Tag: WEEKEND

  • Weekend Reading: Imperfect information in higher education

    Weekend Reading: Imperfect information in higher education

    • Joseph Morrison-Howe is an undergraduate Economics student at the University of Nottingham. He completed an internship with HEPI during the summer of 2024. In this weekend long read, he discusses the history of marketisation in higher education and considers whether applicants have enough information to make informed judgements about where and what they study.

    Executive summary

    Study at university can be hugely beneficial for students intellectually, socially and financially. However, degrees that lead to low earnings can make individuals who study in higher education financially worse off and can impose an external cost on the taxpayer. This HEPI Policy Note uses the economic framework of market failure to argue it is likely that too many students are studying degrees that result in low earnings. Applicants should be free to choose a course according to their preferences but, they need to be encouraged to use salary outcome data to help them make an informed decision about what degree to study.

    Key findings:
    • Existing data suggest that one in five graduates would have been financially better off not entering higher education at all. Some 40% of undergraduate students might have chosen a different route, although only 6% would not have entered higher education.
    • This report argues that reforms announced in 2022 to the repayment terms of student loans, from the old Plan 2 to the new Plan 5 system, will likely make university financially worthwhile for fewer students.
    • The graduate premium, the difference between the earnings of graduates and non-graduates, is also likely to decrease as the National Living Wage increases the wages of non-graduates.
    • This report proposes imperfect information as a possible cause of market failure. Prospective students should make best use of information about graduate earnings when choosing what, where or whether to study at university. The official website for information about higher education, Discover Uni, had less than 7,000 website visits in July of 2024. In the same month, nearly half a million visited the website of the Complete University Guide, an online university league table.
    Policy recommendations:
    • Discover Uni data about graduate earnings should be displayed on UCAS so that more students use this information when making decisions about university studies.
    • Satisfied average graduate earnings for each course should be displayed alongside the annual salary for National Living Wage work and the average graduate and non-graduate salaries. This should help students judge if studying individual courses would be financially worthwhile.
    • Careers advisors should support applicants to be fully informed about the benefits of higher education – including that not everyone is financially better off for attending university.

    Market analysis and higher education

    Prior to the 1830s, one would be hard-pressed to convincingly describe higher education in England as a competitive market – a place where many buyers choose to buy goods or services from many sellers, who compete to win the choice of these buyers. The Universities of Oxford and Cambridge maintained a duopoly (a market dominated by two sellers) for nearly 500 years.[i] Since the early nineteenth century, changes in government policy, alongside growth in the number of universities and students, have meant higher education in England has taken on more of the characteristics of a market.

    The barriers to becoming a university in England have decreased over time and choice for students has broadened. Prior to the Coalition Government of 2010, the following changes happened to the higher education sector which incidentally laid the foundation for marketisation:

    • Growth in the number of universities, which provided more choice for students;
    • growth in student numbers; and
    • the formation of UCAS (originally UCCA, the Universities Central Council on Admissions), providing a ‘single nationwide application process’, creating a sector that resembled a marketplace.[ii]

    It was the introduction and gradual increase of tuition fees paid by the student as opposed to funding via grants from the Government that really introduced market incentives to higher education in England.

    By the 1990s, with growing demand from students, the government’s ability and willingness to fund the higher education sector came into question; between 1976 and 1996, government funding per student fell by 40%, according to the Dearing Report.[iii] As a result, the greater burden for funding higher education fell on students. Tony Blair’s government introduced ‘top-up’ fees of £1,000 paid upfront by students in 1998 to supplement government funding. In 2004, the fees rose to £3,000, covered by an income-contingent loan.

    The Coalition Government’s rise in tuition fees to £9,000 caused the most significant change in the structure of the higher education sector in England. This is because, as David Willetts (then University Minister) wrote, the new higher fees largely

    replaced funding via a Government agency providing grants to universities with funding via the fees (funded by loans) which students brought with them.[iv]

    Consequently, to attract funding for teaching, universities had to compete to attract students, as the funding came directly from students. The Department for Business, Innovation and Skills (BIS) wanted ‘to ensure that the new student finance regime supports student choice, and that in turn student choice drives competition’.[v] The characteristics of choice and competition that BIS wanted to introduce are the key characteristics of a market.

    The new funding model increased competition between universities for students, first because they received funding for each student they taught and secondly, because these policy changes allowed for the removal of student number caps, which had thus far artificially limited the number of places institutions could provide. More places were made available and students were given more meaningful choice about where to study.

    The increasing number of universities and the introduction of UCCA were not policies intended to create a market, but there is evidence from the coalition government of purposeful marketisation. The 2011 white paper ‘Students at the Heart of the System’ from BIS showed their clear intention to introduce what they referred to as ‘a more market-based approach’ to higher education with the new funding system.[vi] The Coalition Government’s support for the new funding system was not just as a solution to the instability and underfunding of the grant-based system but because of the market incentives a fee-based funding model would introduce.

    Not all aspects of the current higher education sector in England operate like a typical market. Entry requirements mean that students’ ability to choose between universities is contingent on the grades they achieve (but the growth in the number of universities means that for a given set of grades, a student can choose between many universities). Also, students only bear the cost of their studies if they can afford to do so, as student loan repayments are only made above a particular level of earnings. In typical markets, consumers bear the cost upfront. Though important for making university studies accessible, we will see, the fact that payment is not made upfront makes the sector vulnerable to market failure.

    Despite these qualities, it is clear the sector has been marketised:

    • students now have more choice, and
    • universities now engage in more competition.

    There are lots of reasonable critiques of marketisation. Nevertheless, since marketisation has taken place, it can be useful to apply economic analysis to higher education. This report considers the higher education sector as a market and consequently uses economic analysis to assess if the higher education sector works efficiently for both students and wider society. The purpose of this economic analysis is to identify how to improve the higher education sector so it works best for students and wider society.

    Markets and market failure in higher education

    Marketisation policies introduce characteristics of a market in the hopes that the outcomes of a market will materialise. The prized outcome of markets is efficiency. An efficient market is one where the resources are allocated to give the best outcomes for society; choice allows the allocation of students to the university that best suits them, and competition incentivises the allocation of university funds where they will most improve the institution. If a market is efficient, the allocation of resources cannot be changed to make someone better off without making someone else worse off.

    The outcome of markets is not always efficient; markets are prone to fail.

    Market failure occurs when resources are not allocated efficiently, to give the best outcomes for the consumer and wider society.

    A market failure usually results in:

    • too much of a good being provided;
    • too little of a good being provided; or sometimes,
    • none of a certain good being provided at all.

    One example of market failure might be the market for antibiotics. If antibiotics are cheap to buy, people might purchase them even if they are not sure they need them. Over time, the overuse of antibiotics can lead to the development of antibiotic resistance, where antibiotics no longer work for the people who really need them. This is a case where market failure has led to a good being provided in excess and a more efficient outcome would see less of it provided.

    This report focuses on the higher education market failing and allocating too many students to degrees that result in low earnings. In this section, I discuss how students studying degrees that lead to low earnings can result in market failure, under certain conditions. In the next section, I will analyse a possible cause of this market failure.

    Market failure: degrees that lead to low earnings

    For the majority of graduates, studying at university gives them ­­— and the wider economy — good financial returns. However, the market fails and allocates too many students to courses that will lead to low graduate earnings (‘low-earning degrees’). This makes individual graduates financially worse off, compared to if they had not gone to university, and imposes an external cost on the taxpayer.11 In this case the choice of degree (or to study at all) has led to suboptimal outcomes for the individual (the student) and wider society and is therefore a case of market failure.

    There is evidence to suggest many students believe they would have been individually better off making a different choice of degree, institution or even entire pathway (such as doing an apprenticeship instead). In the 2024 HEPI / Advance HE Student Academic Experience Survey, four in ten students said they would have been better with a different choice (though only 6% would not have entered higher education).[vii] This suggests these students think there was a more efficient way of allocating (their own) resources even before they know what their lifetime earnings will be.

    Not all degrees that result in low earnings are necessarily cases of market failure. There is only a market failure present if there could have been a better allocation of resources, that is, students could have made a different choice that bettered themselves or wider society.

    It is likely many students do not just think about earnings when they consider the value of their degree. If the individual valued their Philosophy degree for other reasons – they enjoyed the content, valued the overall university experience, and so on – it may still have been worth it for them even if it did not increase their earnings. In this case, a degree like Philosophy may have been the best option for society if these benefits to the individual student outweigh the lower earnings (and another other costs to both the student and wider society). If so, the allocation would still be efficient and this would not be a case of market failure.

    Another situation where a low-earning degree may not be a case of market failure is when the degree has such large social (as opposed to individual) benefits that the choice of any other alternative would lead to a worse outcome for society. For example, if a student studies to be a social worker and this leads to low earnings, the benefits to society that stem from the social work degree will be large enough that any other choice on the student’s behalf would have made society worse off.

    The examples of Philosophy and Social Work degrees are not cases of market failure because of the benefits they offer to either the individual or the rest of society. These benefits are not easily quantifiable, so it is difficult to determine which low-earning degrees are examples of market failure and which are not. Below, I will argue that if students are given clear information about the earnings from different degrees, they will be more capable of making that judgement themselves.

