate Endowment and Student Support) (Scotland) Act 2001 makes provision in respect of student support and says where the funding that is brought in from GE is meant to go, which is to the funding of student support. That section defines student support as
If that section of the 2001 act is repealed, there will be no statutory provision for funding to be raised for student support. Is that correct?
Yes, section 1(1) of the bill repeals section 2 of the 2001 act. However, at present there is no such provision for funding to be raised for student support. Section 2(1) of the 2001 act says only that Scottish ministers are obliged to bring forward a budget bill with a provision that provides for hypothecation. If the Parliament wishes to throw that out when it is dealing with the budget bill, that would be entirely possible.
But Parliament would have to decide that that would happen.
Yes.
Currently, the law says that the funds that are raised can be used only for student support and cannot go to institutions. That provision is being repealed.
It is up to the Parliament, in relation to the way in which it deals with the budget bill.
May I offer a point of clarification? The budget bill cannot be amended. There is no scope for the Parliament to amend the budget bill and it is inaccurate to suggest that there is.
Why were graduates who are facing debt recovery not included in the calculation of those who would have liability? Is it likely that some of the additional £1.95 million income would, in fact, be collected?
The 949 people who are described as being "In debt recovery" are not yet in debt recovery and their liability has yet to be confirmed. In preparing the bill, the prudent approach was taken that it may be that none of those 949 would be liable. That is why the £2 million was not included in the calculation.
Would not the prudent thing have been to include it? You have just said that you cannot guarantee that they will not be liable.
Because they are not liable, I would not include the possible £2 million income.
Forgive me, but this is still not clear to me. You say that they may not be liable. They are currently under debt recovery procedures, or are likely to be, but you said that people in that category are not liable to pay back—
I said that the name of the "In debt recovery" column is incorrect, because those people are not yet in debt recovery. Their debt and liability have still to be confirmed.
So is it a typographical error?
I would say that the description is slightly misleading.
Jeremy Purvis asked about funds from the graduate endowment going towards student support. Are you saying that that did not happen, even though the graduate endowment was supposed to support students?
The bill states that moneys can be applied only to two items, as set out in section 2(2) of the 2001 act, which makes it clear that the income can be applied to student support by means of either allowances for living costs or by loans. It was applied to the cost of providing student loans, because the 2001 act places restrictions on what that money can be used for. Income collected by the Scottish Government is not usually as tightly controlled as that which is collected under the 2001 act, so the income was applied to providing loans to students.
Your answers to Jeremy Purvis's questions have strayed into the areas that I was going to pursue, but I have two specific points to raise. You may already have answered this question; if you have, please bear with me. Exactly how much will the Scottish Government accrue from those students who are presently liable, or who will become liable at some stage, to pay the graduate endowment?
The total income, as described in the Scottish Parliament information centre paper, is £41 million, including the £2 million that was mentioned. Discounting that sum, the total will be £39 million. The Scottish Government's accounts recognise the income in the year in which it arises, in accordance with the generally accepted principles of resource accounting. Therefore, if any income arises, the liability will usually be met either by cash or by loan. If someone goes into debt recovery, that sum will go into the debtor's balance until it is ascertained how the person will pay—either by loan or cash, or by court settlement.
Are you saying that that £41 million will come to the Scottish Government in different years?
No, that £41 million will come in the years in which it is due and payable.
Which year is that?
That will be 2005-06, 2006-07 and 2007-08. In the years in which persons become liable on 1 April, that income is taken into the accounts of the Scottish Government. The other side of the equation is like normal business accounting. If a person does not pay, they become a debtor. In our case, a debtor is either a debtor or a loan, which is also shown as a debtor in the Scottish Government's accounts.
To be clear, is it the case that that money has already been accounted for and would not therefore be available in the future?
That is correct.
Given that the aim of the Scottish Government was to encourage people to come into higher education, is there a provision anywhere in the bill to give financial assistance to students who wish to come into higher education but who may be deterred because of financial difficulties? I suppose that that is the last stage of Jeremy Purvis's previous question.
As far as I am aware, there is nothing in the bill to assist those people, but abolishing the graduate endowment fee would assist them by lowering overall student debt.
I think that we have established from the convener's questions at the beginning that you do not have much to substantiate that statement, but we will let that lie at the moment.
I want to direct attention to the financial memorandum and pick up on what the convener said at the beginning and what Mary Mulligan has just said.
