Since the 1980s, massification, policy shifts, and changing ideas about who benefits from higher education have led to the expansion of national student loan schemes globally. For instance, student loans were introduced in England in 1990 and generalized in 1998. Australia introduced income-contingent student loans in the late 1980s. While federal student loans were introduced in the US in 1958, their number and the amount of individual student loan debt ramped up in the 1990s.
A lot of academic research has analysed this trend, evaluating the effect of student loans on access, retention, success, the student experience, and even graduate outcomes. Yet, this research is based on the choices and experiences of first-generation student borrowers and might not apply to current and future students.
First-generation borrowers enter higher education with parents who have either not been to higher education, or who have a tertiary degree that pre-dates the expansion of student loans. The parents of first-generation borrowers therefore did not take up loans to pay for their higher education and had no associated repayment burden in adulthood. Any cost associated with these parents’ studies will likely have been shouldered by their families or through grants.
Second-generation borrowers are the offspring of first-generation borrowers. Their parents took out student loans to pay for their own higher education. The choices made by second-generation borrowers when it comes to higher education and its funding could significantly differ from first-generation borrowers, because they are impacted by their parents’ own experience with student loans.
Parents and parental experience indeed play an important role in children’s higher education choices and financial decisions. On the one hand, parents can provide financial or in-kind support for higher education. This is most evident in the design of student funding policies which often integrate parental income and financial contributions. In many countries, eligibility for financial aid is means-tested and based on family income (Williams & Usher, 2022). Examples include the US where an Expected Family Contribution is calculated upon assessment of financial need, or Germany where the financial aid system is based on a legal obligation for parents to contribute to their children’s study costs. Indeed, evidence shows that parents do contribute to students’ income. In Europe, family contributions make up nearly half of students’ income (Hauschildt et al, 2018). But the role of parents also extends to decisions about student loans: parents tend to try and shield their children from student debt, helping them financially when possible or encouraging cost-saving behaviour (West et al, 2015).
On the other hand, parents transmit financial values to their children, which might play a role in their higher education decisions. Family financial socialization theory states that children learn their financial attitudes and behaviour from their parents, through direct teaching and via family interactions and relationships (Gudmunson & Danes, 2011). Studies indeed show the intergenerational transmission of social norms and economic preferences (Maccoby, 1992), including attitudes towards general debt (Almenberg et al, 2021). Continuity of financial values over generations has been observed in the specific case of higher education. Parents who received parental financial support for their own studies are more likely to contribute toward their children’s studies (Steelman & Powell, 1991). For some students, negative parental experiences with general debt can lead to extreme student debt aversion (Zerquera et al,2016).
As countries globally rely increasingly on student loans to fund higher education, many more students will become second-generation borrowers. Because their parents had to repay their own student debt, the family’s financial assets may be depleted, potentially leading to reduced levels of parental financial support for higher education. This is likely to be even worse for students whose parents are still repaying their loans. In addition, parental experiences of student debt could influence the advice they give their children with regard to higher education financial decisions. As a result, this new generation of student borrowers will face challenges that their predecessors did not, fuelled by the transmitted experience of student loans from their parents (Figure 1).
Figure 1 – Parental influence on second-generation borrowers
As the share of second-generation borrowers in the student body increases, the need to understand the decision-making process of these students when it comes to (financial) higher education choices is essential. Although the challenges faced by borrowers will emerge at different times and with varying intensity across countries — depending in part on loan repayment formats — we have an opportunity now to be ahead of the curve. By researching this new generation of student borrowers and their parents, we can better assess their financial dilemmas and the support they need, providing further evidence to design future-proof equitable student funding policies.
Ariane de Gayardon is Assistant Professor of Higher Education at the Center for Higher Education Policy Studies (CHEPS) based at the University of Twente in the Netherlands.