    The effect of too many students studying low-earning degrees (before reforms to loan repayment terms)

    For individual students, there is a financial consequence of choosing to study a degree that will likely result in low earnings. A 2020 report by the Institute for Fiscal Studies (IFS) looked into the impact of undergraduate study on lifetime earnings. The report estimated that ‘one in five undergraduates would have been better off financially had they not gone to university.’[viii]

    The IFS compared the lifetime earnings of a cohort of graduates to a counterfactual group that did not attend university, accounting for the difference in income tax, National Insurance and student loan repayments the graduates will have paid over their working life compared to the non-graduates. They then calculated the net lifetime returns for graduates, defined as ‘the lifetime gain or loss in earnings as a result of attending higher education for the individual, after taking into account the effect of the tax and student loans system.’[ix] The IFS found that a fifth of graduates earn less over their lifetimes than if they had not entered higher education.

    Not all of the 20% of graduates that would have been better off had they not entered higher education will be cases of market failure. Some may be a Philosophy student that places a high personal value on the knowledge they gained, some may be social workers that provide great value for society, others may have studied a high earning degree and not utilised it. Furthermore, changing the discount rate the IFS use changes the proportion of students that finically benefited from higher education, as David Willetts points out. [x] Though, the IFS results are clear that not everyone entering higher education benefits from it financially.

    When students choose to study a low-earning degree, there is also an external cost to the taxpayer. This external cost (a cost to a third party not involved in the transaction) arises because the taxpayer must cover the proportion of a student loan which a graduate has not paid back by the time their loan is written off. Prior to the implementation of reforms in the repayment terms of student loans announced in 2022, only 27% of graduates were estimated to repay their student loan in full.[xi]

    The resource allocating and budgeting (RAB) charge is used to estimate the ‘cost to Government of borrowing to support the student finance system’. London Economics, an economics consultancy, estimated that the RAB charge for the 2022/23 cohort of students (who began their studies before the implementation of the 2022 reforms) was 10.2%. That is, the government was expected to cover 10.2% of the total value of the student loans taken out that year.[xii]

    These costs, imposed on the student and wider society, might be avoided if students chose different degrees. Future earnings can be altered by a student’s choice of course to study and choice of institution to study at:

    Even when comparing students with similar prior attainment and family background, different degrees appear to have a significantly different impact on early career earnings. Studying medicine or economics increases earnings five years after graduation by 25 per cent more than studying English or history. Attending a Russell Group university increases earnings by about 10 per cent more than the average degree.[xiii]

    If students who chose to study low-earning degrees had instead chosen to study higher-earning degrees, they would have been less likely to impose an external cost on the taxpayer. Though, as I will explain, reforms to the student loan system mean the external cost to the taxpayer is now very small. Importantly, those students would also be more likely to give themselves positive net lifetime returns to their studies. These outcomes could make society better off. The current allocation of too many students to degrees that result in low earnings is an inefficient one. In the sense defined above, the higher education market is failing.

    The impact of the reforms to the repayment terms of student loans (the move from Plan 2 to Plan 5)

    The reforms announced in 2022 to the ‘Plan 2’ repayment terms on student loans have shifted the financial burden of low-earning degrees from the taxpayer to the graduate.

    Under the new Plan 5 system, the income threshold at which graduates begin to make loan repayments was lowered from £27,295 to £25,000, the repayment period (after which loans are written off) was lengthened from 30 years to 40 years and the interest rate on student loans was reduced from RPI+3% down to just RPI (a measure of inflation).[xiv] These reforms have an uneven effect on graduates across the income distribution.[xv] The reduction in the repayment threshold will mean that lower-earning graduates will pay back more of their debt, and some will begin to pay it back for the first time. The lengthening of the repayment period will mean that low-earning graduates will pay back their loan for longer. The lowering of the interest rate will mean that high-earning graduates (who always would have paid back their loan in full) will now make smaller interest payments.

    Figure 1, source: IFS[xvi]

    London Economics estimates that the RAB charge under the new terms of repayment will fall to 4.1% from 10.2%. This means that the reforms have transferred the costs of low-earning degrees from the government, which will now have to write off less debt, to the graduate, who must pay back more of it. As low-earning graduates will now make larger student loan repayments, attending university will not be financially worthwhile for more of them.

    A fair assumption is that, since costs are only incurred in the future, prospective students will not be very responsive to these reforms by choosing low-earning degrees in lower numbers. Even after maximum fees were raised from around £3,000 to £9,000 in 2012, there was no significant long-term decrease in the number of applicants.[xvii] If this is the case, a greater proportion of students will now have negative net lifetime returns from their studies. Therefore, for this reform to have a positive outcome on low-earning graduates, these impacts would have to be available and clearly explained to prospective students.

    The graduate premium and positive financial returns

    The graduate premium is the increase in salary attributed to achieving a degree. To receive positive financial returns from studying, one’s graduate premium must be larger than their loan repayments and increased income tax and National Insurance payments. There is evidence to suggest that the graduate premium has fallen as the higher education sector has grown. Due to increases in the minimum wage, I believe the graduate premium is likely to fall further. This is likely to put a strain on the amount of students experiencing positive financial returns.

    As the number of graduates increased throughout the 20th and into the 21st century, it was thought that the graduate premium would decrease. This is, in part, because as the supply of graduates increased their scarcity reduced meaning the premium an employer would pay to hire a graduate over a non-graduate should have fallen. A 2021 study by the Higher Education Statistics Agency (HESA) and a team at the University of Warwick found early evidence of a 7-percentage point decline in the graduate premium.[xviii]

    Figure 2, source: House of Commons Library [xix]

    Recent increases in the National Living Wage are likely to further reduce the graduate premium by increasing the average wage of non-graduates. To make the UK a high-wage economy, the Government has been using National Minimum Wage legislation to increase the pay of the lowest paid. In 2020, the Conservative Government asked the Low Pay Commission to ensure the National Living Wage was two-thirds of median earnings by 2024, a target which has now been met.19 Assuming non-graduates are more likely than graduates to earn the National Living Wage. As National Living Wage has increased in relation to median pay, the average wage of non-graduates will have likely increased more than that of graduates. The graduate premium is likely to have further declined. As a result, for more students, it will not have been financially worthwhile to attend university.

    Conclusion

    In this section, I argue that there is a market failure and too many students are choosing to study degrees that result in low earnings. The reforms to the repayment terms of student loans and a possible decline in the graduate premium are likely to increase the proportion of graduates who are financially worse off for having gone to university. The next section of this Policy Note attempts to explain why this market failure of too many students choosing to study low-earning degrees is taking place.

    The causes of market failure in higher education

    This section will look at imperfect information as a possible cause of the market failure. There are other possible causes, such as low teaching quality or the fact that an individual student’s decision about whether and where to study also has effects on wider society. The government’s provision of information about graduate salaries is thought to have solved the problem of imperfect information. But this Policy Note focuses on imperfect information because prospective students are not seeing the information about graduate salaries.

    Imperfect information occurs when all the parties in a transaction do not have full information about the transaction. If applicants do not know about the career prospects of a low earning degree, they may choose to study it thinking it will enhance their career prospects and then struggle to find a well-paying job after graduation. This could cause an inefficient allocation of students to courses.

    People familiar with the higher education sector could likely name the universities that frequently top league tables and which subjects generally lead to high earnings. They may therefore may believe that applicants have roughly enough information to choose the best course for them. This knowledge is not common for all applicants, particularly for applicants who will be the first in their family to attend university (now roughly two-thirds of current undergraduates).[xx] An A-level student who I tutor recently demonstrated that some applicants do not have perfect information about university courses. I asked him out of the universities he wanted to apply to, which he would most like to attend. He wanted to study Management. He said he would like to go to university x “because they have a brand-new building for the business school.” I then showed him that average earnings for Management graduates 5 years after completing university x’s course were over £20,000 less than those of another university he planned to apply to. After this conversation, he chose not to apply to university x. Not all applicants have sufficient knowledge about university courses and this can cause them not to choose the course that would have been best for them.

    While introducing marketising reforms since 2010, successive governments have been keen to ensure that applicants do not have imperfect information. A 2016 white paper stated an ambition for ‘more competition and informed choice into higher education’.[xxi] 

    As a result, prospective students now arguably have access to enough information to make informed choices. The official website for information about higher education, Discover Uni (formally Unistats) provides a wealth of information to prospective students. Discover Uni has information on student satisfaction, the entry grades of past students and information about career prospects for each course at a given university. Data from the Graduate Outcomes Survey and the Longitudinal Educational Outcomes data set are used to provide prospective students with information about the employment rate of past graduates and their earnings 15 months, three years and five years after completing a course. The wealth of information available to prospective students suggests that imperfect information cannot be the reason for too many students choosing courses that will lead to them earning less over a lifetime than if they had not studied at all.

    Figure 3 Source: Adherf[xxii]

    Although prospective students have access to information about employment prospects on the Discover Uni website, few choose to use it. In July 2024, only 6,600 people visited the website.22 In the same month, 481,800 people visited the website of The Complete University Guide, an online university league table, suggesting rankings like these are used more often to make decisions about what and where to study. In the same month, 1,100,000 people visited the UCAS website (the main way to apply for higher education in the UK), which gives an indication of just how many see the information about courses and institutions it provides.

    The problem may not be imperfect information, but imperfect knowledge. That is, it is not the lack of availability of information that means too many students study degrees that are not financially worthwhile but instead that applicants are not seeing the information about employment prospects.

    Ensuring students see information about graduate salaries will help to correct the market failure of too many students choosing to study low-earning degrees, but it may not fully address information problems. This is because, graduate outcomes data is not a perfect indicator of what a given prospective student will earn. Past data on graduate outcomes cannot tell a prospective student about future labour market changes. However, compared to using no data at all, graduate outcomes give prospective students a good indicator of what they are likely to earn.

