The University Challenge - This is no game show and there are few quick answers
Successive UK Governments over the past 25 years have made a mess of the university system. It is unsustainable, out of control and no one is being held to account. It is time for a more realistic look at what university education is for, and how it should be run and funded.
One can make two unarguable statements about higher education; firstly, for a country to advance economically, it needs a well-educated workforce, and secondly, someone has to pay for it. It has now dawned upon the UK Government that change to, and more oversight of universities is required. Hence a review of student finance been launched by the Prime Minister, a new body called ‘the Office for Students’ has been set up, and at the same time cross-party MPs on the Treasury Committee are telling the Government to re-examine the student loan system. However, committees and quangos rarely deliver the leadership and stamina to see through the change required.
Successive Errors
There is always a little history to cover so as to understand how this mess was arrived at. During the late nineties, the last Labour Government promoted a concept to send 50% of school leavers to university, (up from 3.4% in 1950), powered by the ideal that the way to a better career was through an honours degree and that new employment opportunities would allow the vast majority of graduates to pay back a proportion of the cost of the education (which they were now being made to contribute to). By 2012, that 50% target had almost been achieved, but the cost of the balance of the tuition fees lay with the Government. Hence the incoming Coalition Government (with no money in the Treasury for anything) announced plans to allow universities to charge up to £9,000 tuition fees per year, through the use of the Student Loans Company. It meant that a graduate would leave university with an average debt of approximately £40,000 or more, with the additional sting that interest is charged on the loan from the start. The Government’s assumption was that average higher pay of graduate salaries would compensate for the debt incurred, and for those that could not afford the repayment, loans would eventually be written off. Fast forward to the job market of the 2018 information age, where average graduate pay is lower than possibly appreciated, unpredictable, and increasingly irrelevant to many of the traditional degrees on offer, and we clearly have a repayment problem for many and a tax bill for future generations (deferred taxation).
What price a degree?
Very little higher education should be completely free. There should be some sort of contribution from the student, be that a very modest one for the less well off. Everyone should understand that there is a cost to education and they should value it, and by and large, the previous payment system in England, which asked for education fees of approximately up to £3,500 per year, with the remaining balance being covered by the government (that means taxpayers) appeared fair. The problem is that since 2012, students are being asked to pay for the entire cost of their university education, plus a whacking great interest charge of the RPI added to 3%; at a time when the banks can borrow money of the Bank of England at a base rate of .5%. How does that stack up? It is as though the finance industry is treating university education like a loan shark book. If one now remembers that this interest rate is compound (any unpaid interest is added to the original capital sum borrowed), one can see how the majority of loans are never going to be paid back in full. It is deeply regrettable that funding for university has been tainted by this ‘credit card principle’, where people are encouraged to borrow larger sums than they can afford, for a service they may not need, and then end up in a never ending spiral of just paying off the minimum balance, with the capital sum growing all the time. The loans concept is effectively saying to students, “don’t worry, it’s only debt and paying back just the interest is acceptable”. What does that teach the next generation of workers?
Ironically, well paid graduate jobs (e.g. careers as a successful lawyer or in finance) will be able to pay off their loans earlier, thus escape the cost of the accrued interest payments. Those graduates going onto careers with middle incomes, such as teachers, doctors, civil servants and the equivalent in the private sector will end up paying off their entire student loan and all the compound interest, somewhere in their sixties. Those graduates who never make it to a middle income salary will pay less than the full amount, as they are unlikely to start paying back the loan until later in a career and will then run out of time to cover the whole capital sum, (but will be taxed for life all the same). So it does not take long to work out who is paying for the write-off of loans - it is not the very wealthy, nor those on smaller incomes. It’s the hard working middle, having paid not only their capital sum, but also all the interest.