Higher education in England is in financial trouble, and maybe more. If former NUS President Wes Streeting were Education Secretary, no doubt he would be proclaiming that, like the National Health Service, ‘higher education is broken’. It may not be, yet, but many think that the higher education funding system, at least, is broken. So, there is talk of (yet another) review; those with long enough memories will feel that we’ve been here before. More than once a review of HE has been conveniently timed to straddle a general election, to ensure that any or all hard decisions fall to the incoming government. That was how, after the Dearing Report, we got student tuition fees in the first place. There was no review straddling the July 2024 general election, perhaps because the last government was too obsessed with culture wars and fighting amongst themselves. Probably not because they thought that overseas student visa restrictions and the Higher Education (Freedom of Speech) Act 2023 were all that was needed to fix HE.
Consequently the new Labour government must deal with HE’s problems, and some of them are too urgent to wait for any kind of review. It is said that the Prime Minister’s former chief of staff Sue Gray had prepared a number of ‘disaster scenarios’ which need contingency plans, one of which involves a large university going out of business. More than half of all England’s universities are facing financial problems which have driven them to declare voluntary or compulsory redundancies; the situation is desperate. In such times we look for guidance where we can; this blog’s headings take inspiration from Yogi Berra, the legendary baseball player and manager, renowned for saying things that are somehow meaningful without making any sense. Another HE review? It’s déjà vu, all over again.
You can observe a lot by watching
Education Secretary Bridget Phillipson told universities in July they should not expect a government bailout, despite many being in financial difficulty, as Sally Weale reported for The Guardian on 22 July 2024. New HE Minister Baroness Smith of Malvern said, in effect, that “We’ll let universities go bust” in a Channel 4 News interview, as reported by Chris Havergal for Times Higher Education on 16 August 2024. However just after the Labour Party Conference The Times reported on 28 September 2024 that the government would index-link tuition fees and restore maintenance grants for the poorest students, so that fees would rise to £10,500 over the next five years. Still some £billions a year less than three years ago, but a welcome sign of change – if it is realised. Keep watching.
Predictions are hard, especially about the future
Sisyphus might have sympathised with HE about previous attempts to solve the HE funding problem. After the Dearing Review and New Labour’s election in 1997 it seemed that there might be a mutually acceptable halfway house, with tuition fees paying first some and then during the Blair/Brown government’s tenure about half of the costs of undergraduate teaching. The boulder was slipping down the mountain in 2010 as the money and faith in the government ran out and the Browne Report was commissioned. The Lib Dems made an election ‘pledge’ to abolish fees but reneged as soon as they were in coalition with the Conservatives: instead fees were trebled to cover most undergraduate costs. The Willetts-led progressive student loan scheme might even have been broadly acceptable, but index-linking of fees stopped after just one year. University finances became increasingly precarious, especially after the government conceded to pressure from the Office for National Statistics and accepted that student loans should appear on the balance sheet this year rather than many years in the future, ending the ‘fiscal illusion’.
At first universities escaped the worst of Chancellor George Osborne’s austerity for public services. Osborne even agreed to take the cap off student numbers, in the interests of market forces ‘driving up quality’, as Willetts, Jo Johnson and too many others wrongly believed they would, leading to the institutionalisation of a wrong-headed pseudo-market in the Higher Education and Research Act 2017 (HERA). The student loan scheme was working in theory but not in practice – too many critics could easily win headlines about ‘students who will never repay’. The boulder might have seemed near the top of the mountain but now it has rolled back down again.
When you come to a fork in the road, take it
Many universities did their best to behave as if they were in a HERA kind of market. They recruited international students in ever-greater numbers, for undergraduate and postgraduate programmes, charging fees which would cross-subsidise both teaching and research. Several universities not based in London opened London campuses, recognising the appeal off the capital for their target overseas market. Some opened campuses overseas. Those less able to attract overseas students looked to ‘sub-contractual arrangements’, previously better known as franchising, to shore up their student recruitment. Each initiative was kicked back. Government restricted visas for the families of students, hitting postgraduate recruitment hard in 2024. This jeopardised the availability of and access to many subjects in large areas of the country, without making any meaningful contribution to reducing immigration. The Office for Students cracked down on sub-contractual arrangements as they took over all regulatory responsibilities for quality and standards. They even tackled the more egregious ‘successes’ of ‘alternative providers’, the new entrants to HE. So what is to be done?
