Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Ministers must overhaul the “badly broken” system of tuition fee loans in England, the new chancellor of the University of Cambridge has said, as he called for a greater focus on vocational education over degrees.
Lord Chris Smith, a former Labour cabinet minister, told the FT that the government needed to “work an awful lot better” for the 5.4mn borrowers on contentious plan 2 loans, who went to university between 2012 and 2022.
“[The system] is badly broken at the moment,” Smith said. “We’re in an absurd position where quite often a graduate in an average-paying job is paying a huge whack of their income in repaying their loan each month and not making any real dent . . . This can’t be right.”
Of plan 2 loans, he added: “The rate of interest is too high, the threshold beyond which [graduates] start repaying is too low, and the chancellor didn’t help by freezing it for [the] next three years [in the 2025 Budget].”
The comments by Smith — who will be installed as Cambridge’s ceremonial head on Monday — come as calls mount for the government to reform the student loans system and reduce the amount borrowers pay.
Last week the influential House of Commons Treasury Committee opened an inquiry into the fairness of the student loans system, and in February Oxford’s chancellor Lord William Hague called for a “national conversation” about graduate debt and the bleak jobs market.
Plan 2 graduates, many of whom have been repaying for years, owe on average £43,033, only marginally less than the £47,550 owed by students on the plan who are not yet required to repay.
While previous and subsequent borrowers are charged interest based on retail price inflation, plan 2 borrowers are charged on a sliding scale rising to RPI plus 3 percentage points for those earning more than £51,245.
Smith, 74, who served as culture secretary in Sir Tony Blair’s government, said the administration’s target of 50 per cent of school leavers attending university could have encouraged too many young people to pursue higher education at the expense of more vocationally focused training.
Prime Minister Sir Keir Starmer, who has pledged to look at ways to make the student finance system “fairer”, replaced the university attendance target last year with a goal of at least two-thirds of people enrolling in a university or technical degree or an apprenticeship by the age of 25.
Fifty per cent was “a fairly arbitrary figure plucked out of the air”, Smith said. “There will be many people who ended up aspiring to go to university for whom . . . an academic education was perhaps not the very best way of taking their education forward.”
“The answer may well be to ensure vocational education becomes much more respected and has a higher status than at the moment,” he added.
Smith also criticised the Home Office’s restrictions on international students bringing dependants with them to the UK.
He said the curbs, which the government has said it introduced to address abuse in the system, were “a huge disincentive to them coming”, adding: “I don’t think they [the Home Office] recognise what [benefits] can come for UK plc from [overseas students’] engagement.”
As part of a new effort to be launched this year, Smith pledged to seek “significantly more” than the £2bn raised in the last fundraising campaign to shore up Cambridge’s finances and help “provide the full university experience”.
The former master of Pembroke College called for an escalation in corporate spin-offs from university-generated ideas, including through the completion of a new innovation hub and related funding.
“We need to keep on reminding the UK government that universities, especially ones like Cambridge and Oxford, are centres of genuine excellence and can be catalysts for innovation, growth and discovery of new processes and products,” he said.
Asked about his hopes for his decade-long term as the 109th chancellor, Smith said he wanted to “make sure the university is as committed to freedom of speech and academic freedom as it is now” and ensure that disciplines in the arts and humanities continued to flourish alongside science subjects.
While the Trump administration’s policies on universities were “rather alarming”, Smith said the extent of academics leaving the US for Cambridge was limited given the discrepancy in salaries.
But the university was benefiting from students elsewhere in the world opting for the UK rather than the US, he added.
“If Cambridge is the beneficiary in getting some really bright students coming from elsewhere, so much the better.”