    Graduate outcomes data may not be currently used because students (and teachers) might not fully understand the implications of the new Plan 5 repayment system. Students may have less incentive to find out the financial returns of a degree if they think a negative return would be covered by the government ‘safety net’. It may therefore be more important than ever to explain that since the 2022 reforms, most students will pay back all or almost all of their loans themselves.

    The next section of this report shall propose recommendations to improve the use of the data on Discover Uni.

    Policy response

    Some students are choosing to study degrees that will likely lead to them having low earnings. When applying to university, students are not using the information about graduate salaries for specific courses, provided on the Discover Uni website. Without the proper use of information about how financially worthwhile degrees are, a fifth of students choose degrees that result in them earning less over their lifetime than if they had not studied at undergraduate level.9

    The choice of what and where to study is an individual one; it may depend on what dream job one had as a child, the fact one may have to stay close to home to care for a relative or because one wants to improve their lifetime earnings. Regardless of why one chooses to study a given course, as it is now the student who is most likely to pay for their studies, they should be free to choose what and where to study. However, students should be exposed to the reality that their choice of course may result in them earning less over a lifetime than if they had not studied at university. Students should be encouraged to use information about graduate outcomes and this information should be explained to them. Careers advisors should explain that not all degrees are financially worthwhile and help applicants navigate the available information on graduate salaries.

    To prevent students from unknowingly choosing courses that will likely lead to them earning low salaries, information about graduate outcomes should be made more usable. Therefore, the main recommendation from this HEPI Policy Note is that all of the data on Discover Uni (the government website for data which students rarely use) should be integrated into the UCAS pages for individual courses. This includes the salary outcomes for each course, or the lowest level of granularity Discover Uni provides. This makes it more likely that students applying for a course via UCAS will use this information to better inform their decisions.

    Discover Uni graduate earnings data should be stratified before it is integrated into UCAS information pages. This involves weighting graduate earnings by social background, reflecting the proportion each social group represents in the wider population. Stratification would ensure that high earnings statistics from a given course do not simply reflect a cohort dominated by already affluent students.

    Alongside the average graduate salaries for specific courses, the average graduate and non-graduate salaries should be displayed. Prospective students could be shown the current salary for a full-time minimum wage worker of £23,795 to help them judge if going to university would be financially worthwhile.[xxiii] 

    [i] William Whyte, The Medieval University Monopoly, History Today, March 2018 https://www.historytoday.com/miscellanies/medieval-university-monopoly

    [ii] David Willetts, A University Education, 2015,p40-44

    [iii] The Dearing Report, Higher Education in the learning society, 1997, p267

    [iv] David Willetts, A University Education, 2015, p. 274

    [v] Department for Business, Innovation and Skills, Students at the Heart of the System, June 2011, p.19  https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/31384/11- 944-higher-education-students-at-heart-of-system.pdf

    [vi] Department for Business, Innovation and Skills, Students at the Heart of the System, June 2011, p.73  https://assets.publishing.service.gov.uk/ government/uploads/system/uploads/attachment_data/file/31384/11- 944-higher-education-students-at-heart-of-system.pdf

    [vii] Calculation from: Jonathan Neves, Josh Freeman, Rose Stephenson & Dr Peny Sotiropoulou, Student Academic Experience Survey 2024, June 2024, p.27https://www.hepi.ac.uk/wp-content/uploads/2024/06/SAES-2024.pdf

    [viii] Jack Britton, Lorraine Dearden, Laura van der Erve and Ben Waltmann, The impact of undergraduate degrees on lifetime earnings, Institute of Fiscal Studies, February 2020, p.8  https://ifs.org.uk/sites/default/files/output_url_files/R167-The-impact-of-undergraduate-degrees-on-lifetime-earnings.pdf

    [ix] Jack Britton, Lorraine Dearden, Laura van der Erve and Ben Waltmann, The impact of undergraduate degrees on lifetime earnings, Institute of Fiscal Studies, February 2020, p.22 https://ifs.org.uk/sites/default/files/output_url_files/R167-The-impact-of-undergraduate-degrees-on-lifetime-earnings.pdf

    [x] David Willets, Are universities still worth it?, The Policy Institute King’s College London, January 2025, p.24 https://www.kcl.ac.uk/policy-institute/assets/are-universities-worth-it.pdf

    [xi] Paul Bolton, Student loan statistics, House of Commons Research Briefing, July 2024 https://commonslibrary.parliament.uk/research-briefings/sn01079/

    [xii] Dr Gavan Conlon, Maike Halterbeck and James Cannings, Examination of higher education fees and funding in England, London Economics, February 2024, p.55 https://londoneconomics.co.uk/wp-content/uploads/2024/02/LE-Nuffield-Foundation-HE-fees-and-Funding-in-England-FINAL.pdf

    [xiii] Chris Belfield and Laura van der Erve, What determines graduates’ earnings?, The Times, June 2018 https://www.thetimes.com/business-money/economics/article/what-determines-graduates-earnings-w0x6mlwj6

    [xiv] Dr Gavan Conlon, Maike Halterbeck and James Cannings, Examination of higher education fees and funding in England, London Economics, February 2024, p.54 https://londoneconomics.co.uk/wp-content/uploads/2024/02/LE-Nuffield-Foundation-HE-fees-and-Funding-in-England-FINAL.pdf

    [xv]  Kate Ogden and Ben Waltmann, Student loans in England explained and options for reform, Institute for Fiscal Studies, July 2023 https://ifs.org.uk/articles/student-loans-england-explained-and-options-reform

    [xvi]  Kate Ogden and Ben Waltmann, Student loans in England explained and options for reform, Institute for Fiscal Studies, July 2023 https://ifs.org.uk/articles/student-loans-england-explained-and-options-reform

    [xvii] Mark Corver, UCAS analysis answers five key questions on the impact of the 2012 tuition fees increase in England, UCAS,November 2014 https://www.ucas.com/corporate/news-and-key-documents/news/ucas-analysis-answers-five-key-questions-impact-2012-tuition

    [xviii] Gianna Boero, Tej Nathwani, Robin Naylor and Jeremy Smith, Graduate Earnings Premia in the UK: Decline and Fall?, HESA, November 2021, p.1 https://www.hesa.ac.uk/files/Graduate-Earnings-Premia-UK-20211123.pdf

    [xix] Brigid Francis-Devine, National Minimum Wage statistics, House of Commons Library, March 2024, p.10 https://researchbriefings.files.parliament.uk/documents/CBP-7735/CBP-7735.pdf

    [xx] Harriet Coombs, First-in-Family Students, Higher Education Policy Institute, January 2022, p.40 https://www.hepi.ac.uk/?s=Harriet+Coombs

    [xxi] Department for Business, Innovation and Skills, Success as a Knowledge Economy: Teaching Excellence, Social Mobility and Student Choice, May 2016, p.8 https://assets.publishing.service.gov.uk/media/5a817487ed915d74e33fe4ca/bis-16-265-success-as-a-knowledge-economy-web.pdf

    [xxii] Data from aherfs website traffic checker. Data collected in October 2024

    [xxiii] Cogent staffing, Understanding the 2024 UK National Minimum Wage increase, February 2024 https://cogentstaffing.co.uk/understanding-the-2024-uk-national-minimum-wage-increase/

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  • Weekend Reading: Rethinking the Cost of Higher Education – A Lecture Revisited

    Weekend Reading: Rethinking the Cost of Higher Education – A Lecture Revisited

    • This lecture was originally delivered by the Rt Hon John Denham MP, former Secretary of State for Innovation, Universities and Skills in Gordon Brown’s Government. He gave this lecture from Opposition in January 2014. More than eleven years later, we revisit his lecture to consider what lessons it holds for today’s higher education sector.

    At the RSA in 2014,  I tried to address the mounting challenges facing the higher education sector:  a system with stressed finances, eye-watering fees,  educationally not fit for purpose in some parts, and in which limited public funds were written off while incentivising the provision of a monochrome one-size fits all teen-focussed education.  The National Accounting rules which framed much of the technical financial analysis have now changed.

    Overseas student fees held the crisis away much longer than I expected, albeit at the cost of financial and reputational vulnerability, but it’s with us now. I’d argue that today, ministers face much the same issues that I discussed.  

    The lecture is clearly a provocation, not a plan, but its key tenets are valid. It is better to use what money you have to teach students and reshape the sector today than write off unjustifiable debts in the future. Ministers should have the courage to incentivise a greater diversity of provision, options for cheaper study, different ways of working and closer relations with employers. Unless a lot more money is to be found, some of these questions can’t be ducked.

    John Denham, March 2025

    RSA Lecture – The Cost of Higher Education

    Good evening.

    Thank you to Matthew for hosting the meeting, Alison for agreeing to respond, and you for coming. You may not agree with me tonight. But if I don’t challenge at least some current assumptions about how we fund and deliver higher education I shall have failed.

    I want to change the terms of the debate, not present a detailed plan for university education.

    What’s the problem?

    But I suppose the first question is, why bother? Isn’t everything going very well?

    UCAS figures show the largest ever number of admissions last September, there’s further progress, in widening participation, and even a small increase in free school meal students going to the 35 most selective universities.

    And the Chancellor is apparently so flush with money he can lift the cap on student numbers, funding an extra 60,000 a year.

    I’m sure researchers and the UCU will say it’s no bed of roses, but cash from new fees means university life has been a lot more congenial than life in local government or the NHS for the past three years.