The budget for the cost of providing student loans—the departmental expenditure limit cost—was already set at the full cost of providing all loans apart from the graduate endowment loans. Therefore, the removal of the endowment will not remove the ability to provide loans to students, as the total value of the cost of providing loans has already been provided for in the budget.
Will you give further details of how the graduate endowment fee has been used? I am looking for examples of what has been funded by it, and what impact there might be on them once it has gone.
The graduate endowment fee can be used for only two purposes, one of which is to fund loans, which I have mentioned.
I want to ask briefly about finance. Already in the financial memorandum, we have seen the estimated costs rise from £15 million to £17 million per annum. How can you be confident that your estimates of future numbers of liable students are accurate? The costs have already been revised up, so is it possible that in future the potential lost income could be much higher than £17 million?
The £17 million estimate is based on the figures for the 2007-08 financial year and is the best estimate available. We think that it reflects the steady state of the graduate endowment. There is no expectation that more than £17 million will be due next year.
It is the "best estimate", so in theory it could go up.
The bill is part of a wider raft of potential work on student debt. Obviously, the spending review will determine where we go with other student debt proposals.
So we will know from the spending review announcement what the rest of the Government's policy on graduate debt will be.
That is perhaps a question for the cabinet secretary to answer.
It was a question about process.
I remind Mr Baker that there is a distinction between the questions that we can put to Government officials and those that we can put to the minister. We should not stray into areas of Government policy, for which the minister is accountable. I ask you to reflect on that carefully when you put questions to the officials.
I accept that, convener, and I apologise.
Has there been a breakdown of how that debt forms? For example, what percentage of it results from the graduate endowment—for which poor students are not liable anyway? How much of the debt is credit card debt? That could be affected by increasing the young students bursary, to make people less reliant on credit—although that is not a question for you.
I am not aware of the breakdown of the figure, but it comes from the Student Loans Company.
So there has been no breakdown.
Not that I am aware of, although the Student Loans Company may be able to provide more information.
You gave the impression that, when you took evidence from people about the principle of the bill, the overwhelming majority were in favour of it. However, will you say a little about the concerns of those who were not in favour, who were probably a small minority? Were those concerns about the fact that other options had not been considered?
Nobody was not in favour of the principle. The additional people were those who did not answer the question whether the endowment should be abolished and those who thought that it was inappropriate for them to respond to that question.
Can you remind us how wide the net was when you took evidence?
We consulted widely and received 44 responses to the consultation. We also offered and held face-to-face meetings with several organisations.
In any of those meetings, did the question of the funding of higher education arise? That is a separate issue, but it is nonetheless connected, because the bill will take money out of the sector and there is concern about whether money will go back in for teaching and research. Did anyone comment on that?
As you can imagine, some higher education institutions raised a general point on that.
Which institutions raised that issue?
That is contained in the consultation responses. I cannot remember which institutions raised the issue. However, it is fair to say that they were satisfied that the bill will not lead to a reduction in general university funding.
What about the effect on the numbers who take up further and higher education places?
Do you mean who commented on that?
Yes.
The student organisations were heavily in favour of the bill because it will potentially attract more students.
I return to the issue of widening access and participation. Does the Government have figures on how student access and participation have increased or decreased over the years?
Figures have been published on widening access, which I have in front of me. As part of the general higher education statistics publication, there are figures on widening access. For example, figures are held on entrants from deprived areas. I am not sure whether you want me to quote them to you now.
I am interested in whether the figures support the theory that the endowment has been a barrier.
The figures that I have in front of me cover only 2005-06. From the table, it would be impossible to say what happened in the intervening years.
Do you have figures that go further back in time?
I am sure that there will be figures from further back, but I do not have them in front of me.
Do the figures show a decrease? Is participation decreasing or increasing?
Is participation—
Are we managing to widen access to and participation in higher education, or is participation decreasing?
As I said, I cannot tell that from the figures in front of me, as they are from 2005-06.
The figures are from just one year.
Yes, the ones in front of me are, but I am happy to provide more figures should you require them.
Would that be all right, convener?
If Scottish Executive officials are happy to do that, it would be helpful.
The figures would be particularly welcome in helping us to see what the trend in widening access has been. Obviously, it would be particularly beneficial to go back to the period before the introduction of the graduate endowment. I am not sure whether that would be possible, but, if so, it would be helpful. Ideally, we should go back to pre-1997 figures, before tuition fees.
