Peter Ainsworth is the Managing Director of Consulting AM and is the author of Setting Universities Free, How to deliver a sustainable student funding system.
Despite two major reviews within living memory aimed at creating a sustainable funding system for home undergraduates, the system is failing. Students accrue massive debts for degrees of questionable value, taxpayers face enormous losses on defaulted loans, and universities are getting into financial difficulties. Vice-Chancellors have declared the current funding model “broken”.
The sector has been casting around for a solution, but it lacks ideas beyond the begging bowl; seeking more state largesse but putting nothing on the table to deliver better outcomes. There is a pervasive groupthink that believes that all monies must come from the government. This mindset has even captured the former Conservative Education Secretary, Justine Greening, who has proposed a graduate tax, an idea rejected by both reviews and certain to trigger an exodus of the best and brightest.
The status quo is reminiscent of the economic challenges that Margaret Thatcher faced. She famously said, “There is no alternative” (TINA), arguing that free-market policies were a necessary response to the productivity and fiscal problems of the time.
Claiming that there has already been a “marketisation” of higher education is like saying that Marx was a capitalist. Absent the “invisible hand” of a pricing mechanism, and there is no “market” in “marketisation”. The system in place is one in which all universities are equal, but some universities are more equal than others, with a “private box” elite Oxbridge education on sale – unfairly – for the same price as “standing only” at a non-league institution.
The outcome of Soviet pricing is Soviet levels of stakeholder dissatisfaction. Having the Government set prices has made tuition fees and repayment terms, as Charles Clarke recently expressed it, a “political football”, and one that is so toxic even Labour does not want to touch it.
Yet there is a part of higher education in which pricing freedom still rules – for postgraduate education and for international students and here – inevitably – the system is booming. Indeed, the efficient and profitable free market element is what keeps the sector afloat, subsidising the loss making “public” component.
The solution is to borrow from the postgraduate and international student model and embrace a new approach, rooted in the principles of freedom, responsibility, and competition. In this new system, universities would be allowed to set their own tuition fees for home undergraduates, above the level of the state loan. With this freedom comes accountability; universities would be obliged to offer private income-contingent loans to their students to make up the difference between the government loan and the new fee level. Buckingham has adopted this model.
This approach is economically sound and politically viable. By allowing universities to set their own fees, the issue of tuition fees would be removed from the political arena. Universities, not the government, would be held responsible for their choices about fees. As the additional fees are funded by income contingent loans granted by the university itself, the interests of institution and student would be aligned, ensuring that teaching would be directed towards what adds measurable value – better career outcomes.
This approach could be used to address the shortage of medical students. Government puts caps on numbers due to the high costs that it faces from funding their education. This is ironic, since all studies into degree returns show that medics get the highest financial returns, so they should be able to bear a greater share of the cost.
Buckingham is outside the cap and fills places on its four to five year course at £175,500. If the public universities charged more, relieving pressure on the public purse, the cap could be lifted, more could be trained, and the monies saved could be re-directed to pay higher salaries in employment with the NHS, so reducing the flow of those who leave the country for greener pastures abroad.
he advent of generalised AI will transform the employment landscape and educational methods. This calls for experimentation to see what works in the new environment. The approach outlined will facilitate a lighter touch regulatory environment, since institutions would be motivated to deliver better outcomes through their stake in students’ success. Giving universities greater freedom to innovate and adapt to these changes is crucial for the future of higher education against this backdrop, and will ultimately benefit students and institutions alike.
In conclusion, the current higher education funding system has reached the end of the road. There is no alternative but to adopt a new approach. This is the only politically viable way to inject more money into universities and ensure a sustainable future for higher education in this transformative age. Just as the UK successfully tackled the economic challenges of the 1980s with a bold, Thatcherite approach, it can now use a similar strategy to create a more flexible, innovative, and resilient higher education sector that benefits all stakeholders.