    The private cost is eye-watering but haven’t the high fees been accepted by parents and students?

    The problem, of course, is that the whole system of university finance for English students is sliding slowly but surely off a cliff.

    •  The £9000 fee is declining in real value
    • Capital spending has been slashed, pushing more universities further into debt driven investment
    •  The science budget will have fallen by 20% in real terms by 2016 – undoing the huge impact of Labour’s ten year investment
    •  The system runs so hot that a small misjudgement about student numbers creates a huge hole in the BIS budget. So we have ministers arguing about whether to cut research or support for poorer students
    •  The NAO have highlighted the black hole of unrecoverable loans, including those to EU students
    •  The cost of debt cancellation– the so-called Resource Account Budgeting or RAB charge – is rising steadily.
    •  The Chancellor’s new expansion – apparently based on the same accounting principles as Merdle’s Bank – has many questions about its sustainability.

    Across universities you hear the same story. ‘We might get through the next few years. But it can’t go on like this for long’.

    We already have the world’s most expensive public university system yet most proposals for change are variations on the theme of asking graduates to pay even more.

    But that’s not the end of the bad news.

    Quality and relevance

    English universities have huge strengths, of course. Our international research reputation is outstanding; we remain a magnet for international students; there is much excellence in our teaching.

    But concerns about what parts of higher education deliver simply won’t go away. Despite improvements, many employers remain deeply critical of the employability of too many graduates. One quote is not evidence, but it’s not hard to find ones like this one:

    ‘Despite our best efforts we have come to the decision that we would prefer to be understaffed than hire poor-quality applicants,’ said Bryan Urbick, founder and CEO of the Consumer Knowledge Centre. ‘As the economy rebalances, we will need more highly-skilled employees, particularly for young people with science, technology, engineering and maths (STEM) degrees, but businesses are struggling to recruit good graduates from the UK.’

    And

    ‘Strong overall performance on higher skills participation must not be allowed to mask the skills shortages already impacting upon key sectors of the economy, which point to a mismatch between supply and demand’ said Katja Hall, Policy Director at the CBI.

    47% of new graduates, and a third of those who graduated five years ago, don’t work in graduate jobs. They’re in debt and its not the reason many went to Uni in the first place.

    There’s some big questions here about the links between higher education, the economy and economic growth.

    Social Mobility

    Despite steady progress in widening participation we are still miles away from a genuinely meritocratic, lifelong higher education system. The change in the most selective institutions has been small and there has been a sharp fall in mature student applications and a collapse in part time student numbers. These are the routes which have previously allowed talented individuals to enter higher education later in life.

    Austerity

    And austerity has not gone away.

    £25bn of more cuts, says the Chancellor. Labour may not have signed up to those sums, but every pound will be closely scrutinised.

    As a country, we actually spend too little on higher education. But we can’t even open the case for more until we’ve scrutinised every current pound we spend.

    And that’s not just the public money.

    The cohort of students who started in September 2013 will pay back £7.8bn over the years ahead. You can’t ask people to pay sums like this if you can’t prove it will be well spent.

    Getting more from current spending is not alternative to higher investment. It’s the essential precursor to it.

    My aim tonight

    I will argue that of the £bns taxpayers spend on higher education, hardly anything is spent directly on teaching students.

    I’m going to ask a radical question – what would universities look like if the state actually spent all it could on teaching students things.

    I will argue that we have foolishly turned our backs on modes of higher education which, for the right students, would be more cost-effective and better tailored to the economy’s needs, and do more for real social mobility.

    I’ll ask what a more cost-effective university system would look like.

    I will argue that the £bns that graduates will pay are inflated by all sorts of costs which are not their responsibility, the system lacks transparency and which, despite all the talk of choice, is actually narrowing many of the options students used to enjoy.

    I’ll ask what a fairer, more diverse university system might look like.

    And finally, I will argue that current spending does far too little to foster the real partnerships with employers that would benefit students, business and the wider economy.

    I’ll ask how we could use taxpayers more effectively to boost recovery and growth.

    Taken together, I’ll show how these changes will widen student choice, reduce the costs of higher education and improve social mobility

    I want to change the terms of the debate, not present a detailed plan for university education.

    The independent policymaker faces many obstacles.

    BIS [The Department for Business, Innovation and Skills] doesn’t allow independent access to their higher education finance model so we have to rely on their crude ‘ready reckoner’ published some time ago. An updated version promised before Christmas arrived on Tuesday – too late for today. We have, for example, had to assume a RAB charge of 35%, not the 40% which now seems likely.

    I have drawn heavily on the incomparable Paul Bolton in the House of Commons Library. But I’ve asked Paul to make so many heroic assumptions and approximations that the responsibility for using the figures is mine, not his.

    Higher Education finance

    Let’s take a quick look at the public finance of higher education

    On the government’s figures, by 2015-16 (and ignoring for now the sketchy announcement in the Autumn Statement):

    •  Of the £6.7bn of tax-funded spending, just £700m will be spent directly on teaching grant
    •  Of the rest £4.2bn is spent on debt cancellation (RAB charges)
    •  £330m goes on supporting more disadvantaged students to successfully complete their courses, and £1.5bn goes on maintenance grants to low-income students.

    Taxpayers now spend £6 on debt cancellation for every £1 they spend on teaching students anything.

    Defenders of the current system will say I just don’t understand the system.

    It is fees that pay for teaching costs, they say. And that’s made possible by RAB charges which are a progressive policy which protects graduates from degrees which turn out to be of limited economic value.

    The reality of course is that RAB charges are not so much a progressive policy as a simple recognition of the political reality that you can’t get blood out of a stone.

    According to David Willetts, perhaps 50% of this September’s students will not repay their loans in full.

    Half of all today’s students will pay 9% of all their income above the repayment threshold for the next 30 years and they still won’t clear their debts. And that takes no account of bank loans, credit cards and any other debts that mount up while studying

    We do have to hope that the mind-broadening, growing up, parts of their degree are worth it, because economically it hardly looks a good deal for them, taxpayers or the wider society.

    The RAB charge was 28% under Labour’s fee system, a projected 32% when the new system was introduced, now ministers say it is 40% and many independent experts say it will be higher.

    It’s not just that rising RAB charges are a problem for the government and the public finances.

    Debt write off also forces up everyone’s fees by top-slicing money which could have been spent on teaching, so keeping fees down.

    So it’s equally true to say that every time the RAB charge goes up it means fewer and fewer successful graduates paying off the debts of more and more economically less successful graduates.

    Or to put it another way,’ if your son didn’t go to that unsuitable course at that weak university, my daughter could pay lower fees for her degree at her more prestigious college.’

    That may not be an issue in English politics today, but it will be.

    Ever rising fees will lead more and more students and parents to ask what and who they are paying for.

    I don’t know of any progressive principle which thinks it is a good idea to induce people, generally from lower income backgrounds, to take on huge loans, demand big payments, and then to tell them they don’t have to pay after all. It’s not how progressive parents bring up our children, and the state shouldn’t do it to them either.

    Of course, some people will die, fall ill, devote themselves to their children or do what I did and spend 18 years after graduation working in low paid jobs in the voluntary sector.

    But a sound, progressive, politically sustainable system would have loans sufficiently affordable that the great majority pay them in full. If we want wealthy graduates to pay more we should tax them fairly.

    The economic and political costs of a high fees policy

    If you look at HE funding again, something else may stand out.

    Look at how many elements were the consequence of introducing a high fee market system. They are either economically unavoidable, or politicians had to introduce them to allay public concerns about high fees.

    A high cost of debt cancellation is simply unavoidable, but the repayment threshold also reflects a political calculation.

    The £150m a year National Scholarship Programme which flared and died in just three years was otherwise known as the Save Nick Clegg’s Face fund.

    In one of the largest politically driven programmes, the Office of Fair Access requires universities charging more than £6000 to plough around £700m of their fee income into bursaries, fee remission and the like of little proven benefit. The cost-effective AimHigher scheme was scrapped by the coalition

    The maintenance grant was increased by Labour and again by the Coalition to offset criticism of fees – even though there is little logical connection between the two.

    Received wisdom is that this spending is politically untouchable.

    But we must dare to think differently. Crude politics has created too many bad policies in the past.

    Let’s start by taking the radical step of putting all this money into teaching. And then, put back, working from first principles, the programmes that are really needed.

    Positive feedback

    As you put more money into teaching the cost of fees comes down. As fees fall, RAB charges fall, and the % of debt repaid increases. So you plough these RAB savings back into teaching, fees fall, RAB charges come down, you put the money into teaching and so on. The effect is striking.

    In our model, which also builds in some other changes I’m going to outline, spending on teaching rises from £700m to £4800m – a seven- fold increase. The spending on debt cancellation falls from £4,200m to £2,200m. In other words we have transferred £2bn from debt cancellation into the education of students!

    My first aim was to see what happens if we put all public funding into teaching. It turns out it would nearly halve current fees.

    But I’ve explored other changes which, though they contribute to reducing the cost of fees further, are really there because they are inherently desirable.

    In my view our university system would be stronger if it offered more choice to students who cannot or do not want to spend three years full time studying for a degree; if it gave students more choices of ways to reduce their living costs; if it made it easier for employers to partner universities in the delivery of degrees; and if it freed up other resources for re-investment.

    Cutting fees and debt repayments will ease the burden on graduates. The more immediate problem for most students is surviving while they study.

