Thursday 5th December saw the release of the autumn statement from the Chancellor of the Exchequer. With a bit of a surprise in there about student number controls.

After quoting from the 1960 Robbins report, the statement describes how there has been an increased demand of higher skilled workers, and how there is still a salary premium for graduates. Higher education is therefore considered as a good investment for those who wish to pursue it (it might be useful to look at the recent BIS document  where the benefits of HE to both the individual and society, are described as being more than just economic).

A key change then is:

“However, this strong demand for higher education significantly exceeds the supply of
places. This is in part because the numbers of students providers can accept have been tightly
controlled since 2009. This cap acts as a bar to aspiration, as people with the grades to enter
higher education are excluded from doing so. And it also prevents the UK from developing the
highly-skilled workforce demanded in modern economies.
1.202 Autumn Statement 2013 announces that the government will remove the
cap on student numbers at publicly-funded higher education institutions in England
by 2015-16. This will enable institutions to expand their provision to meet demand from an
estimated 60,000 young people a year who have the grades to enter higher education but
cannot currently secure a place. For 2014-15, the government will significantly increase
the cap for HEFCE-funded institutions by 30,000, allowing those institutions that want
to begin expanding straight away to do so, and encouraging competition. To ensure that
institutions provide places in the subjects most needed in the economy, the government will
provide extra funding for STEM students of £50 million per academic year from 2015-16.”

An early response by University Alliance said:

“The announcement of additional student places is excellent news for the students, universities and the UK. This shows that the Government are future focussed and fully recognise the role that graduates and universities play in driving the UK economy towards a more prosperous future.

“These extra places will ensure the UK can meet the need for additional highly skilled graduates helping us meet the demands of the future economy.

“Despite the difficult climate for all young people entering the job market it is still the case that a degree is by far the best route for most individuals. Universities will work hard to help with the transition into employment for all students.”

I think we can expect other similar responses from the other mission groups.

The expansion of student numbers will be funded by the sale of part of the student loan book. The statement goes on to say:

” Freeing higher education institutions from number controls will help improve quality
in the sector by increasing competition and allowing institutions who face strong demand
to expand. To maintain quality in the sector and ensure value for money, the government
will retain number controls at alternative providers in 2014-15 on the basis of their
2012-13 levels. From 2015-16, it will allow student numbers at alternative providers
to be freed in a similar manner as for HEFCE-funded provision. The higher education
sector has an internationally excellent reputation for quality. The government will continue to
closely monitor quality of provision across the sector and reserves the right to reimpose number
controls on institutions that expand their student numbers at the expense of quality”

I do think that the first sentence needs further examination. Firstly, increasing competition will not necessarily raise quality (especially when this is term is not defined). Secondly, many institutions may chose not to increase numbers of undergraduate students, despite rising demand, as they may  not be able, or indeed want to meet that demand.

The converse of course, is not reported in the statement. In encouraging competition, the situation may become more difficult for some universities, who may have relied on recruiting students who were unable to get into more  selective institutions. As the SNC is removed, so is some of the protection that the current regulated market provides. It can be well argued that this is a form of protectionism that a free market should of course not support.

The ability of alternative providers to be freed from number controls also from 2015-16 must present a risk, in terms of the number of loans that the government might need to provide for students at these providers, recognising the impact on BIS finances caused by  the rapid expansion in HNC/HND numbers at these institutions.

What will be interesting now, is how universities will choose to plan or change their student recruitment strategies, and to what extent this statement might impact on strategic plans that were not anticipating a removal of number controls.

Stefan Collini, (author of “What are Universities For?” in which he challenged the common claim that universities need to show that they help to make money in order to justify getting more money and argued that we must reflect on the different types of institution and the distinctive roles they play) has published an essay in the London Review of Books entitled “Sold Out” which is a review of “Everything for Sale? The Marketisation of UK Higher Education” by Roger Brown, with Helen Carasso and “The Great University Gamble: Money, Markets and the Future of Higher Education” by Andrew McGettigan.

This is a fascinating and detailed analysis of the rushed experiment being carried out on the English higher education system, and is timely after the last week’s BIS announcements about removing designation from a number of private colleges, who were otherwise consuming more of the student support budget that originally anticipated.