Richard Adams reported for The Guardian on 5 September 2024 that Shitij Kapur, the vice-chancellor of King’s College London, had told the annual UUK conference that HE needed £12500 fees – but would seem completely out of touch if it asked for them. On 30 September 2024 Universities UK issued a punchy report – Opportunity, growth and partnership: a blueprint for change – by a senior and influential group of politicians, vice-chancellors and others. In it Kapur and John Rushforth (Executive Secretary, Committee of University Chairs) said: “UK universities have been remarkably entrepreneurial and successful in the last decade. Despite a fixed and shrinking domestic resource, they have managed to engage internationally and generate the revenues to support research and domestic education of the highest quality. However, that innings has run its course. If universities are forced to play the same game for longer, we jeopardise the sector and its international reputation and success. It is time for universities and government to sit down together and agree a new financial model for the system that works for students, serves all our regions and ensures the future growth and prosperity of the UK.”
The UUK report was tuned to the new government agenda and asserted the crucial role of universities and other HE providers in helping to achieve growth and success. The wide-ranging blueprint was nevertheless fairly narrowly focused on demonstrating the instrumental value of HE in promoting economic and social growth, unsurprisingly given its target audience. Many in universities will still regret that the idea of HE as a public good is now more narrowly confined than in, for example, the 1963 Robbins Report, which suggested four main “objectives essential to any properly balanced system: instruction in skills; the promotion of the general powers of the mind so as to produce not mere specialists but rather cultivated men and women; to maintain research in balance with teaching, since teaching should not be separated from the advancement of learning and the search for truth; and to transmit a common culture and common standards of citizenship”. But we live in different times, and must be thankful for smaller mercies on this fork in the road.
Bridget Phillipson also said in July “The culture war on university campuses ends here”, as she announced a pause in implementation of the Higher Education (Freedom of Speech) Act (2023). HEPI’s Nick Hillman said: “I think it is now time for the Conservative Party – if they are serious about showing they’ve changed – to say the war on universities is over.” Judging by the leadership contenders’ speeches at the Conservative Party conference in October, we fear not.
If people don’t want to come to the ballpark, how the hell are you gonna stop them?
Anti-university sentiment is widespread in Brazil, China, Russia, and parts of Eastern Europe. In the USA, Republican Vice-Presidential nominee JD Vance has spoken approvingly of Hungarian Prime Minister Viktor Orbán, who forced the Central European University to relocate from Budapest to Vienna. Vance said that Orbán has made “some smart decisions … [on campus dissent] that we could learn from in the United States”, but already several high-profile university presidents have stepped down after failing to navigate a course between student protest, staff, boards of trustees and politicians in Senate hearings.
The fork in the road might mean a choice between anti-university sentiment leading to a smaller student population, and continuing growth and development of an expanding HE sector. Despite right wing rhetoric there is no evidence that demand for HE is declining: people still want to come to the ballpark and they still enjoy the game, as the National Student Survey continues to demonstrate. But there are nevertheless understandable reports of student dissatisfaction about some aspects of what can be an impersonal student experience on account of large student numbers. More pressing is the continuing student dissatisfaction with debts after student loans. However many times it is explained that ‘student debt is not like other debts’, graduates continue in reality to see large and depressing numbers in red on their student loan account, and there is no wider public understanding of how repayments work.
Nobody goes there anymore, it’s too crowded
In a blog for HEPI on 5 September 2024, Peter Scott (UCL) outlined some of the current problems of English HE and argued that the best solution would be the reintroduction of a student numbers cap: “Imposing an overall student number cap would restore a stronger sense of stability and predictability into the future, which might just reassure the Treasury as it contemplates an inevitably unpopular decision to allow the maximum fee to be (modestly?) increased. It might also reassure politicians more generally that higher education, and universities in particular, will not be allowed continuously to ‘crowd out’ other forms of tertiary education and training. Similarly it is difficult to see how far down the road of realising its new financial sustainability remit the Office for Students can go without at least considering reinventing institution-by-institution student number controls, within broad tolerance bands like the former maximum aggregate student numbers, to reduce turbulence and damagingly unpredictable consequences.”