    Recent NUS research shows a £7000 shortfall per year between student living costs and the maximum income from grants and maintenance loans.

    I don’t want to sound like a party hack but the term ‘cost of living crisis’ comes to mind here.

    There’s just no prospect of finding the sort of public money which could make a significant impact on student incomes. The only way is to give students more choice of less expensive modes of study, whether

    studying more intensively for a less time, mixing part-time and full time education, combining work and study, or studying from home.

    Yet we seem to be going in the opposite direction.

    A one size fits all university system?

    Even the most fervent advocates of Labour’s 50% target would surely be surprised that it has been achieved almost entirely through the most expensive mode of higher education – the three year degree studied away from home.

    Part time education is collapsing. The number of two year honours degrees has barely changed. Labour’s employer backed degrees have been dropped. Fewer mature students are applying.

    Higher education is becoming ever more a one size fits all approach.

    It is almost a rite of passage for young people, defended as much for the so-called ‘student experience’ as the quality of education.

    I wouldn’t knock it; I enjoyed it myself.

    But should our universities be so focussed on this single mode of study?

    No one suggests that Open University graduates do not have real degrees, even though they – by definition – eschew the entire ‘student experience’.

    There is second reason for challenging our ever growing reliance on the three year degree study away from home.

    Of all the OECD countries, the UK has the highest percentage of young graduates. And this was before the fall in mature and part time student applications. Today, 90% of full time English students at university are under 25.

    More than anywhere else in the OECD we have made higher education a one-shot deal, for young people to do as early as possible.

    What on earth have we done?

    Our schools system fails more than most in overcoming inequality and social disadvantage by the age of 18 or 19. Yet on top of this inequitable schools system we have imposed the youngest HE system in the world.

    It is is impossible for all young people to compete fairly in such a system.

    Now, I don’t think we should give up trying to get the Russell Group to take admissions seriously. We should support Alan Milburn’s efforts to open up the professions. We should challenge the abuse of interns.

    But for the foreseeable future, a genuine commitment to social mobility will require the construction of routes for the late developers, those who went to weak schools and those whose parents had low aspirations.

    So as part of my thought experiment I’ve looked at the role of more intensive degrees, studying from home and combining work and study.

    Two year degrees

    Two year degrees exist in both the public and private sector.

    The private University of Buckingham repeatedly tops the National Student Survey for student satisfaction.

    We can’t know the real demand for two year courses – current financial rules make it hard for public universities to introduce them. Research for Kaplan, albeit an interested party, suggests an untapped market and good awareness of the pros and cons of intensive study.

    It certainly looks as though some students could study more intensively.

    David Willetts says that students study 5 hours a week less than in the 1960s. On average, students study for 30 hours a week for 30 weeks of the year.

    The Higher Education Policy Institute and Which study highlighted variations between similar courses in different institutions.

    And according to HEPI, EU students on the Erasmus programme find our courses less intensive than in other European countries.

    I have suggested that 30% of courses – half of them employer co-sponsored – should be taught intensively.

    Suggestions of two year degrees always bring out fears of dumbing down. But given their potential to save money both for students and the taxpayer, knee jerk responses are irresponsible unless soundly evidence based.

    In my model I’ve assumed a two year intensive degree – say 39 weeks of study a year– would cost 20% less to deliver than a three year degree. This is based on both public and private sector charges.

    But I’ve also set out to graduate the same number of students – three two year cohorts every six years rather than two three year cohorts if you like.

    So at any one time, teaching costs are about 7% less than at present, and there are 10% fewer students in the system.

    But I’ve also designed the system so that overall university income remains unchanged.

    So we have fewer students at any one time, lower costs, and the same resources. Better student-staff ratios. Less pressure on facilities. New options for research time and staff sabbaticals

    There is no reason at all why standards should fall.

    The key thing here is the use of intensive periods of study.

    Someone in work could work four intensive half years over a four year period. Someone else might do a couple of part-time years at a local college followed by an intensive full year at another university.

    Intensive study may not be for everyone. It will require commitment and a maturity of approach. In fact, perfect for the somewhat older student with work experience who needs a route into higher education but neither wants nor can afford a leisurely three year degree.

    ‘Studying from home’

    In our model, the public finance effect of more students studying from home is relatively small and not enough to justify taking choice away.

    My real motive in raising this issue is to challenge the lazy assumption that it does not matter if vast numbers of students have to leave home to study a suitable course. If anything, the current competitive regime has forced more universities to trawl a national market, not their more local communities.

    The effect is to impose quite avoidable costs on students which inevitably hit the poorest hardest. A new social divide is opening between those students who can only afford to study from home and those whose family gives them the choice to study away.

    We should give students a real choice to study from home because it is much cheaper and is the only realistic way of bridging the gap between the maintenance system and the real costs of studying.

    I’ve assumed that 60% of students might choose to study from home if they could.

    We can’t make students study from home. Many couldn’t for personal or geographical reasons.

    But we are a densely populated largely urban society with many universities; there is a network of FE/HE colleges already delivering respected degrees; it should be possible to offer the vast majority of students a real, quality, choice of courses within reach of their own homes.

    It is a scandal that, too often, that choice does not exist and universities in the same locality barely talk to each other.

    I’ve no illusions about how challenging this is.

    On the one hand, it would be big cultural shift in the way many young people and their parents see university education.

    On the other, it would be an even bigger cultural challenge to universities.

    It would actually mean – heaven forbid –suggesting that they sit down together at local or sub-regional level; Russell Group members and Million+; Alliance and GuildHE, to actually cooperate and collaborate on the delivery of courses. Real flexibility of study would enable students to study mutually recognised credits at universities within their locality.

    Some may think this is where my thought experiment breaks down completely!

    But shouldn’t we challenge universities to change their insular attitudes?

    Employer sponsored degrees

    Finally let’s look at the end product of all this.

    Of course, university education is not all about getting a job; etc; etc.

    But, you know, for many students the idea of getting a decent job is probably in there somewhere.

    The ONS figures tell us that nearly 50% of new graduates, and a third of those who graduated five years ago, don’t work in graduate jobs. Things have got steadily worse during the recession, but they were not great before the banking crisis.

    The figures don’t prove we are educating too many graduates. They do show that producing more graduates doesn’t automatically increase the demand for graduates – the drivers for that lie in research, development, innovation and the incentives for long term business investment.

    But they probably also tell us that employers are not wrong when they say many graduates lack the employability which would make employers to want them in graduate jobs.

    ‘One way to address this is to develop more partnership-based provision, with greater levels of business involvement in colleges and universities, as well as boosting apprenticeships. But the market in ‘learn-while-you-earn’ models – such as higher apprenticeships and more flexible degree programmes like part-time study – is underdeveloped.’

    CBI Tomorrow’s growth: New routes to higher skills (2013)

    So my final proposal is to subsidise employers to put their employees – current employees or potential students they recruit – through university. I’ve aimed for 50,000 a year – that’s half the total number of intensive two-year degrees.

    I would base this on the workforce development programme I introduced at DIUS [Department of Innovation, Universities and Skills] which after just three years was creating 20,000 places a year with employers paying wages and an average of £3000 towards the course costs. I’m not proposing a rigid system. We already have some companies, like JLR at Warwick, who pay the full fee costs. Others could not pay much at all. It’s the principle that matters.

    Employers and universities would work together to design the right course. Big companies can do it for themselves. Smaller companies will need to work together, but that may be a real strength if employers, perhaps under the umbrella of the Local Economic Partnerships, come together to shape provision in local universities.

    Bringing it together

    I have looked at four changes.

    • We put as much money as possible into teaching.
    •  We use public and private contributions more effectively by encouraging more intensively taught degrees
    • We ensure that more students can minimise the cost of study by providing a genuine choice of quality courses within reach of home, and that there are more routes for older students
    •  And we incentivise new collaboration between employers and universities.

    A brief financial overview

    It may be helpful to run back over the key changes this makes to HE finance

    These tables will repay a longer look when I publish this lecture, but they’ll give some idea of what is going on.

    The approximate financial impact shows how we have switched resources into teaching and away from RAB charges. By putting money from widening participation and maintenance grants into teaching, and by shortening courses, with more students studying at home, and employer backed courses, we make an initial savings of £2.3bn. The second and third round impact on RAB charges releases an additional £1.2bn.

    The next slide shows that we have kept public sector spending on higher education constant – at £6.730bn.

    And the next slide on institutional steady state income shows that the total university income also remains constant – allowing for rounding errors – at £9.430bn.

    Institutional income remains the same even though we have more students on cost-effective intensive courses and fewer students in the system at any one time. That’s why, as I mentioned earlier, student-staff ratios improve and there are resources to invest in teaching quality.

    Not shown almost £700m OFFA tells universities to spend on widening participation. With fees slashed, the case for such central dictation falls away. If you end this requirement, the money available to universities rises to £10.1bn.

    We shouldn’t overstate the case.

    One of the quirks of my model is that, while graduate numbers remain constant in the first few years, overtime they would decline.

    Clearly, we don’t want this to happen. The first call for more investment would be on the spare capacity built into our model and the second on the current OFFA spending. The next model will address this but here is more than enough money in the system to deal with it.

    Investment in widening participation by the most selective universities remains essential. But even so, I believe substantial sums could be freed up for research.

    The model has considerable flexibility.

    If you feel I have pushed for too many intensive courses, aimed for too many home students, been over optimistic about employer contributions, or the student

    Estimated institutional steady state income directly connected to full time English undergraduates: higher loans fully replace grants for low income students, and 15% premium

    premium is too low, then we can draw on these funds to adjust the system or make relatively modest changes to the level of the student entitlement and fees.

