New report warns England’s higher education system is “worst of both worlds”

David Kingman explains a damming new report from the Higher Education Commission into the financial sustainability of England’s recently-reformed university sectorgraduation cap  on a pile of money ( student debt )

The higher education system which has come into being in England since the Coalition Government’s 2012 reforms – which allowed universities to charge fees of £9,000 for undergraduate courses for the first time, subsidised by more generous loans to students that they are expected to pay back over the course of their careers – has been branded a failure by a damning new report from the Higher Education Commission, an independent body made up of figures from higher education, politics and business.

The report highlighted a number of specific problems with the new system, although the authors cautioned that there are no easy answers to the dilemma of how we should fund a world-class higher education sector in a way which would be fair to both taxpayers and students.

“Worst of both worlds”

The report – entitled Too Good to Fail: The Financial Sustainability of Higher Education in England – was based on the testimony of 60 expert witnesses whom the commission interviewed during their investigation.

The Commission’s biggest criticism is that the new system represents the “worst of both worlds” between direct government subsidy and charging students higher fees. The authors warned that “we have created a system where everybody feels like they are getting a bad deal.”

Taxpayers are getting a bad deal because the government has effectively changed from directly funding universities with grants to funding them by issuing student debt. It is now widely believed that so much of this debt will end being written off because too few graduates will earn enough to repay it all that the new system may well turn out to be more expensive than the one it replaced.

Most students will actually end up getting quite a good deal out of the new system (as long as today’s repayment rules remain in place), but many don’t realise this because the repayment system won’t impact them after they finish studying. All that many are aware of while they are actually studying is the perception that they are paying a lot more money in return for a student experience which often seems lacking in terms of contact time with their teachers.

The report emphasises that many universities find themselves in an awkward position, having to justify charging higher upfront fees to students at the same time that they are grappling with budget cuts because of the reductions in direct teaching grants. The Higher Education Commission emphasises that this has been compounded by the decision to hold the fee limit at £9,000 in nominal terms, which means it has already fallen to round £8,200 once inflation is taken into account.

No easy answers

The Commission particularly drew attention to the fact that most middle-earners are not expected to fully repay their fees, saying that it “fundamentally questions any system that charges higher education at a rate where the average graduate will not be able to pay it back”.

It suggests a range of possible alternative funding measures, but point out that all of them would have fairly significant drawbacks.

Tuition fees could be lowered to £6,000 per year (the Labour Party is allegedly considering this option), but while this would lower student debt it would leave universities with a funding gap estimated at £1.7 billion.

Alternatively, the government could replace the fees system entirely with a graduate tax, but this would create a lag period between the implementation of the system and when the first cohort of graduates enters the labour market; in the meanwhile, the government could have to borrow an extra £4 billion to keep the universities funded. There are also some strong arguments against hypothecated taxes in general, such as that the amount which could realistically be raised from graduates and the sums needed to fund universities might not match.

A third option would be to remove the cap on fees altogether and enable universities to charge what they want, which already happens for overseas students and postgraduate courses. However, students would still have to borrow the money to pay higher fees, creating an even bigger debt burden for the government.

Finally, the Commission suggests that it may be possible to devise a system which directly linked the costs of a specific degree course, or the subsequent earnings of graduates, with the funding which flows to a particular institution, but this could have all kinds of undesirable distributional effects.

Clearly, there are no easy answers. But as the chair of the Commission warns in the report: “Striking the balance of contribution between students, universities and government is fraught with difficulty…What is clear is that the current balance is far from assured.”