The old HEFCE regime of managed growth and change involved student number controls with some marginal tolerance for expansion and the possibility from time to time of bidding for more. The danger of an overall student number cap in the present environment is that it might freeze some undesirable aspects of the status quo. We now have a regulator not a funding council, and it is a regulator which – as required by HERA – is bound to treat potential university closures as a natural consequence of market forces. The problem with university closures is they can easily drag down a whole local economy as well as creating huge gaps in locally or regionally accessible HE provision.
It ain’t over til it’s over
HEPI published Debate Paper 39 on 25 September 2024, in which Tim Leunig (LSE), a former very senior civil servant, argued for a fiscally-neutral set of changes to restore university finances. Employer contributions was a repeated theme of HE discussions at the Labour Party Conference in September, and a significant part of Leunig’s argument was for a 1% surcharge on employers of graduates. His ten-point package of proposals was for:
“1. A 20-year, rather than 40-year, repayment term on student loans.
2. No increase, even in nominal terms, of the amount owed.
3. A minimum student loan repayment of £10 a week after graduation.
4. An additional repayment of 3% of income between the income tax and student loan repayment thresholds.
5. Letting graduates reduce their pension contributions in order to make higher student loan repayments more affordable.
6. Reintroduction of an interest rate supplement for graduates earning over £40,000 a year, set at a maximum of 4% for those earning over £60,000.
7. A new 1% National Insurance surcharge for employers that recruit graduates.
8. New maintenance grants for students with parental incomes up to £65,000, with full grants of around £11,000 for those with household incomes below £25,000.
9. Provision of maintenance loans for all students not receiving a full grant, provided their parents’ income is below £100,000 a year.
10. Additional teaching grant averaging £2,000 per student.”
English HE needs a rescue package right now, and in the slightly but not much longer term the funding system needs an overhaul. It remains to be seen whether something like Leunig’s package of proposals might be adopted. At this stage no-one knows: it ain’t over ‘til it’s over.
SRHE News EditorRob Cuthbert is Emeritus Professor of Higher Education Management, University of the West of England and Joint Managing Partner, Practical Academics rob.cuthbert@btinternet.com. Twitter @RobCuthbert
Governments across the globe are increasingly adopting student debt cancellation or forgiveness policies. Recent proposals in the US, Chile, and Colombia have reignited discussions about the student loan crisis and the need for alternative funding solutions in higher education. But why are governments pursuing these policies, and what does it mean to cancel student debt?
The demand for student debt cancellation emerged in the wake of the 2008 financial crisis, a time of economic hardship for many households burdened by high-risk loans. While banks and financial institutions received massive bailout packages, ordinary citizens faced mounting debts with little relief. This stark disparity fuelled a movement for a general “jubilee” or widespread debt forgiveness. The logic was simple: if banks could be saved from their financial burdens, why not the people?
Cities like New York, London, Madrid, and Athens became centres of protest against government policies that seemed to protect the financial elite while ignoring the needs of ordinary citizens. In the US, the Occupy Wall Street movement became the focal point for debtors, calling for cancelling all debts, including student loans. Similar anti-austerity movements erupted worldwide, with student protests in countries like the UK, Chile, Colombia, Quebec, and South Africa challenging tuition hikes and market-driven education policies. These movements also pushed for free education and an end to student loans (Cini, 2021).
In this climate of widespread discontent, the call to cancel student debt became a symbol of resistance against the rising cost of education and overwhelming debts. Activists argue that student debt not only increases the financial burden of higher education but also undermines social mobility. For many, student loans trap them in a cycle of debt that limits their opportunities and financial freedom.
Initially, debt cancellation was seen as a radical proposal outside mainstream education policy. Even some progressive movements, such as Corbynism in the UK, hesitated to endorse full debt forgiveness, opting instead for free education and the restoration of grant systems[i]. However, the 2020s saw a dramatic shift, with countries like the US, Chile, and Colombia making debt forgiveness a central policy issue.