We will see whether the figures are available.
Thank you.
My question follows on from that point. Just so that we are clear, the figures from which you are quoting are to be found in "Students in Higher Education at Scottish Institutions 2005-06", which the Government published in May 2007. You would have assessed the figures in drawing up your policy memorandum, which is explicit about the graduate endowment being a barrier. It does not say that it is only part of the problem; it is explicit. Paragraph 12 says that
That paragraph goes on to talk about the
I will come on to that in a moment, but I would be grateful for an answer to my question. Before you drew up the policy memorandum, did you, or did you not, analyse and interrogate the figures from before 2005-06 for Scotland-domiciled entrants from deprived areas to higher education?
Yes, but I do not have those figures in front of me right now.
If you analysed the figures, what did the information tell you?
As I said, I do not have the information in front of me.
You cannot recall your interrogation of those figures.
I personally did not interrogate them.
I wonder whether you might be able to speak to the person who did and come back to the committee with the information.
Yes.
On age participation, I note that the policy memorandum says—as we all know—that students who finished their courses in 2004 became liable for the graduate endowment in 2005. What is the accurate baseline year from which we can consider the impact on the age participation rate? One would think that the year when students became liable would be the year in which you could measure realistically the impact of the graduate endowment on the on-going burden, as you put it, of debt on graduates and their families and on students' decisions whether to apply to university. Would that not be the appropriate baseline year from which to look at the impact on the age participation rate?
Yes. That was the year before students started paying the graduate endowment fee—they started to pay it in 2005-06.
So you would have looked at the impact from 2004-05.
Yes, but I presume that from 2001-02 people knew that they would become liable in future.
Right. What baseline did you use to consider the impact? You seem a bit unclear.
The age participation index for 2001-02.
Before graduates started to pay the fee.
Yes. It is obvious that there might have been other factors, but we used the index for 2001-02.
Why were participation rates for that year, when students first learned that they would have to pay the fee, up nearly 3 per cent on 1999?
I do not know. We would need—
You quoted the figures to the committee.
Do you mean the 51 per cent figure?
Yes, the 51.5 per cent figure. Do you have the statistics publication notice "The Age Participation Index (API) for Scotland 2005-06" to hand?
Yes.
The notice was published in June. According to table 1, the total age participation rate was 48.9 per cent in 1999-2000 and 51.5 per cent in 2001-02. Why was there an increase, when students knew that they would have to pay the graduate endowment?
I am not sure. Multiple factors are involved in students' decisions.
Am I asking the right person? Your team drew up the policy memorandum, did it not?
That is correct.
You said in paragraph 12 of the policy memorandum:
Okay.
Why, if the policy is a "failure", did the age participation index go up by 0.7 per cent between 2004-05 and 2005-06? Indeed, participation by female students went up by nearly 2 per cent in that period.
Other factors are probably involved in that increase.
What are they?
Any number of factors could affect whether students want to attend university.
Is it true that the evidence in your policy memorandum of a barrier to entering higher education is based on the age participation index?
The evidence is based on the age participation index and on average student debt.
You just said that any number of factors could contribute.
Other factors could contribute.
Why did you not say that in the policy memorandum? You said in the policy memorandum:
We would be quite happy to take another look at the policy memorandum if the committee thinks that that is appropriate.
Do you think that the policy memorandum is still valid?
Yes, it is still valid. There is evidence that the age participation index has fallen and there is evidence of average student debt.
In the year that you took as a baseline there was an increase in the age participation index, but you do not know why that was the case. In 2005-06 there was another increase, but in the intervening years there was a decrease. You do not know why there was a decrease, but in the policy memorandum you cited the decrease as evidence of the impact of the graduate endowment.
As I said, we would be quite happy to take another look at it if you think that that would be appropriate.
Before you make that commitment, may I counsel you on what you can and cannot do? It is my understanding that you cannot amend the policy memorandum. If you were to give that commitment—and such a commitment should be made by the minister—my understanding is that we would have to start this process at the very beginning again, and the Government would need to consult on a new bill proposal. You cannot change the policy memorandum now, just because a committee of the Parliament has, in its early evidence taking, highlighted discrepancies—some of which should have been thought through before you came to the Parliament in the first place.
Yes.
