For 2021 and 2022 the previously abolished discount for paying student contributions upfront was restored. It was abolished again from 1 January 2023.

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An article in The Conversation on incentives around student contribution payments made me wonder what difference the 2017 abolition of the 10 per cent discount for paying upfront was having.

The discount had a cost to taxpayers, since universities were compensated by the Department for upfront payment discounts. If students pay upfront, the risk of the remaining debt not being repaid is removed, as is the interest subsidy for the time that repaid debt is outstanding. The discount is only worthwhile from a taxpayer perspective if it induces upfront payments on a sufficient scale to reduce doubtful debt and interest subsidies by more than the cost of the compensation to universities.

At the time, I supported the decision to abolish the discount, because I doubted that it was generating a net financial benefit for taxpayers.

One reason for this is that various sources of evidence over the years suggested that upfront payments were coming from sources unlikely to be very sensitive to discounts. These include parents wanting their kids to be free of debt, employers, and scholarships. In the 2012 student finances survey, for example, 9 per cent of undergraduates reported receiving money to pay tuition fees. Read More »