In the United States, President Joe Biden has introduced two major plans for student debt forgiveness. His latest proposal includes forgiving $10,000 in federal student loans for most borrowers and up to $20,000 for lower-income debtors (Rios-Jara, 2022). The plan also includes the SAVE plan, which ties repayments to borrowers’ incomes, marking the most significant reform to the American higher education system since Obama’s presidency. Despite legal challenges that have stalled these initiatives, the government has already forgiven $143.6 billion in student loans for nearly 4 million borrowers[ii].
In Chile, President Gabriel Boric, a former student leader, promised to introduce a comprehensive debt forgiveness policy. His government recently unveiled a plan to cancel a portion of student debt, ranging from $500 to $3,000 USD for all borrowers with government-backed loans, based on their academic success and if the are in default or not[iii]. This proposal aims to eliminate the participation of commercial banks in the student loan system and replace it with an income-based contribution system. This reform reduces overall debt and ensures education is more accessible. The plan expects to erase all debt for approximately 20% of borrowers. In total the plan will eliminate 65% of total loan debt, being biggest cancellation debt package ever probed.
Both governments have justified their debt cancellation efforts by highlighting the crippling effects of student debt on graduates. Many borrowers find themselves unable to pay off their loans due to stagnant wages and high monthly payments, preventing them from investing in long-term life goals. In the US, there are 45 million student debtors, holding a collective debt of $1.753 trillion[iv]. In Chile, 2 million borrowers owe a total of $12 billion[v], and it is one the countries with the biggest student debt in Latin America.
Debt also exacerbates social inequality. In both countries, graduates from low-quality institutions with predatory lending practices are often left with larger debts and lower earnings, making them more likely to default. In the US, advocates argue that student debt disproportionately affects students of colour, limiting their upward social mobility. In Chile, the government has emphasised the gender dimension of the issue, as women—who represent the largest group of debtors—face a significant wage gap, making it harder to repay their loans and fully benefit from higher education.
In Chile, the government has also framed debt cancellation and loan reform as a matter of efficiency, addressing the failure of the current system to improve repayment rates. Similar to the US, Chile’s loan system relies on government-backed loans involving commercial banks. However, the anticipated efficiency from bank involvement has not materialised, with only 55% of borrowers keeping up with payments. The proposed reforms will remove banks from the equation and return financial aid administration to public institutions, as the US did under Obama’s 2011 reforms to federal student loans.
Debt cancellation policies represent a relevant attempt to rectify these long-term challenges, but questions remain about their effectiveness and whether more comprehensive alternatives are needed to tackle the broader failures of market-driven higher education systems. For instance, activists have criticised Joe Biden’s plans for maintaining a loan-based system rather than pushing for a more transformative reform that includes free education. In this debate, one distinctive feature of President Boric’s proposal is the complete elimination of student loans, replacing them with an income contingent graduate contribution system.
Graduates’ contributions are calculated based on the length of their studies and their annual income. The approach combines the flexibility of income-contingent loans with an updated version of a short-term graduate tax. What each graduate contributes will be determined not by the cost of their degree but by their ability to contribute based on their income. Under this mechanism, individual debt will be erased, and loans will stop being issued, moving the higher education system into a new stage where free education and graduate contribution are the main columns of student financial aid.
Whether debt cancellation will fully resolve these issues remains to be seen, but it marks a significant shift in how governments are addressing the unintended consequences of student loan systems. The push for debt forgiveness reflects not just an ideological critique of neoliberal policies but the frustrations of millions of graduates struggling under the weight of unmanageable debt. They feel betrayed by broken promises of social mobility and fearful of the financial uncertainty that student loans have brought into their lives. To face these issues, governments with a long history of student loans are looking for new ways of funding higher education, moving beyond market solutions and looking for new forms of higher education public funding policies that leave behind market instruments but also the traditional policies of public education.
Héctor Ríos-Jara has a PhD in Social Sciences from University College London (UCL). He works as a postdoctoral researcher at the Economic and Society Research Center (ESOC) of Universidad Central de Chile.