    I’ve pushed change as far as I can – partly to show what could be achieved, and partly because, frankly, I think it is essential to free up resources for research if we possibly can.

    We could deliver this system in different ways, but I think we need a fresh start; as clear, transparent and fair as it can be. So let’s make a radical break with both the current system and that left by Labour.

    The student entitlement

    I suggest that every student accepted on an honours degree course attracts a flat rate student entitlement which goes to their university. Flat rate, irrespective of institution, course, length of course or current fee level charged.

    So, you take the £4.7bn we have now allocated to teaching. You top slice, of course, the extra money required to support science, engineering and other high cost courses. And then you divide the rest amongst the students.

    In the simplest form, this produces a student entitlement of £14,800 per student.

    The fee now payable is the difference between the current cost of a degree and the value of the entitlement. It would be financed and paid back as at present.

    The total fee cost of the average three year degree – and remember that in my model the great majority of degrees, 70% – would be three year degrees or longer – the average total would be less than £10,000 – about the levels fees were at when Labour left office.

    And the total fee cost of a full cost university – currently £27k – would fall to about £12,000.

    The total fee cost for a two-year degree would be less than £5000.

    For those on employer sponsored degrees of course, there would be no fees and they would receive a wage as well.

    There are many different routes through this system. But this example – a three year degree studied away from home (so the most expensive option) – show how total debt falls, total payment falls, and the % repaying in full increases.

    The second example is a two-year degree – but again, assuming study away from home, so the most expensive choice – shows an even more marked difference.

    Students get a lot of choice. Money follows the student.

    But it is an entitlement, not a voucher.

    It is high time we set aside the childish fad which said that every public service reform had to be expressed in the banal and vacuous language of consumer capitalism.

    If my proposal were adopted it would be because the people of England had decided to establish an entitlement for their children to go to university, and that’s how it should be described.

    Support for low income students

    Significant fee reductions come from investing in teaching, rather than the political and economic costs of a high fee system.

    But some students from non-traditional backgrounds do need more support to complete their courses successfully. Students from poorer homes do have to live while they study. So we need to ensure these needs are still met.

    I doubt that the OFFA-mandated money has much effect. Bursaries may shift students between institutions, not get them to apply in the first place. Fee remission is simply inequitable in a system of graduate repayments. Much of this money could be better spent either on teaching or on research.

    The needs of students who need extra support are real as Million+ have argued. We could simply retain the current widening participation spending or student opportunity as it is now called.

    But I would rather create an additional student entitlement, a student premium if you like, which would clearly make disadvantaged students financially more attractive to universities. My model builds in a 15% enhancement to the student entitlement.

    My model replaces the student grant with a loan. By doing so we ensure that the low income student has just as much money to live on as at present.

    While their maintenance debt will go up, their fees have fallen dramatically, and it is the total debt – fees and maintenance – which determines how much graduates have to pay back.

    In all the modelling we have done, low-income students will end up owing less money and paying back less money on every single mode of study and length of course. But still have as much to live on while they study.

    This is such a radically different picture to the one we have today – lower fees, lower debt, lower payments, as many graduates, and new money for research and teaching – that you might be forgiven for thinking there is some sleight of hand. Mistakes aside, there isn’t.

    All I have done is ask a few basic questions about using money better.

    What George Osborne should have done

    In the Autumn Statement George Osborne announced that he would put money from the sale of the student loans book into creating 60,000 additional student places. He says it will cost £700m a year.

    There’s too little information to incorporate it into our modelling.

    But all other things being equal, if George had invested £700m in this system, he could have created as many additional graduates, at lower cost, and had money left over to invest in teaching quality or research.

    A few closing thoughts

    I’ve packed a lot into a short lecture, so I want to allow time for Alison’s response and your questions.

    But in closing, let me touch on a few other issues

    Firstly, we have cut private repayments by £2.4bn without reducing university income. I wanted to lower the private cost of a degree.

    But this does also substantially reduce payments by the wealthiest graduates; would that be fair?

    The option is there to introduce a free standing graduate tax. A 1% tax above the threshold would produce £1bn a year after 20 years and £2.5bn in the longer term. It would take time to start as you wouldn’t want anyone to be paying more than the current 9%. But it soon be generating useful funds.

    My model doesn’t depend on it. But it may be part of the longer term answer of generating new, hypothecated income for our universities.

    Second, no one is going to price a part-time degree higher than a full time degree, so part-time degree costs will fall. So we can trigger a renaissance in part time education.

    Thirdly, you would really want to integrate these reforms with higher level apprenticeships and the real problems of taught masters. We can at least see the analogies between higher level apprenticeships and employer co-sponsored degrees, and it’s worth noting that an integrated masters degree, with intensive teaching, would cost students less than a current three year degree.

    Fourth, It won’t be long before the most research intensive universities – come along and ask ‘can we put our fees up now please?’. This is indeed more politically feasible than under the current model.

    But we shouldn’t rush into it. We’ve raised university spending by £700m, largely by reducing obligations on the more expensive universities. So we need to know more about the impact of these reforms on different types of university.

    But, in any case, tough conditions would have to be met. We would need a self-limiting clawback mechanism of the type proposed by Browne; universities would have to take responsibility for any additional fee loans and write-offs; they would have to demonstrate collaboration with other local universities on courses and mutual recognition of credits; and they would have to deliver progress, not aspiration, on widening participation.

    Fifth, I’ve not looked at implementation. But I would note that if we started now we could take advantage of the current demographic decline and reduce the number of three year degrees more than the proportion of students taking them. We could build demand for intensive courses, beginning by ring-fencing money for the growth in employer co-sponsored degrees.

    Several people have already asked whether this is about to become Labour policy.

    I certainly hope Labour will look at this, but I hope others will too.

    The modelling is crude, the assumptions broad, the approximations considerable. It’s not a detailed plan for higher education and it’s in no state to go into anyone’s manifesto!

    We’ve had enough damage done by enthusiastic politicians working on the back of envelopes already.

    Wouldn’t it be good if BIS now took this concept, put it in their more sophisticated models, and informed a genuine public debate? But that would take Ministers who don’t feel personally or ideologically wedded to the current system.

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  • Ohio University puts Black alumni reunion weekend on hold

    Ohio University puts Black alumni reunion weekend on hold

    Ohio University has postponed its annual Black alumni reunion weekend while it reviews the event in light of the Office for Civil Rights’ Feb. 14 Dear Colleague letter, which declared illegal virtually all race-based activities at public institutions.  

    While the Black alumni reunion “has always been open to all individuals who have an interest in the event,” read a statement from the university, “based on OCR’s recent guidance related to Title VI compliance, some of the programming historically included in the event may need to be reimagined. The University is obligated to follow OCR’s guidance in order to protect our access to critical federal funding, including students’ continued access to federal financial aid.”

    The statement also cited the impact of “proposed State of Ohio legislation,” without specifically mentioning SB 1, a bill the Senate has passed that calls for the elimination of DEI statements, offices and trainings.

    “Without question, should this bill pass the House in its current form and be signed into law by the Governor, it will bring changes for all of us,” university president Lori Stewart Gonzalez wrote in an earlier message to the campus community. “However, to define today the specific changes we might make would preempt the legislative process on a bill that is not finalized.”

    Still, all signature events planned for Black alumni reunion weekend, which was scheduled for April 10–13 in Athens, were canceled.

    “While this is difficult news to share, we remain committed to honoring the legacy and accomplishments of Ohio University’s Black alumni,” said planning committee co-chairs Terry Frazier and Jillian Causey in the statement. “We will continue working with the University to develop a plan that aligns with evolving federal and state guidelines while preserving the significance of this gathering.”

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  • WEEKEND READING: Matt Goodwin’s ‘Bad Education’ isn’t good scholarship, but does that matter?

    WEEKEND READING: Matt Goodwin’s ‘Bad Education’ isn’t good scholarship, but does that matter?

    • Steven Jones is Professor of Higher Education at the University of Manchester and his latest book is Universities Under Fire (2022). This review of Bad Education by Matt Goodwin has been written in a personal capacity.
    • HEPI’s other review of the Matt Goodwin’s book can be accessed here.

    In Bad Education, Matt Goodwin makes the argument that Western universities have moved ‘sharply and radically to the left’ (p.51) over the last six decades, to the extent that diversity is now deemed more important than merit. According to Goodwin, a woke orthodoxy has gripped the sector: free speech is stifled; non-authorised viewpoints are unwanted; and social justice trumps the pursuit of truth. Some minorities flourish within this culture, but other ‘political’ minorities – like the one to which Goodwin claims membership – are structurally disadvantaged. 

    To stand this argument up, Goodwin needs the reader to accept two fundamental premises. The first is that the author’s sense of victimhood is real, while others are imaginary or exaggerated. Goodwin achieves this by attributing his every professional setback – from having journal articles and funding bids declined to being overlooked for invited talks (p.47) – to his whiteness, his maleness, or his political positions, such as his refusal to participate in ‘cult-like worship of the EU on campus’ (p.44). No other explanation is countenanced. 