Collini clearly worries about what has been done in very recent years to UK HE:

“Deep changes in the structure and dominant attitude of contemporary market democracies are everywhere putting pressure on the values that have sustained the ideals of public higher education. Unfortunately, the UK has put itself in charge of the pilot experiment in how to respond to these changes. Other countries are looking on with a mixture of regret and apprehension: regret because the university system in this country has been widely admired for so long, apprehension because they fear similar policies may soon be coming their way. In many parts of the world English higher education is, to change the metaphor, seen less as a useful pilot experiment and more as the canary in the mine.”

He writes about the change in the market, and the desire of government to create a “level playing field” to encourage competition:

“Anyone who thinks the change in 2010 was merely a rise in fees, and that things have settled down and will now carry on much as usual, simply hasn’t been paying attention. This government’s whole strategy for higher education is, in the cliché it so loves to use, to create a level playing field that will enable private providers to compete on equal terms with public universities. The crucial step was taken in the autumn of 2010 with the unprecedented (and till then unannounced) decision to abolish the block grant made to universities to support the costs of teaching – abolish it entirely for Band C and Band D subjects (roughly, arts, humanities and social sciences) and in substantial part for Band A and B subjects (roughly, medicine and the natural sciences). From the point of view of private providers, that change removed a subsidy to established universities which had hitherto rendered private undergraduate fees uncompetitive in the home market. Now that every type of institution offering these subjects is largely dependent on student fees, the way is open to rig the market to drive down the price.”

W can clearly see the effect of one of these changes this week. Reports show a huge unanticipated increased spend by BIS on loans for students of HNCs and HNDs at private providers, with a knock on effect that a numberof private colleges have just lost their designation status to prevent them recruiting further.

Collini also discusses the idea of “reform” as described originally in the Browne report, and says

 “the implication is that there is something wrong with the present arrangements that these changes will put right. And the logic of such reform is to reclassify people as consumers, thereby reducing them to economic agents in a market. The cunning of government propaganda, in higher education as elsewhere, is to pose as the champion of the consumer in order to force through the financialisation and marketisation of more and more areas of life. Who do the student-consumers need assistance against? Who is preventing them from getting what they want and therefore should have? Universities, it seems.”

An interesting analysis follows of the impact of tuition fees – and how a potential student might perceive the difference between £8000 a year and £9000 a year. In terms of paying back teh money, there is little difference that an 18 year old might plan for. However, a rational decision  might be to opt for the institution that might be investing an extra £3000 in their teaching and learning experience. Collini concludes:

Overall, therefore, the price differential is a phantom factor that says more about a university’s confidence than it does either about the value for money of particular courses or (to any great extent) the future financial burdens of the graduate.

And when he considers the rate at which graduates pay back loans, he notes the following:

It will be no surprise if, after a while, there are statistics for graduate repayment rates not just from different universities but from different courses. If a particular course shows a very low repayment rate, why not harness ‘anti-scrounger’ sentiment and cease to treat it as eligible for publicly backed loans? The joke is that a fee system is justified, in coalition rhetoric, as making universities more independent. The reality is that it may provide an alternative lever by which to force ‘market’ judgments on universities in deciding which courses to offer.

This of course is the opposite of that from the recent UUK report on UK HE finance, where it was suggested that “public funds should be used to provide support for those students and courses where investors may not see a return”.  In either scenario there has to be a worry about how some subjects and their students will be funded in a brave new world, if study and learning cannot be reduced to a set of purely economic returns.

It’s a long article, but I recommend reading it – and McGettigan’s book is now on my reading list.

A new publication by Universities UK entitled”The Funding Challenge for Universities” came out last week, with the following chapters and key points.

Chapter 1 The Economic Challenge

Under economic challenge the report reviews the evidence that graduates earn more than those without a degree, and concludes that this is still the case. Although there is evidence that some graduates enter non graduate jobs initially, they rapidly move upwards through organisations to positions where a degree becomes necessary.

The report concludes that even with the growth in the number of graduates, the continuing differential in pay indicates that there is not an over supply of graduates and that with evidence of a future need for more graduate level skills, that there may be scope for the number of graduates to grow further, to support economic growth.