The reason why there is nil impact is that when the graduate endowment was first brought in at the spending review in 2004, the budget was set at zero. The Government allowed for the cost of all loans, apart from graduate endowment loans, and when the income from the graduate endowment was introduced, expenditure on student loans was also increased above the amount required to match the graduate endowment income, because at that time it was unclear how much income the graduate endowment would raise each year. It was prudent to have the budget set at zero—that is, income matching expenditure—so that any income that was gained would give flexibility in that spending review period, as opposed to being applied and then not being gained, which would have put pressure on the other higher and further education budgets and student support measures, which would have to make up for the deficiency.
Is there any further flexibility within that—for example, if the provisions of the bill were amended to extend its scope to cover previous students who are still liable for the endowment? Would withdrawing their liability fit within the flexibility that exists within the budgeting process?
No, that would not fit. As I said earlier, the income is taken in the year in which it is earned, so repayment of that income would incur a direct cost to the Scottish Government of the full amount.
That is helpful—thank you.
My question is supplementary to Jeremy Purvis's previous line of questioning. I am interested in some of the evidence that you took during the consultation, particularly from the student bodies, whose members are directly affected by the graduate endowment. Can you say a bit more about the benefits of abolishing the graduate endowment that were included in the consultation responses, and how the respondents considered that the measure will positively impact on students' lives?
Their general line was that the measure will reduce overall student debt and will potentially open up access to more students. They did not really go any further than that; they were just—understandably—happy that debt would be reduced.
So they see the measure as a key element of relieving the debt burden.
They see it as a contributing factor to relieving the debt burden.
I want to establish some ballpark figures. It appears that the graduate endowment costs at least £2,000. If it is paid off by a loan, that will be at the going rate of interest. That makes the graduate endowment about a fifth of total student debt, which is around £11,000. Is that correct?
Yes, I think so.
In your review, was there any inference that poorer, part-time and older students were being particularly badly hit by having to make the repayments?
I am sorry—do you mean during the consultation?
Yes.
There are certain exemptions from the graduate endowment fee: certain groups do not pay it anyway. Some comments were made about part-time students. In any case, we are conducting a review of funding for part-time students.
There is always a threshold for such things. During the summer, the Universities and Colleges Admissions Service produced an important report for the whole of Britain that shows the drop-out rates in science, languages, maths and so on. That is particularly relevant for the categories that I have been discussing. I posit that, in Scotland, those rates must be taken into account in any assessment of overall student debt. Is that correct?
I am sorry—what is the question?
When we are talking about attracting students, widening access to university and so on, the possibility of falling within the mischief—as they say—of graduate endowment law is a deterrent, as it is an important part of student debt overall.
Yes.
I want to clarify the issue of part-time students. Is it true that part-time students do not pay the graduate endowment?
That is correct, yes.
Is it true that you have received evidence that, by abolishing the graduate endowment, you are in fact widening the gap between part-time students and full-time students?
Some comments about part-time students were made during the consultation. However, we are undertaking a review of support for part-time students.
The bill does not help part-time students in any way, does it?
Part-time students do not pay the graduate endowment anyway. The bill means that nobody will pay the graduate endowment fee, so everyone will be in the same position.
Therefore, the bill will be no help for part-time students, as they do not pay it in the first place. Is that correct?
Yes.
Following on from Mr Gibson's questions, it is right to say that only half of students were liable for the endowment and that students from poorer backgrounds were exempt.
That is correct.
That concludes our evidence taking from you this morning. I thank you for your attendance, but I point out that this is the beginning of a process of engagement involving the committee, the Scottish Government and officials. I hope that, when you come before the committee on future occasions, you are better prepared and have a full understanding of the policy memorandum. I do not think that it is helpful if bill team members do not have a very clear understanding of what has been written in the policy memorandum.
Meeting suspended.
On resuming—
I welcome our second panel of witnesses: Graham Philp is finance and fraud team leader and Audrey Clark is customer services section leader at the Student Awards Agency for Scotland; and Ralph Seymour-Jackson is chief executive of the Student Loans Company. Thank you for joining us this morning. Unless you want to make a brief opening statement, we will go straight to questions, which I will start.
I am sorry, but I do not think that we can comment on that.
I agree. Our role is to administer student loans according to policies that have been set by the Scottish Parliament. We can comment only on that.
Do you have any anecdotal evidence that students raise the additional burden of the graduate endowment as an issue when they contact the Student Loans Company when they are encountering repayment difficulties or when they want to postpone repayment because they are unable to find employment? Are you not in a position to tell us that either?
