University funding system in England is not sustainable – Report

The funding system for higher education in England is not sustainable and a better funding model must be developed, according to a critical report by the Higher Education Commission.

The Coalition government’s decision to allow fees to triple in 2012-13, and the system of student loans and grants developed alongside the hike, was supposed to lead to a more marketised system of higher education, raising standards while pushing prices down, resulting in better qualified graduates for less money.

“This has not happened,” the report concludes. “Introducing market forces to a sector that does not operate as a market puts the financial sustainability of the sector at risk; the commission recommends retreating from this notion.”

The reports says that with little in the way of career advice or access to information, students do not feel or act like consumers and brand plays too big a role in the decision of which university to go to. Demand continues to outstrip supply and there is less choice for students than is perceived.

The “experiment” underway in higher education could have “consequences stretching decades into the future”, the report warns.

Other areas of concern include the mismatch of a rapid expansion of undergraduates and a decline in postgraduate and part-time students.

The rapid undergraduate expansion, the potential decline in quality for students and the lack of control on public funding of student loans puts the financial stability of the sector at risk, the report says. It also warns that the student loan book should not be sold to fund expansion in numbers.

The report found that research funding has been eroded as a result of inflation, and is becoming more concentrated.

“Postgraduate, part-time and mature education need immediate attention to ensure that the UK population is highly skilled and that its economy remains globally competitive,” the report says.

The recruitment of international students should be aided by removing students from the net migration cap, and short-term work visas for graduates should be restored, the report recommends.

“Universities need to plan for the potential volatility of the international student income stream and for the prospect that hitherto stable international markets may decline or change, possibly at short notice,” it says.

The report

The 86-page report, Too Good to Fail: The financial sustainability of higher education in England, was launched on 18 November, following a nine-month inquiry chaired by Dr Ruth Thompson, former director general for higher education in the Department for Innovation, Universities and Skills – now part of the Department for Business, Innovation and Skills – and Lord Norton of Louth, professor of government in the department of politics and international studies at the University of Hull.

Drawing on interviews with more than 60 experts on higher education and finance and focus groups comprising students currently at three universities, the report looks into what the higher education system should sustain, what are the biggest threats to higher education, and how providers and the government can mitigate them.

The report makes 16 recommendations and examines six alternative models of funding but does not take a position on which one should be followed.

It says it has become clear that different funding structures will benefit different parts of the sector – students, universities or government – and it is very difficult to choose a system where all benefit. Who should benefit and who should bear more burden must be a political decision, the report says.

It concludes that the current funding system represents “the worst of both worlds”.

The government is funding higher education by writing off student debt, instead of directly investing in teaching grants. This has created a system where the government is investing, but not getting any credit for it, damaging the perception of the public value associated with higher education.

“Students feel like they are paying substantially more for their higher education, but are set to have a large proportion of their debt written off by government.

Universities are perceived to be ‘rolling in money’ in the eyes of students, as their income from tuition fees has tripled, yet the cuts to the teaching grants are not well understood by students and a fixed fee cap means an annual erosion of real terms income.

“We have created a system where everybody feels like they are getting a bad deal. This is not sustainable,” the report says.

Not sustainable

The 2012 reforms that followed the 2011 White Paper dramatically increased the contribution from students to their tuition.

According to the Institute for Fiscal Studies, students will graduate with an average of £44,035 (US$68,766) of debt, compared to £24,754 (US$38,657) of debt if the reforms had not been introduced.

The institute estimates that 73% of graduates will not repay their debt in full, compared to just 25% under the old system.

The Higher Education Commission is particularly concerned that middle earners such as health professionals, teachers or public sector workers – who need a degree to enter their profession – will not be likely to pay back their loan within the repayment period.

The commission fundamentally questions any system that charges higher education at a rate where the average graduate will not be able to pay it back.

“We believe that higher education in England makes an enormous contribution to the prosperity and well-being of the country. While the questions it faces over funding are intractable, it is essential that policy-makers and politicians confront them,” say Lord Norton and Thompson.