Welcome to Show Don’t Tell.
In today’s episode we’re going to talk university tuition fees, loans and Higher
Education funding. How the Government grossly underestimated changes to fees, used off-balance
sheet trickery with loans, made Universities a billion pound profit every year and the
United Kingdom the most expensive country in the world to receive a degree. Changes to higher education in 2010, caused
rioting in the streets and Camilla Parker Bowles was even poked, with a stick.
This is Show Don’t Tell, so let’s get stuck in. The debacle of Higher Education is a story
told in 3 chapters: 1. Changes to Tuition Fees
2. Changes to Student Loans 3. Changes to University funding
Let’s begin with tuition fees. Back in the 1960’s only around 200,000 students
were at University, but the Government would pay for your entire education and living expenses,
without any expectation of repayment.
Since then, with the goal of having 50% of young people attend University, total student
numbers have increased tenfold to 2.3m today. Although a noble goal, Government didn’t
like the cost of sending so many people to University, so in 1998 tuition fees were introduced. Back then, fees were £1,000 per annum,
increasing to £3,000 in 2006. Then in 2012 fees changed to a new range of
£6,000 to £9,000. At the time the Government introduced this policy they expected the average
degree to cost £7,500. But today the majority of Universities charge
the maximum allowable price for every single degree, with inflation uplifts the average
cost of a degree in 2018 is an eyewatering £9,012 a year.
So, what happened to the expectation of £6,000 degrees, what went horribly wrong? The answer
is reassuringly simple, incompetence. The Government believed the Office for Fair
Access or “OFFA”, with a staff of just 4 people would be responsible for controlling
and restricting fees. They though OFFA could withdraw funding and even fine Universities
for not using their £9,000 fees correctly. However, there was a flaw. OFFA had absolutely
no power to do any of these things. As OFFA’s Director said later: “The Treasury made assumptions…they thought
that Offa was going to be in a position to have legal powers to impose certain fee levels.
How they came to that view I cannot say because it was obvious to me from Day One that [Offa]
didn’t. Now the Government is in some difficulty in limiting expenditure to the levels that the Treasury has assumed” And to the surprise of nobody, Cambridge University announced in early 2011 it would be charging
£9,000, and most Universities quickly followed suit, leading to the system we have today. And the resulting monopoly of £9,000 flat
fee is absolute madness. There is no difference to students in cost,
regardless of what course they study or where they receive their degree. There is no connection
to cost of education or to the economic value of education received. Not that there isn’t fee variations out
there. For overseas and therefore unregulated students the cost for undergraduate degrees
varies wildly between both Universities and courses. The same is true for unregulated
postgraduate degrees. Indeed, the Browne Report published in 2010, argued against a fee cap
precisely to avoid the situation that has occurred.
There is clearly market pricing out there for all degrees, but the Government continues
to ignore it for standard degree education. I find it madness that the Government accepted
and has prolonged this state of affairs. I can’t say it better than the Minister
himself when answering a question in the first 15 minutes of the policy debate in 2010: Now let’s talk student loans. The new student loan regime was enacted after
the tuition fee changes had been made, and represented a great opportunity for the Government
to try and recoup some of the now inevitable overspend. Under the terms of a student loan you pay
the Government 9% of your income over £25,000. If, however, after 30 years, you still haven’t
paid off the balance, the loan is extinguished. However, the student loan is a tad perverse,
because if you are a particularly high earner, you can pay off your loan sooner, not make
interest payments into old age, resulting in a lower cost for your degree than people
who earn less money. So the Government used the 2011 Education
Act to remove the provision in the original 1998 Teaching and Higher Education Act that
capped interest rates on Student Loans. This allowed a 4 fold increase in the interest
rate that was charged to students and the time horizon for loans was extended from 25
years to 30 years. But of course there were problems.
First, higher than expected tuition fees, meant that the student loan book, forecast
to be £69bn in real terms is closer to £74bn, an average overspend of £1 billion every
year. Second the Government’s estimate of loans
repayments. Originally the government assumed a 30% write off on each student loan issued.