    The second premise is that the real power in universities is cultural, not economic, and therefore held by diversity champions and other woke activists. The evidence Goodwin offers here is underwhelming. Where academic scholarship is cited, the sources are mostly US-based, and the author shows no curiosity about the think-tanks and lobby groups that funded the surveys in which he places his faith. Critical higher educational research is studiously avoided, though Goodwin does turn to Elon Musk for a quote about the ‘woke mind virus’ (p.104). In places, Bad Education reads as a checklist of debunked myths and personal memoirs (‘as I’ve seen first-hand’ is a familiar clause). Yet in the final chapter, Goodwin addresses the reader directly to assert: ‘I’ve bombarded you at times with statistics and research because I wanted you to read it for yourself and make up your own mind’ (p.198). 

    I tried hard to make up my own mind, but it’s difficult to be persuaded by Goodwin’s case against universities when the bulk of empirical data point in an opposite direction. If recruitment practices are so diversity conscious, why were there only 25 Black British female professors in the UK as recently as 2019? If ‘reverse racism’ is such a problem, why did the awarding gap between White and Black students achieving high degrees stand at 18.4% in 2021? In my experience, and according to my research, minority groups are far from over-represented in senior levels of university management and governance, and board cultures tend to be driven by corporate principles, not woke ideologies. As for no-platforming, fewer than 0.8 per cent of university events or speaker invitations were cancelled in 2021-22. In other words, the truths that Goodwin is so boldly willing to speak may be his truths, but they are not universal.

    Among the fellow marginalised white men willing to support Goodwin is the University of Buckingham’s Eric Kaufmann, who is quoted extensively, and whose back-cover endorsement describes Bad Education as ‘deeply personal and impeccably researched.’ It’s certainly deeply personal. Take Goodwin’s indignation towards a lecturer who unfriended some Conservative voters on Facebook after the 2015 UK general election (p.89). The reader is not told what this incident is supposed to signify, let alone why Goodwin’s cherished free speech principles appear not to extend to academics’ private social media accounts.

    That’s not to say that the sector is always operating to the highest ethical standards. Goodwin is on firmest ground when highlighting human rights violations in China (p.90), and calling out universities for turning a blind eye. But rather than take this argument to its logical conclusion – by critiquing a fee model that leaves sectors reliant on income from overseas students – Goodwin pivots back into anger and anecdote, rebuking universities for being defensive about their historic links with the slave trade (p.91) and sharing stories about junior colleagues too scared to disclose their pro-Brexit leanings (p.94).

    Despite Goodwin’s stated aim to ‘push back against authoritarianism’ (p.208), there are echoes of Donald Trump’s playbook throughout Bad Education. The author’s anti-diversity bombast recalls the President’s recent claim that a fatal air crash near Washington DC was connected to DEI programmes in federal government. It’s not entirely clear to which level of institutional bureaucracy Goodwin is referring when he imagines a ‘hyper-political and highly activist managerial blob’ (p.157), but the language is redolent of that being deployed in the US to justify a purge of federal bureaucrats. According to Goodwin, this ‘managerial blob’ is defined by an insistence on rainbow lanyards and flags on campus, among other things. This is not a characterisation of senior leaders that most university staff would recognise. Could it be that the author is so distracted by empty performative gestures that he fails to see where power is really located?

    Goodwin has now left academia, a story he tells in most chapters, steadily elevating it to the level of Shakespearean tragedy: ‘my professorship – everything I had ever wanted, everything I had worked for – was over’ (p.195). At a time when 10,000 jobs are on the line at UK universities, such self-indulgence is unfortunate. Goodwin’s contrast between the ‘luxury beliefs’ of academics and the ‘real world’ he claims to inhabit (p.78) encapsulates what makes Bad Education read like a ‘prolonged gripe,’ as another reviewer put it. Paradoxically, Goodwin now enjoys a range of high-profile platforms from which to air his grievances about being no-platformed, regularly appearing on television to blame wokeism for various social ills. Why is it that only ‘cancelled’ academics seem to have media agents?

    Bad Education builds towards what Goodwin calls a ‘manifesto’ for universities (pp.217-19) that want to have ‘good, not bad, education’ (p.217). It’s a simplistic way to wrap up any book, comprising a bullet-pointed list of the same few complaints expressed in slightly different terms. Those of us in higher education will quickly recognise Bad Education’s distortions: universities haven’t lurched radically left and there’s no woke coup. But does that matter? Are we the target readership? Or is the book speaking to external audiences? What if a review like this merely confirms what Goodwin and his fellow academic outcasts have been saying all along?

    Since accepting the terms of the market, English universities have struggled to articulate their role in society. Academic expertise has been devalued and the status of higher education as a public good compromised, with universities increasingly embroiled in unwinnable culture wars. These are perfect conditions for someone like Goodwin to ‘blow up’ his own career (p.4), break the ‘secret code of silence’ (p.3) and position himself as the fearless ‘rogue professor’ (p.16). In such ways, important debates become framed by individuals with the shallowest insights but the deepest grudges. Bad Education does a passable job of confirming suspicions about what really goes on inside a secretive and often aloof sector, guiding its readers further down an anti-university, anti-expert rabbit hole. If we continue to leave vacuums in the discourse, then diversity-blaming narratives like Goodwin’s will continue to fill them.

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  • WEEKEND READING: Change is our ally by Professor Sir Chris Husbands

    WEEKEND READING: Change is our ally by Professor Sir Chris Husbands

    This blog has been kindly written for HEPI by Professor Sir Chris Husbands, who was Vice-Chancellor of Sheffield Hallam University between 2016 and 2023, and is now a Director of  Higher Futures, working with university leaders to lead sustainable solutions to institutional challenges.

    The scale of the funding challenge in higher education is widely known, though almost every week brings news of fresh challenges and responses. Real term funding for undergraduate teaching in 2025 is close to 1997 levels – levels which led the Blair government to introduce £1,000 top-up fees. Some commentators have argued that the scale of the challenge now is as great as the 1981 cuts in government funding for universities, which reduced spending on universities by 15%, and saw Salford University lose 44% of its income.

    As contemporary funding challenges have intensified, growth options have become more difficult:

    • international student numbers have either stalled or declined;
    • undergraduate growth, although evident, has not tracked demographic trends;
    • the Office for Students has identified persistent optimism bias in the sector’s funding projections; and
    • competitive pressures are multiplying.

    In many countries, flexible for-profit providers are growing fast, especially in professional and post-graduate education. Many of these are backed by funds with deep investment pockets; some UK for-profit providers are growing very quickly and the expansion of private provision in Germany, France and Canada has been remarkable. In summary, the funding challenge is not only real but increasingly profound.

    Institutional responses to these challenges have been extensive. Almost all universities are now undertaking significant change programmes. There have been major strides in revising operating models, especially for professional and support services, and the impact has been significant. On the other hand, although portfolio reviews are widespread, there have been fewer developments in reshaping business models for teaching and research, though some do exist. Core delivery arrangements largely remain based on a two-semester or three-term model. Staff-student ratios which, as the King’s College Vice-Chancellor Shitij Kapur has repeatedly emphasised are low by international standards, have not been significantly shifted. Undergraduate study remains relatively inflexible. Module sharing and simplified credit transfer arrangements remain small scale. Estate use has not been significantly intensified. All this suggests that individual institutions are finding it difficult to look at the challenge strategically with an eye to the longer term shape, size, structure and nature of the university. There is a lot happening in individual change plans, but probably not enough. Without a secure and sustainable core academic model, institutions will be forced into repeated restructurings, which will not be comfortable for them or for the sector more generally.  

    This is the background to the important Jisc-KPMG report Collaboration for a sustainable future, which was the subject of a this week’s HEPI / Jisc webinar. For all the evidence of individual institutional change, the report argues that a collaborative approach is needed to secure sustainability and reshape the sector. Institutions need to find ways to work together, in back-office functions, in professional services and perhaps in academic delivery. The report acknowledges that there are technical difficulties to overcome, including the requirement to pay VAT on shared services and the need to navigate competition law, though these need to be genuinely tested in practice, but it also argues that the deeper barriers to effective collaboration are cultural. 

    The ingrained habit of individual autonomy, even and perhaps especially in non-competitive services (as Nick Hillman reinforced, no one chooses their undergraduate degree based on the university’s finance system) is a major barrier to significant change.  Moreover, the report acknowledges that collaboration and shared service arrangements are unlikely to deliver cost savings in the short-term – and just now a good deal of thinking in the sector seems to be shaped by Keynes’ dictum that ‘in the long-run we are all dead’. Institutions are caught between the economic realities of the funding challenge and the cultural challenges of collaboration.

    In Four Futures, my HEPI paper published in June last year, I argued that the financial and funding circumstances which produced the sector we have no longer exist. Government is unwilling or unable to pay for the sector most university leaders would like. I argued that there were some policy choices for higher education, and that the sector will almost certainly be different in the future. There are public policy questions here, but there are also questions and challenges for institutions. That means strategic choices for leaders, with universities being much clearer about the things they can do well, and do well sustainably, and building different relationships with other institutions. Leadership matters. As the Jisc / KPMG report observes:

    Given the current trajectory, there is a window of opportunity for institutions to act now and help drive this forward before they are compelled into action by necessity.

    Competition over the past decade has undoubtedly delivered benefits, and we should not understate those, especially in estate investment, student experience, teaching quality and research performance. But competition has also delivered homogeneity, duplication and overlap, and that needs to change.   And for that, as the Jisc / KPMG report identifies, the leadership culture needs to change. Hyper-competitiveness has driven institutionally focused leadership behaviours and associated performance indicators, targets and rewards. But there have been different leadership assumptions in higher education in the past, and other sectors have grappled with the challenge of changing leadership culture. The most successful school improvement initiative of the past generation was London Challenge, in which the performance of schools across the capital was significantly raised. One of the most important shifts was a cultural one, persuading headteachers to think not about ‘my school’ but about ‘[all] our children’: success across the system was a leadership challenge for all.