Unintended Consequences - the Free Market
However, it gets worse. The government did not expect every university to charge £9,000 per year. That was an ‘up to’ figure, supposedly reserved for degrees that cost more to deliver and for top universities. So a degree course in electrical engineering or computer science from say Manchester University will cost the student the same as a less valuable and less work relevant degree from a smaller, less capable university. Armed with this huge source of revenue from all qualities of degree, universities have not only been able to encourage more people to attend a university degree course than perhaps needed to, but they can also spend the new revenue on anything they like. As universities compete against each other for places (misunderstanding their purpose and confusing themselves with free market business), money is being spent on new eye catching capital projects and most notably, on excessive executive pay. Vice Chancellor and senior university executive pay has been in the headlines recently. It is grotesque, disproportional and inappropriate; all at a time when universities can see their students taking on long term debt and at a time when they are seen to cut things such as lecturers pensions. University boards will cite that they need these huge salaries for executives to entice and incentivise the top talent, but quite frankly, it is a scandal, driven by self-serving remuneration committees (often composed of similar executives from the same profession) that look after their own kind, fail to comprehend where the money comes from to pay these salaries, (the student debt) and lack the genuine leadership to understand what their role really is.
Splitting the UK
To add to the toxicity of the student loan issue, it must be remembered that it applies to those that live in England, Northern Ireland and Wales. In Scotland, university tuition fees are free to Scottish resident students, the bill being paid for by the Scottish Government (and ultimately the Scottish taxpayer, or possibly the UK’s block grant contribution). Such an arrangement is likely to be unaffordable to the Scottish Government long term and deeply divisive to the UK at a time when the UK Government is desperate to maintain harmony and support for the Union. The two extremes of free tuition on the one hand and full payment of fees by students on the other, are both wrong. Compromise is required and we need a UK national strategy for university funding.
The way ahead
It would seem clear that too many school leavers are being sent to university to do traditional degrees or degrees with little value related to the future workplace and thus the numbers attending need to be reduced. The Government need to study the requirement and listen to industry and employers. There should be more focus on vocational training and education, apprenticeships and practical courses where school leavers are part time students and part time in work. Germany has a great example of this. Furthermore, the duration of courses could also be tailored to the requirement, thus some courses may only be one or two years, (or three years as a part time student).
The UK needs to get away from the stigma attached to degrees, (outside of key subjects that demonstrate purpose and prepare students for careers) and start making higher education relevant to future work requirements. The result will be more young in the workplace earlier on, learning life skills, less or no debt incurred by either the educating body, government or the student, less demand for immigrant labour, and a system that would be equitable across the whole of the UK, for both those that suit university and those that suit other forms of workplace education and training.
For those students where an honours degree makes sense, a sensible level of financial contribution to the tuition fees seems only fair, with assessments being made for the less financially well off. Loans should be constructed to offer interest free periods, (when the student is in education and in the early stages of a career below the financial threshold where repayment starts). Interest, when charged, should follow the bank base rate and nothing more, for it is immoral for the government to make money out of interest payments from students. Instead of the Government piling university fee debt ‘off balance sheet’ by a combination of placing the burden with students, and an intention by government to write off a large proportion of bad debt in the future, a realistic calculation needs to be made to work out what the average student could afford to pay back. The balance of the fees should come from central taxation, from industry sponsoring more students on specific degrees and from endowments given by wealthy benefactors.
As another suggestion, the Public Sector is still a huge and necessary employer of graduates. Recruitment and retention is hard in many departments and a strong incentive would be to link repayment of university fees to time served in Public Sector careers. Whilst this would place the expense on the employer, it would be a cost effective way to recruit the right talent and then retain it. A £40,000 debt, over 15 years, could be paid off by the employer at £2,600 a year, which would easily be recouped by annual costs saved in retention schemes, job marketing and costs saved from lower employee churn and higher job satisfaction. Certain vocational degrees where there is a shortage of trained graduates could also be subsidised by Public and Private Sector employers to reduce shortfalls in certain areas, such as the nuclear industry, in nursing and certain teaching roles.
Intelligent Leadership required
A lack of control and poor decision making by successive governments has left the UK’s higher education system in a mess. The Government realise this, as seen from the various studies and committees that have been set up. However, there are no easy answers and certainly few cheap solutions to fixing the problems of how university education is run and funded. There is a massive challenge ahead and fresh ideas and strong leadership is needed to put the UK system back on track. The Government must take more responsibility, set out a clearer and sustainable vision of what universities are for and how they can be funded, hold university boards to account, make bold decisions and implement them before it get worse.