Chapter 2 The Funding Challenge for Universities in England

This chapter reports that between 2005-06 and 2011-12, income to universities rose by 44%, while expenditure rose by 39%. The income has changed from being dominated by HEFCE teaching grant, to being mainly from tuition fees.

At the same time, there has been an increasing reliance on organisations to fund infrastructure improvements from their own reserves, which suggest that should student number controls be lifted , resulting in any increase in enrolments, universities may not be able to fund the capital infrastructure needed to support the student experience.

Reviewing the difference between the number  applicants to university, and the number who accept places, suggests there is still unmet demand which could also support a growth in the number of enrolments.

Chapter 3 The Funding Challenge for the Government

Clearly any increase in the number of students enrolling would lead to an increase in the cost of student loans and an increase in public sector borrowing.

A number of ways to mediate against this are proposed, for instance increasing interest rates, increasing time for repayment, reducing the repayment threshold. The other changes are more macro – reducing other elements of spend by BIS, reducing spend by other government departments, or increasing government income.

Private funding is mentioned at this point.

Chapter 4 Funding Challenge Faced by Other Countries

This chapter looks at funding mechanism in other countries, where growth in tertiary education is happening at the same time as constraint on public resources.

The US, Korea and Hungary are considered in detail.

Chapter 5 Conclusions

The report concludes that there is a need to continue to increase the number of graduates, while recognising that funding challenges exist if quality and competitiveness are to be maintained. Three main factors are identified: increased government funding; reduction in RAB charges; need to acres funding for capital expenditure now to accommodate student numbers in the future.

The amount of private funding in other systems is highlighted, and the report goes on to state that UUK will now be looking at alternative student finance models for England, with the following principles:

• student number control – that institutions should have autonomy over admissions and selection and thsi shoudl not be dictated to by the funding process
• no student to be disadvantaged by background
• public-private finance models – recognition that public funding should be part of the system but should be focused on providing support where the market cannot sustain investor return requirements, eg if the student or course presents an increased level of repayment risk to investors
• alternative forms of funding – should not constrain other forms of funding or prevent insttutions developing independent models to fund their students
• system to cover all institutions
• tuition fees – flexibility to be retained to vary key aspects, eg level of level of fee cap, earning threshold before repayments

 My Comments

A no doubt welcome and realistic paper which is looking at the reality of how we will fund HE in the future, particularly since there is  a recognition of the need to increase further the number gaining degree level qualifications. The report certainly starts to provide some ideas to what Steve Smith described as an avalanche (from an earlier blog post)

“an avalanche really is coming in terms of the costs of student support.

I cannot see that system surviving, and expect any incoming government in 2015 to look again at the student finance system and to try to reduce its costs. Think for a moment about how it might do that, and how that might influence student demand for different types of institutions. To mention just one controversial way to reduce costs, what would be the effect of re-examining the Browne review’s notion of requiring minimum qualifications before students gain access to the loan system?”

There must be some worries here though too though. The paper suggests that extra funding could come from a realignment of BIS or other budgets, or increased government revenue. In the current climate of austerity, that seems unlikely, and the focus is more likely to be around how the student finance system will be able to operate in future.

There is acknowledgement that the fee cap should be able to rise (it cannot stay where it is anyway, as inflation will reduce the real income to universities over time). the question will be whether a raised fee cap would see all institutions again charging the maximum or close to it, or a real market in fees.

The suggestion of allowing different forms of finance is interesting – eg parental support or increased private investment. This does worry me though, particularly in terms of being able to ensure that social mobility of those who do not have access to such funding is not affected.

The suggestion that public funds should be used to provide support for those students and courses where investors may not see a return is equally worrying – will students, particularly those from lower income or risk  and debt averse households be more likely then to be channeled in to the subjects where there is a clearer economic reward, rather than the education that they want.

An area not covered is how we might actually deliver undergraduate education. The implication in the reports is that any growth in numbers needs to be matched with a growth in capital investment and infrastructure. Although this is desirable, there are other things that could be considered. For instance, how can universities use their estate more efficiently? Can fast track degrees allow growth in graduate numbers with a reduced capital requirement? Can clever use of technology reduce the reliance on the physical campus?

I look forward to the next publication in the series.