    The Jisc / KPMG Report is strong on the potential for collaboration to shape the future of the system, though it also makes painful reading on the challenges which have bedevilled this in the past. In the current context, government is unlikely to provide additional funding. The private sector could no doubt provide standardised sector-wide services, but the risks of a single supplier for key services are enormous. If government is not the solution, if the private sector is not the solution, if the status quo is not sustainable, the answer must be imaginative and engaged leadership which is not simply about ‘my institution’ but also about ‘our future’.

    This week’s HEPI / Jisc webinar on ‘Competition or collaboration? Opportunities for the future of the higher education sector’ can be watched back here.

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  • WEEKEND READING: Why Scotland’s student funding system is “unfair, unsustainable, unaffordable” and needs to be replaced with a graduate contribution model

    WEEKEND READING: Why Scotland’s student funding system is “unfair, unsustainable, unaffordable” and needs to be replaced with a graduate contribution model

    • These are the remarks by Alison Payne, Research Director at Reform Scotland, at the HEPI / CDBU event on funding higher education, held at Birkbeck, University of London, on Thursday of this week.
    • We are also making available Johnny Rich’s slides on ‘Making graduate employer contributions work’ from the same event, which are available to download here.

    Thanks to the CDBU and to HEPI for the invitation to attend and take part in today’s discussion. 

    My speech today has been titled ‘A graduate contribution model’. Of course, for UK graduates not from Scotland, I’m sure they would make the point that they very much do contribute through their fees, but the situation is very different in Scotland and I’m really grateful that I have the opportunity to feed the Scottish situation into today’s discussion.

    I thought it may be helpful if I gave a quick overview of the Scottish situation, as it differs somewhat to the overview Nick gave this morning covering the rest of the UK. 

    Although tuition fees were introduced throughout the UK in 1998, the advent of devolution in 1999 and the passing of responsibility for higher education to Holyrood began the period of diverging funding policies.

    The then Labour / Lib Dem Scottish Executive, as it was then known, scrapped tuition fees and replaced them with a graduate endowment from 2001-02, with the first students becoming liable to pay the fee from April 2005. The scheme called for students to pay back £2,000 once they started earning over £10,000. 

    The graduate endowment was then scrapped by the SNP in February 2008. A quirk of EU law meant that students from EU countries could not be charged tuition fees if Scottish students were not paying them but students from England, Wales and Northern Ireland could be charged. This meant that from 2008 to 2021/22 EU students did not need to pay fees to attend Scottish universities, though students from the rest of the UK did. 

    We’re used to politics in Scotland being highly polarised and often toxic with few areas of commonality, but for the most part the policy of ‘free’ higher education has been supported by all of the political parties. Indeed at the last Scottish election in 2021 all parties committed to maintaining the policy in their manifestos. It is only recently that the Scottish Tories have suggested a move away from this following the election of their new leader, Russell Finlay.

    But behind this unusual political consensus, the ‘free’ policy is becoming increasingly unsustainable and unaffordable. Politicians will privately admit this, but politics, and a rock with an ill-advised slogan, have made it harder to have the much needed debate.

    The Cap

    While we don’t have tuition fees, we do have a cap on student numbers. And while more Scots are going to university, places are unable to keep up with demand. Since 2006 there has been a 56% increase in applicants, but an 84% increase in the number refused entry. 

    It is increasingly the case that students from the rest of the UK or overseas are accepted on to courses in Scotland while their Scottish counterparts are denied. For example, when clearing options are posted, often those places at Scotland’s top universities are only available to students from the rest of the UK and not to Scottish students, even if the latter have better grades. As a result, Scots can feel that they are denied access to education on their doorstep that those from elsewhere can obtain. Indeed, there are growing anecdotes about those who can afford it buying or renting property elsewhere in the UK so that they can attend a Scottish university, pay the higher fee and get around the cap.

    Basically, more people want to go to university, but the fiscal arrangements are holding ambition them back. This problem was highlighted by the Scottish Affairs Select Committee’s report on Universities from 2021.

    Some commentators in Scotland have blamed the lack of places on widening access programmes, but I would challenge this. It is undoubtedly a good thing that more people from non-traditional backgrounds are getting into university, it is the cap that is limiting Scottish places, not access programmes. This is a point that has been backed by individuals such as the Principal of St Andrews, Professor Dame Sally Mapstone [who also serves as HEPI’s Chair].

    Financial Woes

    The higher education sector in Scotland, as with elsewhere in the UK, is not in great financial health. Audit Scotland warned back in 2019 that half of our institutions were facing growing deficits. Pressures including pensions contributions, Brexit and estate maintenance have all played a role and in the face of this decline, but nothing has changed and we’re now seeing crisis like those at Dundee emerge. Against this backdrop, income from those students who pay higher fees is an important revenue stream.

    There is obviously a huge variation in what the fees are to attend a Scottish university, considerably more so than in the rest of the UK.

    For example, to study Accounting and Business as an undergraduate at Edinburgh University, the cost for a full-time new student for 2024/25 is £1,820 per year for a Scottish-domiciled student (met by the Scottish Government), £9,250 per year for someone from the rest of the UK and £26,500 for an international student. 

    It is clear why international students and UK students from outside Scotland are therefore so much more attractive than Scottish students.

    However, there is by no means an equal distribution of higher fee paying students among our institutions.

    For example, at St Andrews about one-third of undergraduate full-time students were Scots, with one-third from the rest of the UK and one-third international. The numbers for Edinburgh are similar.  

    At the other end of the scale, at the University of the Highlands and Islands and Glasgow Caledonian, around 90% of students are Scottish, with only around only 1% being international.  

    So it is clear that institutions’ ability to raise money from fee-paying students varies very dramatically, increasing the financial pressures on those with low fee income.

    However, when looking at the issue, it is important to recognise that it is not just our universities who are struggling, Scotland’s colleges are facing huge financial pressures as well. 

    The current proposed Scottish budget would leave colleges struggling with a persistent, real-terms funding cut of 17 per cent since 2021/22. Our college sector is hugely important in terms of the delivery of skills, working with local economies and as a route to university for so many, but for too long colleges have been treated like the Cinderella service in Scotland. The prioritising of ‘free’ university tuition over the college sector is adding to this problem.

    Regardless of who wins the Holyrood election next year, money is, and will remain, tight for some time. It would be lovely to be able to have lots of taxpayer funded ‘free’ services, but that is simply unsustainable and difficult choices need to be made. 

    This is why we believe that the current situation is unfair, unsustainable, unaffordable and needs to change.

    Reform Scotland would offer another alternative solution. We believe that there needs to be a better balance between the individual graduate and Scottish taxpayers in the contribution towards higher education. 

    One way this could be achieved is through a fee after graduation, to be repaid once they earn more than the Scottish average salary. This would not be a fee incurred on starting university and deferred until after graduation, rather the fee would be incurred on graduation.

    In terms of what that fee could be, the Cubie report over 25 years ago suggested a graduate fee of £3,000, which would be about £5,500 today.  This could perhaps be the starting point for consideration.  

    Any figure should take account of different variations in terms of the true cost of the course and potential skill shortages. 

    However, introducing a graduate fee would not necessarily mean an end to ‘free’ tuition. 

    Rather it provides an opportunity to look at the skills gaps that exist in Scotland and the possibility of developing schemes which cut off or scrap repayments for graduates who work in specific geographic areas or sectors of Scotland for set periods of time. 

    Such schemes could also look to incorporate students from elsewhere for Scotland is facing a demographic crisis. Our population is set to become older and smaller, and we are the only part of the UK projected to have a smaller population by 2045. 

    We desperately need to retain and attract more working-age people. Perhaps such graduate repayment waiver schemes could also be offered to students from the rest of the UK who choose to study in Scotland – stay here and work after graduation and we will pay a proportion of your fee. A wide range of different schemes could be considered and linked into the wider policy issues facing Scotland. 

    According to the Higher Education Statistics Authority (HESA) there were 3,370 graduates from the rest of the UK who attended a Scottish institution in 2020/21. Of those, only 990 chose to remain in Scotland for work after graduation. Could we encourage more people to stay after studying?

    Conclusion

    A graduate fee is only one possible solution, but I would argue that it is also one with a short shelf life. As graduates would not incur the fee until they graduated, there would be a four-year delay between the change in policy and revenue beginning to be received. Our institutions are facing very real fiscal problems and there is a danger of a university going to the wall. 

    If we get to the 2026 election and political parties refuse to shift the dial and at least recognise that the current system is unsustainable, then there is a danger that nothing will change for another Parliamentary term. I don’t think we can afford to wait until 2031.

    There is another interesting dynamic now as well. Labour in Scotland currently, publicly at least, oppose tuition fees. However, there are now 37 Scottish Labour MPs at Westminster who are backing the increase of fees on students from outside Scotland, or Scottish students studying down south. Given the unpopularity of the Labour government as well as the tight contest between the SNP and Labour for Holyrood, it seems unlikely that position can be maintained.

    All across the UK there are increasing signs of the stark financial situation we are facing. Against that backdrop, along with the restrictions placed on the number being able to attend, free university tuition is unsustainable and unaffordable. People outside Scottish politics seem to be able to see this reality, privately so do many of our politicians. We need to shift this debate in to the public domain in Scotland and develop a workable solution.

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