[i] Rios-Jara, H. (2022). Between Movements and the Party: Corbynism and the Limits of Left-Wing Populism in the UK. Populism, Protest, New Forms of Political Organisation. A. Eder-Ramsauer, S. Kim, A. Knott and M. Prentoulis, Nomos. 2: 130-149.
[v] Subsecretaría de Educación Superior (2022). Primer Informe del Crédito con Aval del Estado (CAE): Características de la población deudora e impactos.
And I am a weapon of massive consumption, And it’s not my fault, it’s how I’m programmed to function.
When I was asked to speak about my experiences of graduate indebtedness at the recent SRHE event in June, I was initially enthusiastic. I was a member of the first cohort of school-leavers expected to take out the government loans to pay the then new £9000 university fees in 2012-13. I took a gap year, completed an undergraduate degree, and subsequently received funding for a Master’s and a PhD. I believe I am one of the first of this new generation of highly indebted graduates to have been afforded the time and space to develop expertise around and reflect on the HE system I was a part of. Few graduate voices on their indebtedness are heard in research or policy discourse.
However, figuring out my contribution became frustrating. Firstly, any perspective I would bring would be unrepresentative. I am a mixed-race male from the home counties. I attended a Russell Group university, and had far too much fun in the sandbox of further academic study, sheltered from having to think seriously about entering the external labour market. Secondly, I had conducted no research myself on graduate experiences. I am also not an economist. I would be exposing my feelings about the current student finance regime (albeit informed by my related research) to the potentially sharp questioning of experts. This felt epistemically precarious.
Graduate indebtedness
My frustrations around the legitimacy of my voice and my disenfranchisement from the conversation around indebtedness are part of a broader series of doubts and tensions. It’s hard to avoid a sense of resentment every time I check (mainly to satisfy a grim curiosity) my rapidly ballooning student debt total on the Student Loans Company website. I will likely be making payments that have a negligible impact on that total until 2047. It is Sisyphean. At the same time, I had heard for many years hear policymakers and academics like Nick Barr talk about the inherent fairness of income-contingent loans. Given that individuals receive a substantial return from their investment in higher education (HE), it is right that the balance of costs should be shared between students and the state.
In Claire Callender and Steve Jones’ work on student experiences of indebtedness, the complaints of students and graduates are primarily centred around the slight delays of a few years to the privileges of an expected middle-class lifestyle, like buying a first house or having a family. Are these frustrations really valid, or are they just the mewlings of the demanding children of the late welfare state, now that democratic due diligence has found the public investment in our education was not providing an effective social return?
Thinking through these doubts was hard. Like the students in Claire’s and Steve’s research, I had internalised a certain logic. My failure to shed the shameful label of indebtedness lay in my regrettable choice to pursue history, my (apparently?) poor work ethic, and my subconscious suspicion of Big Four consultancy grad schemes. But I came to think about my frustrations with indebtedness through the work I’d done during my PhD. My frustration with the current loans regime is a frustration with ‘the whole way in which a society selects its priorities and orders itself’, to redeploy EP Thompson’s phrase from 1970. Our current politics has de-prioritised investments in the future, which undermines the realisation of a good society. Indebtedness serves as a sharp and recurring reminder of all of this.
The balance of freedoms
The axiom that those that benefit most from HE should bear proportionately more of the cost derives somewhat surprisingly from the 1960s. The story of post-war massification in the UK is a familiar one; participation in HE grew from less than 5% prior to 1939 to approaching 50% today. In 1962 a mandatory grant was introduced to pay for the education of ‘all those qualified by ability and attainment and who wished to do so’, in the words of the Robbins Report (1963). While this public-mindedness feels inevitable in the spirit of post-war optimism, at the time it was not uncontested. As one economist put it, in a system of grants, resources of the ‘poor and stupid’ in the general population who would not benefit from HE are used to fund the privileged lifestyles of the few ‘rich and intelligent’ who attended universities. While the Robbins Report advocated expansion based on grants, the chairman of the Robbins Report, Lionel Robbins (himself a neoliberal economist, as I have explored) thought the argument for loans and grants was delicately balanced.