However, it turns out graduates don’t receive the income the Government hoped, so with no
other changes, in 2014 they increased the write off was going to be 45%, a 50% increase
on the original expectations. Combining these two facts, I would estimate the Government thought student loans would
cost 30% of around £14bn a year for combined tuition and maintenance loans, that’s a
loss at loan issuance of around £4.2bn. Instead it’s going to cost 45% of £15bn of loans
each year, an increase of £2.6bn per annum compared to the initial costing.
And this additional cost of the student loan falls entirely on taxpayers. But there’s another twist to this.
Common sense, and in fact accounting standards for companies, would tell you that the expected
loss on student loans should contribute towards the budget deficit as it’s a clearly estimable
loss made within the year, and therefore an expense.
But if you think student loans are counted in the big, important reported budget deficit,
you’d be wrong. The annual budget deficit of around £40bn does not include this £6.8bn
loss on student loans. Quite an incentive for the Government to switch
from grants, and indirectly, to perform student loan sales.
All pointless shenanigans that don’t benefit the population but enable political points
scoring. Fantastic. Finally, lets talk about how funding for Universities
changed in 2012. Funding from the Government is provided directly
to Universities through the snappily titled “Higher Education Funding Council for England”,
now known more simply as the “Office for Students”. The Funding Council banded degrees into different
classes, and gave Universities an amount of money that varied for each category.
Prior to 2012, funding varied from the top Class A, clinical medical degrees, receiving
around £15,000 per student, all the way down to Class D, classroom only subjects which
received around £4,000 per student. When shifting the burden of University onto
students and away from the Government, these funding rates were reduced following the 2012
fee changes. As you can see, support for the higher class
degrees has reduced, but support at the lower end has been abolished entirely. Those Class
D, classroom only degrees receive no money from the Government at all. But remember, all degrees are charged at £9,000
not £6,000 and when we look at the change in the change in fees versus the change in
funding you can see those Class D degrees have actually received the biggest increase
in money available thanks to the £9,000 flat rate fee. This was exactly the situation that the people
who designed the tuition fee scheme did not want to occur, and resulted in the Universities
receiving far more money that anyone had expected. Let’s listen to Lord Browne, the architect
of the 2010 scheme, decrying the issue at a recent Select Committee. In fact, because all this money gets thrown
into the same pot to fund Universities, the Higher Education Funding Council cares not
a jot what Universities do with all the money provided for degrees. As they say themselves, Universities are “not
expected to mirror our calculations in their own internal spending”, and as they “do
not impose the burden of accounting in detail for expenditure.” Well, I think when you give £1.5bn away,
you kind of can impose the burden of accountability, that maybe people who have spent nearly £30,000
on a degree, might even appreciate a little accountability for where their money went,
that with £1.5bn at stake, Universities would probably bear the burden, to get the money
in return. What have these changes meant to the finances
of Universities? Well, it’s simple, more revenue, same cost
equals more profit. Universities now run the biggest financial
surpluses they’ve ever done, which I believe is largely due to the impact of these funding
changes on Universities. So it turns out the 2012 system Government
created is very effective, but only at transferring money from students and taxpayers to Universities.
And that brings us to the end of today’s episode.
I find it amazing that no-one ever stood up and said “This system doesn’t work the
way it’s supposed to work” and the only people who are benefitting are Universities.
Students are worse off and the Government is worse off. All the woes of the sector are
just covered over through extortionate pricing for many university degrees. Also, I’ve never read so much nonsensical
jargon in my life, as plowing through this topic. I’m going to propose
“A transformational footprint to widen sustainable collaborative development outcomes” I’ll
fill the details later, but if any vice-chancellorship’s interested in knowing more, feel free to get
in touch. Anyway, I hope you enjoyed this episode, this
is Show Don’t Tell and I’ll see you next time.