One can make two unarguable statements about higher education; firstly, for a country to advance economically, it needs a well-educated workforce, and secondly, someone has to pay for it. It has now dawned upon the UK Government that change to, and more oversight of universities is required. Hence a review of student finance been launched by the Prime Minister, a new body called ‘the Office for Students’ has been set up, and at the same time cross-party MPs on the Treasury Committee are telling the Government to re-examine the student loan system. However, committees and quangos rarely deliver the leadership and stamina to see through the change required.
Successive Errors
There is always a little history to cover so as to understand how this mess was arrived at. During the late nineties, the last Labour Government promoted a concept to send 50% of school leavers to university, (up from 3.4% in 1950), powered by the ideal that the way to a better career was through an honours degree and that new employment opportunities would allow the vast majority of graduates to pay back a proportion of the cost of the education (which they were now being made to contribute to). By 2012, that 50% target had almost been achieved, but the cost of the balance of the tuition fees lay with the Government. Hence the incoming Coalition Government (with no money in the Treasury for anything) announced plans to allow universities to charge up to £9,000 tuition fees per year, through the use of the Student Loans Company. It meant that a graduate would leave university with an average debt of approximately £40,000 or more, with the additional sting that interest is charged on the loan from the start. The Government’s assumption was that average higher pay of graduate salaries would compensate for the debt incurred, and for those that could not afford the repayment, loans would eventually be written off. Fast forward to the job market of the 2018 information age, where average graduate pay is lower than possibly appreciated, unpredictable, and increasingly irrelevant to many of the traditional degrees on offer, and we clearly have a repayment problem for many and a tax bill for future generations (deferred taxation).
What price a degree?
Very little higher education should be completely free. There should be some sort of contribution from the student, be that a very modest one for the less well off. Everyone should understand that there is a cost to education and they should value it, and by and large, the previous payment system in England, which asked for education fees of approximately up to £3,500 per year, with the remaining balance being covered by the government (that means taxpayers) appeared fair. The problem is that since 2012, students are being asked to pay for the entire cost of their university education, plus a whacking great interest charge of the RPI added to 3%; at a time when the banks can borrow money of the Bank of England at a base rate of .5%. How does that stack up? It is as though the finance industry is treating university education like a loan shark book. If one now remembers that this interest rate is compound (any unpaid interest is added to the original capital sum borrowed), one can see how the majority of loans are never going to be paid back in full. It is deeply regrettable that funding for university has been tainted by this ‘credit card principle’, where people are encouraged to borrow larger sums than they can afford, for a service they may not need, and then end up in a never ending spiral of just paying off the minimum balance, with the capital sum growing all the time. The loans concept is effectively saying to students, “don’t worry, it’s only debt and paying back just the interest is acceptable”. What does that teach the next generation of workers?
Ironically, well paid graduate jobs (e.g. careers as a successful lawyer or in finance) will be able to pay off their loans earlier, thus escape the cost of the accrued interest payments. Those graduates going onto careers with middle incomes, such as teachers, doctors, civil servants and the equivalent in the private sector will end up paying off their entire student loan and all the compound interest, somewhere in their sixties. Those graduates who never make it to a middle income salary will pay less than the full amount, as they are unlikely to start paying back the loan until later in a career and will then run out of time to cover the whole capital sum, (but will be taxed for life all the same). So it does not take long to work out who is paying for the write-off of loans - it is not the very wealthy, nor those on smaller incomes. It’s the hard working middle, having paid not only their capital sum, but also all the interest.