I can certainly say that, if students were asked whether they would prefer to receive everything as a Government grant rather than as a loan, they would say yes. However, the division between how much should be paid directly in grant and how much should be paid by student contributions through loans is a legitimate decision for Parliament rather than for us.
Is it a fair assessment to say that you anticipate that your job will become easier if the bill successfully proceeds through Parliament, because some of the administrative pressures that you have undoubtedly faced in the past will be removed?
We have customer services staff who deal with the graduate endowment. They will just be redeployed within the agency, so our job will not become easier, as such; there will be no major change in that respect.
How will that redeployment take place? Are you confident that those staff will be redeployed successfully in other areas?
Yes, we have on-going vacancies.
From the Student Loans Company's point of view, we are talking about a small reduction in workload. We will still need to administer all the other student loans for Scottish students. Although there will be a small reduction in the burden on us and in the accompanying costs, I foresee no staffing issues in accommodating it.
How would you describe the job of recovering the graduate endowment fee? Has it been difficult to get people to decide whether to pay in cash or through loans, for example? Has it been a greater burden than the work that you do in administering student loans in general?
From a customer service angle, the processing of the loan is basically the same. We get a lot of complaints—we have to deal with people who are not happy that they have to pay the graduate endowment. However, the fact that people are now more understanding of its existence and their liability to pay it makes the administration side of things slightly easier.
Has the involvement of HM Revenue and Customs made it easier to track people down in recent years?
That is a question for me to deal with. Using HM Revenue and Customs as the prime collection method certainly makes things easier. It means that we do not have to ask graduates to set up direct debits and so on, because deductions are made directly from their pay when they are in normal salaried jobs. The fact that repayments change in real time—if someone's salary drops in one month, their repayment also drops—definitely removes some of the issues that arose under the old loans scheme, whereby the use of flat monthly repayments meant that if someone's income suddenly dropped, they could genuinely find it difficult to make a repayment. The use of HM Revenue and Customs has provided a better way of administering collections and has removed the problem of people's incomes fluctuating and their loan repayments not fluctuating, which arose under the old scheme.
The Scottish Parliament information centre briefing mentions a gross graduate endowment fee income of £23.4 million in April 2007. Is the debt recovery figure of about £1.95 million roughly what you would expect or is it lower or higher than you would have hoped?
To explain that, I will have to delve into the bowels of how the income collection repayment mechanism works. It must be understood that a graduate has a flat liability to repay, which is not linked to a particular product. In effect, they must make a repayment of 9 per cent of their income that is in excess of £15,000, which goes towards repaying all their debts. Alongside a graduate endowment loan, a graduate might have a maintenance loan to repay. If you look at a repayment for a particular product, you get only a partial view of the situation. As far as I am concerned, the figures are what we would expect, but working out what we would expect is quite a complicated process.
Have the debt recovery figures risen over the years? What is the trend? As regards the proportion of the total amount that students owe that you recover, are the figures going up or down? Is there a perceivable trend?
There are two aspects to that. Debt recovery, which has already been discussed, is handled by SAAS.
The number of cases that go to our debt recovery team to be handled by our solicitors remains fairly static year on year: we have not seen it increase or decrease. This year, we have tried to ascertain liability with the institutions before we pass cases to our debt recovery team, which is why we are slightly behind our normal timeframe for passing cases to the team. The 949 cases that were mentioned earlier have not been passed to the team because we are still speaking to the institutions to ascertain whether those students have graduated and are therefore liable.
When the graduate endowment was introduced, did it have a marked impact? Did your debt recovery problems increase?
The number of cases going to the debt recovery team obviously increased, but we have the capability to handle them.
I am just trying to work out whether the endowment is part of a trend of growing debt or whether there is a particular problem with it. You said that the number of cases going to the debt recovery team has been static. Did the graduate endowment cause an increase in such cases, or did it just top up the numbers by one or two?
Our debt recovery department deals with people who have withdrawn from their course but have been paid maintenance, which we have to recover. There has been an increase in the department's workload because of the graduate endowment, but the level of graduate endowment cases that have been passed on year on year has remained about the same.
Right.
Can you tell us the exact costs involved for both organisations? We were given the figures of £225,000 for one-off operational costs for SAAS and £63,000 for the Student Loans Company for the process of abolishing the graduate endowment. How will any savings that you make be redeployed?