Robbins considered the problem one of what he called the ‘balance of freedoms’. There was an important balance to strike between preserving freedoms in the present, and enabling future freedoms in the pursuit of social prosperity. For Robbins, prosperity was a consequence of the inherent tendency of individuals to pursue their own self-betterment in conditions of freedom. This included generating individual returns on the labour market and broader social returns. University education would increase young people’s productivity and ingenuity, while enhancing their understanding of their responsibilities to society.
Taxation (a substantial transgression of personal freedoms by the state) was only justified when it could be shown to enhance future freedoms. In the context of proportionately low attendance of HE in the UK in the post-war period, grants were a state investment in removing structural and psychosocial barriers to self-betterment in the population, particularly for women and others from underprivileged backgrounds. When a greater proportion of the population were empowered to pursue those opportunities, both individual and social prosperity would follow.
As a greater proportion of the population attended HE habitually, the justification for increased taxation would fall. It would no longer be justified to take poor people’s money to pay for the continued elevation of the gifted. When this happened, it would be more just for the burden of HE cost to fall back to young people so they could make an informed decision about the relative costs and returns of them attending HE.
The question of the balance of costs of HE was never as simple as stating that: because attending HE generates both a social return and a large individual return, students should be expected to take on some burden of the cost of their education.
As Robbins understood it, the question is: on the balance of how far future freedoms are enabled by the reduction of freedoms in the present, how far is it right that resources should be redistributed from the general population to fund HE?
Three frustrations
Revisiting the question of the balance of freedoms in the twenty-first century leads you to a different place than in the twentieth century. The burden of the costs of education is now tipped towards graduates far in excess of a good faith balance of freedoms. It serves a regime which has played politics, fetishised austerity, and sought short-term returns above sustainability and long-term economic prosperity. Reflecting on my indebtedness, I identified three rough frustrations:
Short-termism
Because we live in a democratic society, the assessment of our collective capacity to engender future freedoms is, rightly, subject to accountability through our political system. But the downward pressure this exerts on public expenditure is not inevitable (as it is sometimes presented) but a consequence of political culture. Public and policy discourse seems to have completely lost sight of the capacity of collective action to advance future freedoms. Austerity has led to an underinvestment in social infrastructure, ducked the costs of maintenance, and eviscerated our national capacities. The burden of the costs of repairing this damage has been shifted to our future. There is limited research as to the economic and social consequences of this debt. Both Labour and the Conservatives’ commitments to avoiding raises in tax feels like a failure to have an honest conversation with the electorate about our national priorities in the face of serious national and international challenges.
Poor redistributive justice
Recent London Economics modelling demonstrated that, for those taking new loans from August 2023, lower income female graduates will subsidise high-earning males’ education. Or, as James Purnell put it recently in publications for HEPI, ‘a nurse must now pay back more than a banker’. This is deeply unjust. It is completely antithetical to the progressive income tax regime we all abide by. It violently severs one route this generation can mutually support one another in our pursuit of human flourishing. And it is pointless. As Barr has argued, ‘The argument that tax cuts lead to growth is mistaken; lower taxes are not always better. Productive private investment needs to be complemented by productive public investment’. Job forecasts from other advanced economies expect more than 80% of the workforce will require some tertiary accreditation by 2050. Skills shortages even today are calculated to cost the UK economy up to £39 billion a year from 2024 through to 2027. Investment in education and training by employers and the state has deteriorated and productivity is stagnant. Redistribution is imperative.
Deterioration of HE
The deterioration of the unit cost following from the political deadlock around loans makes HE an unappealing place to plan a career. The transition period at the end of the PhD consists of a ridiculous juggling act of multiple contracts for everything from research to teaching to administrative roles. Despite all the hard work, remuneration is comparatively poor. All the delays to adult life that indebtedness inflict are compounded. Even permanent academic roles do not seem particularly secure given the redundancies sweeping over the sector. Add on top of all that the expected workload, bullying managerial cultures, artificial ED&I strategies, it is a wonder HEIs are able to attract qualified and ambitious candidates at all. During my time as a PhD and Fellow, I was paid more per hour as head coach of the university swim team than I was to deliver seminars.[1] Why bother?