Unintended Consequences - the Free Market
However, it gets worse. The government did not expect every university to charge £9,000 per year. That was an ‘up to’ figure, supposedly reserved for degrees that cost more to deliver and for top universities. So a degree course in electrical engineering or computer science from say Manchester University will cost the student the same as a less valuable and less work relevant degree from a smaller, less capable university. Armed with this huge source of revenue from all qualities of degree, universities have not only been able to encourage more people to attend a university degree course than perhaps needed to, but they can also spend the new revenue on anything they like. As universities compete against each other for places (misunderstanding their purpose and confusing themselves with free market business), money is being spent on new eye catching capital projects and most notably, on excessive executive pay. Vice Chancellor and senior university executive pay has been in the headlines recently. It is grotesque, disproportional and inappropriate; all at a time when universities can see their students taking on long term debt and at a time when they are seen to cut things such as lecturers pensions. University boards will cite that they need these huge salaries for executives to entice and incentivise the top talent, but quite frankly, it is a scandal, driven by self-serving remuneration committees (often composed of similar executives from the same profession) that look after their own kind, fail to comprehend where the money comes from to pay these salaries, (the student debt) and lack the genuine leadership to understand what their role really is.
Splitting the UK
To add to the toxicity of the student loan issue, it must be remembered that it applies to those that live in England, Northern Ireland and Wales. In Scotland, university tuition fees are free to Scottish resident students, the bill being paid for by the Scottish Government (and ultimately the Scottish taxpayer, or possibly the UK’s block grant contribution). Such an arrangement is likely to be unaffordable to the Scottish Government long term and deeply divisive to the UK at a time when the UK Government is desperate to maintain harmony and support for the Union. The two extremes of free tuition on the one hand and full payment of fees by students on the other, are both wrong. Compromise is required and we need a UK national strategy for university funding.
The way ahead
It would seem clear that too many school leavers are being sent to university to do traditional degrees or degrees with little value related to the future workplace and thus the numbers attending need to be reduced. The Government need to study the requirement and listen to industry and employers. There should be more focus on vocational training and education, apprenticeships and practical courses where school leavers are part time students and part time in work. Germany has a great example of this. Furthermore, the duration of courses could also be tailored to the requirement, thus some courses may only be one or two years, (or three years as a part time student).
The UK needs to get away from the stigma attached to degrees, (outside of key subjects that demonstrate purpose and prepare students for careers) and start making higher education relevant to future work requirements. The result will be more young in the workplace earlier on, learning life skills, less or no debt incurred by either the educating body, government or the student, less demand for immigrant labour, and a system that would be equitable across the whole of the UK, for both those that suit university and those that suit other forms of workplace education and training.
For those students where an honours degree makes sense, a sensible level of financial contribution to the tuition fees seems only fair, with assessments being made for the less financially well off. Loans should be constructed to offer interest free periods, (when the student is in education and in the early stages of a career below the financial threshold where repayment starts). Interest, when charged, should follow the bank base rate and nothing more, for it is immoral for the government to make money out of interest payments from students. Instead of the Government piling university fee debt ‘off balance sheet’ by a combination of placing the burden with students, and an intention by government to write off a large proportion of bad debt in the future, a realistic calculation needs to be made to work out what the average student could afford to pay back. The balance of the fees should come from central taxation, from industry sponsoring more students on specific degrees and from endowments given by wealthy benefactors.
As another suggestion, the Public Sector is still a huge and necessary employer of graduates. Recruitment and retention is hard in many departments and a strong incentive would be to link repayment of university fees to time served in Public Sector careers. Whilst this would place the expense on the employer, it would be a cost effective way to recruit the right talent and then retain it. A £40,000 debt, over 15 years, could be paid off by the employer at £2,600 a year, which would easily be recouped by annual costs saved in retention schemes, job marketing and costs saved from lower employee churn and higher job satisfaction. Certain vocational degrees where there is a shortage of trained graduates could also be subsidised by Public and Private Sector employers to reduce shortfalls in certain areas, such as the nuclear industry, in nursing and certain teaching roles.
Intelligent Leadership required
A lack of control and poor decision making by successive governments has left the UK’s higher education system in a mess. The Government realise this, as seen from the various studies and committees that have been set up. However, there are no easy answers and certainly few cheap solutions to fixing the problems of how university education is run and funded. There is a massive challenge ahead and fresh ideas and strong leadership is needed to put the UK system back on track. The Government must take more responsibility, set out a clearer and sustainable vision of what universities are for and how they can be funded, hold university boards to account, make bold decisions and implement them before it get worse.
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