The £225,000 is purely a write-off for our information technology system that was developed for the graduate endowment. Any savings are going to be used for other projects, such as providing greater information to our institutions and school leavers about the student support that is available.
I want to ask about the students who are not going to have their liability cancelled but who have deferred their endowment charges on to their loans. How many students are involved? The Government did not ask you that question, so I thought that I would.
Over the past three years—2005, 2006 and 2007—about 13,000 students out of 23,000 have elected to meet their graduate endowment liability via a loan.
That is more than half.
Yes. I am wary of doing mental arithmetic, but I think that you are right.
What would be the implications for your organisations if those students' liabilities were removed as well?
That would be a much more complex project for us. In broad terms, turning off the process that creates new graduate endowment loans would be relatively simple for us, so the implementation costs would be quite low. However, writing off all liabilities would be more complex. In particular, there would need to be a clear definition of what we would write off. If somebody evaded their liabilities by going to work overseas and did not repay their debt, would we write off what they should have repaid to put them on the same footing as someone who had repaid their debt? The definition of what should be written off would be complex: we would have to apply complex tests to work out what to write off. It would be a doable project administratively, but it would be much more complex and time consuming than the current one.
The same applies to SAAS: it would be a huge administrative task, on which we would need to work with the SLC.
What would it involve? Would it simply require an extension of the process that you are going to have to carry out or would it be different?
We will have to ensure that we do not create new graduate endowment loans. It is relatively simple to close the door on the process and not let any more people through. However, writing off would mean looking back at the history, which would involve much more work.
Forgive me, but the SLC submission said that you will need to put in place project management, system testing, and training and support. It also said that you will have to change your IT system and work differently with SAAS; update communication materials that you issue to higher education institutions and stakeholders; and contact students who have already requested the graduate endowment. Would writing off liability be an extension of those processes?
Yes, but I am telegraphing to you that it would not add 50 per cent to the cost; it would cost much more and involve much more work. The areas of activity that you highlighted would remain the same, but each would require many more man days of work.
I have a further brief question. You may have heard earlier questioning about students facing debt recovery. There was slight confusion about the number of students involved. A figure of £1.95 million was quoted for the total debt recovery. Do you have information about those students and about whether that figure is accurate? You will have heard what the Government said.
SAAS operates that process.
We agree with the Government on that point. We are not 100 per cent sure whether the students are fully liable. We have had no contact with them whatsoever; they have not responded to any of our letters. They may not be liable to pay the endowment debt.
Are they not liable because you will write off the debt or because they should not be liable?
They should not be liable.
Right. So you cannot contact them, but they should not be liable anyway, and you have made errors to the tune of about £2 million.
No. They may meet one of our exemption criteria, but they have not told us whether that is the case. Until they do so, we do not know.
But is it prudent to take out the figure for the anticipated income, or is it prudent to retain that figure because the students may be liable?
But they may not be.
So what is the most prudent thing to do? You can anticipate what the potential income would be, but if it is not going to come to the Government you can cancel it. You either include the liability of those students or you do not. What kind of category do you put them in? Do you estimate the liability as income that you are not likely to receive, or do you still have it on your books as potential money because current information tells you that that liability money may come in?
Prudence requires that we do not include those students until their liability is realised, so we will exclude them.
Correct me if I am wrong, Mr Philp, but in response to questions from, I think, Ken Macintosh you talked about an increase in debt recovery. The questions were on the graduate endowment, but I think that you spoke about students who had withdrawn from their courses. I think that I am right in saying that such students would not be liable to pay the graduate endowment, so that would not affect their debt situation.
No. I was talking about our debt recovery team's normal daily work. Their main workload deals with people who have been overpaid because they have withdrawn from their courses. That is nothing to do with the graduate endowment, which is an extra part of the workload.
That is helpful clarification.
The cabinet secretary asked me to prepare a paper on that, which I am in the middle of doing. The figures changed slightly because some students responded and some who were in debt recovery opted to pay in full or take out a student loan. The numbers change on a daily basis as students contact us, so we expect some movement in them over three months.
As we are deliberating this matter, it would be helpful if you furnished us, through the convener, with that paper.
I hope that Mr Philp can supply the committee with his paper once he has supplied it to the cabinet secretary, who should have first sight of it.
Meeting suspended.
On resuming—