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Funding higher education always involves a balance between state and private funding. That balance will reflect the numbers studying at university, a judgment of the public and private benefits of higher education, and an assessment of its value relative to other demands on the national exchequer.
It is a Rubik’s Cube of a puzzle and new research from the Institute for Fiscal Studies reveals the present government’s attempt to solve it. Its solution is in effect the privatisation of undergraduate teaching in England.
The respected think-tank calculates that students who started university in 2022 will pay back £800mn more in real terms than they borrowed for fees and maintenance. Even after taking into account direct government grants to universities, only 3 per cent of the total cost of financing their higher education will be met by the taxpayer.
Students who started university in 2023 are on a different loan plan, but the IFS still expects they will pay 83 per cent of the total cost of their higher education.
This is a significant change from the situation seven years ago, when the cost of higher education was expected to be shared 50/50 between the direct beneficiaries — graduates — and the indirect beneficiary — the state.
The origin of this form of shared funding was 1998’s introduction of tuition fees. Student loans paid for by earnings-related interest and principal repayments replaced means-tested public grants.
Changes to the fee and maintenance loans by various governments increased student debt and the present government and its predecessors tweaked the repayment and interest rate thresholds. The Johnson government extended the period before the unpaid portion of loans are written off from 30 to 40 years for new borrowers.
When I chaired a panel on post-18 education funding, our recommendation was to maintain the 50/50 public-private split, but there has never been a full public discussion about the appropriate mix. Perhaps there should be.
Meanwhile, the current extreme situation puts extra responsibilities on students, universities and the state.
Students first. The tough job market for graduates, the 40-year term and a daunting repayment curve need to be considered by young people deciding whether and where to start a degree and what subject to study.
This is not to dismiss the benefits of studying for a degree. For most graduates there is a positive lifetime earnings return, though this varies by subject, gender and place of study. Nor is it just a financial decision. Social and cultural advantages all come with the university experience.
For middle-class millennials and increasingly — but still too few — disadvantaged young people, the three-year degree was an automatic next step for school leavers. But the changing graduate job market, new options in modular part-degrees, vocational college courses and apprenticeships, together with the change in the weighting of the loan between forgivable subsidy and debt that will be repaid, are new considerations.
Second, providers. In a competitive environment, the student offer is an important recruiting tool. Student satisfaction surveys, the regulator’s assessments of teaching quality and social media feedback provide pressure to deliver the here and now student experience.
But the financial commitment taken on by students also imposes a longer term requirement on universities. There are still too many courses at specific institutions that deliver below peer group progression rates into graduate employment. Universities know or should know what these are and they should either fix them or stop them.
Third, the state which still has some financial involvement in funding teaching through about £1.5bn in grants to universities to cover high-cost subjects and help for disadvantaged students. It is, of course, also the students’ banker as the provider to each new cohort of students of £22bn upfront cash to fund the loans. It is also the underwriter of last resort for unpaid debt.
But having shifted the funding dial so far from state to student, it is vital that the state regulates the sector to ensure that students get a fair deal. Students, schools, colleges and parents need to know progression rates into graduate employment and graduates’ long-term earnings experience, subject by subject, university by university.
Most of this is already available on a little-used government website Discover Uni but the information is fragmented and difficult to put in context. It is separate from the Ucas website used by students applying to university and should be incorporated into it, accompanied by a major public awareness campaign.
Everyone involved needs to face up to the reality of the current funding model. Students and their advisers need to investigate the information that is out there when making potentially life-determining choices. Providers should give customers what they want, and the government should hold them to account if they don’t. This may not be the language we are used to when discussing our high-prestige university sector, but that’s what you get with privatisation.
The writer chaired an independent review of post-18 education and funding for the May government in 2018-19