Regulus Arcturus Black (1961 – 1979), also known as R.A.B., was a pure-blood wizard, born to Orion and Walburga Black, and attended Hogwarts School of Witchcraft and Wizardry in 1972 apparently. Now I haven’t got the first idea what any of that means – which at least puts me in the same place as most people in England when asked how higher education funding works.

Quite what voters will make of a RAB charge of 45%, how it affects £9,000 tuition fees and whether anyone actually pays any of it back is anyone’s guess. Some might say it will involve the same finger in the wind approach as official estimates of the RAB charge itself. David Willetts’ reply to Liam Byrne’s parliamentary question, states that, for now at least, the RAB charge is being set at 45% – the total amount of HE loans that won’t be repaid.

This has unleashed a political and media frenzy largely because the rate is continually going up and because it is very close to the point where the new system ‘costs’ much the same as the last one where fees were just above £3k.

So what exactly was the point of the reforms if not to save money and to create a sustainable funding system? Supporters of the system including David Willetts and Danny Alexander have pointed out that the RAB charge will ‘move around a lot’ but that the new system is delivering more money into universities and attracting more students, including the most disadvantaged.

What’s more, they say it is more progressive, more dynamic and with more competition and choice – and that all of these are good. So good in fact that they are expanding it. Opponents, after a chorus of we told you this would happen, say it’s a ‘ticking time bomb’ and unsustainable even in the short term. Overall, they point out that there are less students – once you factor in the spillover effects into part time and postgraduate – and less money for universities, once you factor in capital and the real terms fall in funding income. What’s more, cuts are still being made – see the fallout from the BIS grant letter – and more departmental savings on the way. We don’t yet know how much. There is certainly more competition and choice. More money from higher fees is now spent on marketing and giveaways and there is more uncertainty from year to year.

But the big criticism of the system is this: there are fewer students in HE and they are costing more – representing reduced value for the taxpayer. And there is potentially less human capital in the economy and perhaps less of the right kind.

Is the model flawed? There are progressive elements – the students who earn less and don’t repay effectively receive a long term subsidy and so do the universities that teach them. The other progressive element is that they pay less every month (even though they potentially pay for longer). This is explicitly designed as part of the system – as Emran Mian points out: this is intentional.

The controversy centres on how big this subsidy is and why people and universities get it. But those who ultimately repay in full may not be quite as sympathetic to those that do not. Think about the benefits system and its decreasing popularity amongst the working public. It is no longer about the deserving poor or supporting those occasionally falling on tough times. It is about scrounging, deliberately choosing not to work and a system with all the wrong incentives. Politicians are queuing up to be tougher and for the Conservatives, this is now framed by a benefits cap – only so much can be claimed and only so much will be spent by government.

Up to now this has been ‘annually managed expenditure’ – going up and down according to economic circumstances. Will the write off of student loans be seen in the same way? Recently changed accounting rules have just seen the shift of some of the costs into the same AME column as benefits spending although for now the cap on costs and places has been removed.

But what do these arguments and the increasing RAB charge say about the model of higher education itself? There is increasing focus on the 18 year old choosing to study full time for three years away from home and the funding model that supports it. It is by far the most expensive model for individuals and for the government – whether through loans or grants – and yet more is/are being pushed into this route at the expense of others. More so in fact, than in any other OECD country.

Is the HE model as broken as the funding system? Is the fact that 45% of graduates are unlikely to be able to pay back their loans suggesting an oversupply of graduates and/or degrees that don’t meet labour market needs? Take Hugh Muir’s article in response to the RAB issue in the Guardian:

‘There is simple economics here; too many graduates chasing too few jobs in a labour market slimmed down by government austerity measures. Many who have taken out the loans can’t find jobs, so they don’t pay; but those who do find employment are paid so little in an over-supplied market that they don’t reach the threshold at which they have to pay.’

He isn’t the only one who thinks this way. It is a view that dominates the coverage of the rising RAB charge. There is certainly something simple about the economics. The RAB charge does not mean that 45% of students will never get a graduate job.

Because of the long term nature of the repayments the RAB calculation is likely to be made up of two groups. Those that never repay anything (likely to be very small) and those that repay some, but not all, of their loans (likely to be much bigger). This latter group includes people who might work part time, have breaks to raise families, or earn lower levels and eventually have to have their remaining ‘debt’ written off. These would include lower paid graduate jobs in the public sector such as teaching and nursing for example. But it might also include graduate jobs in the creative industries and the self-employed or those starting businesses.

But Muir is right when he says that ‘by 2042, £90bn of the overall £200bn in student loans will remain unpaid. That’s a lot of schools, hospitals, rail lines, houses. Ministers like cold economics. They might today ponder the theory of opportunity costs.’ In other words, the whole HE funding settlement is at risk when government(s) could be subsiding many other things in either the short or longer term.

Some may well be more politically attractive. That’s a difficult proposition for HE and it requires more than just gloating about government getting its sums wrong. So although the problem is not necessarily one of oversupply, questions will remain that some of what is delivered may not be good value for money.

The system is increasingly ‘linear’ – with much focused on getting higher education at a young age. According to John Denham, this is an expensive ‘one shot deal’. As part time and other routes decline and with the longer term hollowing out of applied research, the positive spillovers from these labour market and business interactions is diminishing. Or to put it another way, many institutions are becoming less focused on the economy.

But for those that wish to change the system, big fiscal constraints remain. Shifting to loans took university spending off the deficit and into a different accounting column – loans became assets as opposed to grants treated as expenditure. That’s where the RAB charge comes in – some of these loans aren’t assets in the long term because the loans won’t be repaid.

And in 2010 – as well as today and for the next few years – it’s very hard to ‘afford’ to change that.

What will happen next? Many will continue to make hay from the RAB cost increases. This is potentially dangerous. The situation asks at least as many questions about higher education as the funding model that supports it. And the RAB charge will change over time – it will come down as the economy recovers and strengthens and labour market conditions improve.

The political challenge is what to do about all of this. As Nick Hillman said on the Today Programme on 22 March this will involve ‘tweaks’. Loan thresholds may be adjusted, other cuts in spending will need to be found, the level of long term subsidy may change. There will be big fights – interest rates, university cuts, changes to the 2010 deal – all may make the system weaker or less progressive.

They will not seem like it, but these are still tweaks. Ultimately, big changes are difficult because of the accounting model. It is more than a little odd that it is these accounting rules that firstly drive spending off the balance sheet in the form of loans and then rebuild some of it back in the form of the RAB charge. That does seem a bizarre way to construct a financial model, long term or otherwise. It has the whiff of financial sector wizardry – and not in a good way. Paul Kirby, formerly of No 10, has likened it to banking prior to the crash. Build in the ‘synthetic hedge’ and selling off the loan book to pay for further expansion in the future and it looks increasingly like a dark art.

In the eyes of the public it may just prove to be too clever by half. But perhaps we are happy with complex, suspicious solutions and their lack of long term economic or political sustainability because we prefer that to thinking about how we deliver higher education? Maybe that’s what we really need to change?