Creating a genuinely sustainable HE system

Graduate Market Trends: The HECSU journal. Latest edition: Spring 2012. In the latest edition of GMT Alan Milburn, the Coalition government's Independent Reviewer of Social Mobility and Child Poverty, discusses how higher education can contribute to social mobility, while Dr Tessa Stone, Chair of the Bridge Group and CEO of the Brightside Trust, explores what universities can do to improve social mobility. Other contributors include: Matt Grist, senior researcher for Demos, who examines how changes to funding policy might lead to a more sustainable model of higher education; Holly Higgins, senior researcher for HECSU, who explores why some graduates attach more value to their higher education than others; and Daria Luchinskaya, PhD student at the University of Warwick, who describes how graduates utilise their skills in small businesses. View the the digital version of GMT Spring 2012.
Creating a genuinely sustainable HE system (pp.10-11)
Matt Grist, senior researcher for think tank Demos, which is an independent think tank and research institute, looks at why the funding system, set up by the government to support the increase in tuition fees in England, is financially and socially unsustainable. He suggests changes to the system which should allow for a fairer and more sustainable future for higher education.
Last year’s White Paper, Putting Students at the Heart of the System, (BIS, 2011) built on the Browne Review (2010), which sought to put higher education on a sustainable footing. What does this mean? It means that higher education should be socially and financially sustainable. What does that mean? It means that higher education should be capable of serving the needs of the many not merely the few; and that universities should have enough money to do what they do well, in the context of a funding system that does not lead to the storing up of an excess of bad debt.
There has been much debate about social sustainability since the Act of Parliament that allowed tuition fees to rise to £9,000 was passed in late 2010. Discussion has tended to focus on higher fees putting off poorer students. Yet in fact, although application rates have decreased, and more markedly so in England (where fees are highest), thus far this decrease has not added to social inequality, with applications from poorer schoolleavers holding up (UCAS, 2012).
I am not particularly surprised this has been the case. Whatever we may think of the government’s reforms, it has put in place a lot of support for poorer students – increased maintenance grants, the National Scholarship Programme, bursaries and fee waivers from individual universities. But perhaps most important of all, the message seems to have got through about the generosity of loan repayment terms: that if you go on to be a low earner you’ll come nowhere near paying back all you’ve borrowed; that repayment does not start until you earn £21,000; that the percentage of salary taken after this threshold is only 9% (meaning a graduate on £30,000 a year can expect to pay around £68 a month). This is all well and good you might think. If we are going to make students pay more (far more) towards their education then we better put in place some pretty substantial and progressive means of financial support. Evidence from the Organisation for Economic Co-operation and Development (OECD, 2012) suggests that countries with high tuition fees and good support packages have higher rates of overall participation than countries with no fees at all, but little in the way of support. So on the face of it, there is no reason to worry that the current arrangements are socially unsustainable.
So what’s the problem?
In focussing on making repayment terms on loans as generous as possible, the government has lost sight of other very important issues of social and financial sustainability.
The first and central of these is the possibility that somewhere between 30% and 40% of student loans will never be paid back. Previously, the write-off rate for loans was about 26% (Bekhradnia and Thompson, 2011). The Treasury is concerned by the new higher write-off rate and as a result has insisted on the continuation of the cap on overall student numbers first introduced in 2008. It has also overseen a further tightening of the cap over the last two years, with an estimated 25,000 university places taken out of the system (University Alliance, 2012).
Enforcing the cap on numbers has the potential to do much more harm to social mobility than increased fees. Why so? Well, most of those who would benefit from more places are from poorer backgrounds. The Higher Education Policy Institute estimates that by 2020 there could be as many as 100,000 applicants per year who are genuinely capable of entering higher education, but who are locked out of the system (Coleman and Bekhradnia, 2011). To put this number into perspective, it’s equivalent to one fifth of the 360,000 new entrants to higher education who went through UCAS in 2010.
So although the recent changes to tuition fees look socially sustainable they are in fact not. Debt might not be putting off poorer students from applying to universities, but many tens of thousands a year are unable to get a place when they do apply. In a time of prolonged economic stagnation, where there are far fewer jobs for young people, this denial of access seems particularly harmful.
So what can be done?
The government has two choices within the current spending restrictions. It can accept the status quo and publicly admit that it will never get back a large amount of its loans, defending the loss by saying it is the price of a fair and progressive funding system. Although doing this would store up future bad debt and leave England’s higher education system unable to keep up with increasing demand.
On the other hand, the government could tighten up repayment terms so that it gets more money back. This would mean lowering the threshold for repayment and increasing the ‘tax’ rate on income above that threshold, as well as raising interest rates for higher earners. The money saved from less bad debt could then be reinvested in increasing the number of total student places.
This last option is the one I argued for in my report (Grist, 2012). It is a very tough choice to make – between making students slightly worse-off when they start work, and locking out tens of thousands of young people from higher education each year. But on balance, I believe siding with increased access through funding more places is the right thing to do.
However, I would not stop there. I think higher
education has had its spending reduced too much in
relation to other areas. I would support Labour’s
promise to reintroduce £3,000 of spending per student.
But I wouldn’t just give this money to universities as a teaching grant, since it does not make sense to spend scarce resources on a rich student who can afford to pay his or her £9,000 fees upfront. I would rather put the money in a pot and give it away in fee waivers to students who apply for loans and grants. The waivers would be linked to income so that, for example, someone from a family with a combined income of £25,000 might get a £5,000 fee waiver and someone from a family bringing in £60,000 a year a £1,000 waiver. This change would mean the poorest students getting back to loans for fees of around £3,000 per year (even less if bursaries are included). Thus poorer students who are currently reassured by generous repayment terms, would instead be reassured by smaller debts.
The net result of these changes would be that the government would get far more of its money back: with less generous repayment terms loans would be paid off more quickly; and since the total value of many of the loans would be much lower, more would be likely to be repaid in full. Moreover, no longer concerned by bad debt, the Treasury could start loosening the cap on overall numbers. And given the massive reduction in bad debt, the cash-injection of £3,000 per student could well pay for itself in the longterm.
If the government wants to create a truly sustainable
higher education system, not just a progressive repayment system, I would urge it to consider these ideas. For it is within our gift to create an even more progressive funding system and expand total student numbers. Not quite proof that you can have your cake and eat it, but pretty good nonetheless.
References
Bekhradnia, B. and Thompson, J. (2011). Higher Education: Students at the Heart of the System. An Analysis of the Higher Education White Paper. Higher Education Policy Institute
BIS. (2011). Higher Education: Students at the Heart of the System. London: HMSO
Browne, J. (2010). Independent Review of Higher Education Funding and Student Finance: securing a sustainable future for higher education.
Coleman, R. and Bekhradnia, B. (2011). Higher Education: Supply and Demand to 2020. Higher Education Policy Institute
Grist, M. (2012). Future Universities: Towards a genuinely sustainable system. Demos.
OECD. (2012). Education Indicators in Focus – 2012/02 (February). OECD.
UCAS (2012). Analysis of UCAS January deadline application rates by country. UCAS.
University Alliance (2012). The Way We’ll Work.
You can find out more about Demos at www.demos.co.uk.