The next sixty years
Robbins was arguing for expansion just after the Cuban Missile Crisis. The wars of the first half of the twentieth century were raw, living memories. HE was implicated in this in a complicated way – the powerful knowledge of modern societies taught through HE had the potential to both to raise living standards to unparalleled heights but also enable mass atrocities. A proper education cultivated the wisdom in students to wield modern technologies with responsibility.
Obviously freedom is diminished after a nuclear holocaust. But the existential crises I fear – everything from crises in teaching and healthcare, gender and social inequality, to the climate change and the resurgence of fascism across the world – if they are not tackled are also equally non-conducive to overall freedom. They require exponentially more of my generation and later generations to be part of the solution. Indebtedness is a constant reminder that our contribution to solving these problems is not worth collective support.
Josh Patel is a Researcher at the Edge Foundation. There, he has contributed to research on Degree Apprenticeships, New HEIs, and T levels, and is currently leading research on student experiences of tertiary pathways between HE and FE. He was previously a Fellow at the University of Warwick and completed his PhD on the justifications for the massification of higher education in liberal thought. He is writing a monograph on this topic for SRHE’s Research into Higher Education book series with Routledge. Here, Josh writes in a personal capacity. The views contained within do not necessarily reflect the views of the Edge Foundation.
[1] I have to qualify this by stressing that participation in student-led communities was central in my and (as I saw as a coach, tutor, and researcher) others’ personal development. My point is that there is a social maldistribution of resources that permits this circumstance.
This week we look set to see these challenges increase with the possible increase in the base interest rates by the Bank of England (the “Bank Rate”) to 5.5% when the Monetary Policy Committee next meets on Thursday 21st September (Guardian, Financial Times, 24 August 2023 ). If there is another 0.25% increase in the base rate, as is widely anticipated, this will place government and university finances under further pressure over the next few years with significant negative implications for HE students, the UK Government’s education budget in general and the further education college budget in particular. Furthermore, this anticipated rise in the Bank Rate may not be the last of these increases if Government spending remains high and inflationary pressures persist through the winter months.
The most immediate and direct effect will be on the interest payments that universities need to pay on short term loans. According to HESA, average HE provider debt as a proportion of turnover stands at 0.16%, but with highs of 454% and lows of 0%, with unrestricted reserves of 204% of income (HESA, 2023). Of course, financial indicators expressed as a percentage of income for institutions of very variable sizes give no feel for the absolute amount of cash owed, or the annual cost of repayments.
The top 13 higher education providers by percentage of debt are all small private institutions; most have recorded deficits in recent years and appear to have low levels of cash available to cover running costs. The next 35 institutions by scale of debt all have debt levels of over 50% of turnover. Among these institutions there are 22 large pre- and post-92 universities in all parts of the UK.
The challenges presented by potential increases in interest payments will be exacerbated over the next two years by the continued decline in the real value of student tuition fees, limitations on the recruitment of overseas students with dependants and a decline in the proportion of students applying to low and mid-tariff universities.
When student tuition fees were first introduced, HE providers were encouraged to set fees at between £6,000 and £9,000 per annum. Some price competition between institutions was expected but in practice the vast majority set their fees at the higher level. Recent analysis by Mark Corver of DataHE, an independent higher education consultancy, indicates that the real level of fees that higher education providers charge students as tuition fees has dropped below £6,000 if the value is deflated by the Retail Prices Index (RPI), slightly higher if other measures of inflation are used.
Over the last five years, many HE providers have been attempting to cover the reduced value of undergraduate home tuition fee income by recruiting larger number of international students, particularly from China, India and Nigeria. This approach has attracted large numbers of students to the most selective universities and those in major cities; many universities now have more than 25% of their students recruited from these sources. The announcement of restrictions on the release of temporary visas to support the dependents of international students has already had an impact on the recruitment of people from overseas who want to study at UK universities.. This impact looks set to continue and increase in 2024.
To illustrate the issues faced by the more highly indebted institutions with a significant number of international students, consider the composite case of the University of Camberwick Green, with net debt of circa £200m and current loans with a weighted average debt cost of 3.5%. If this institution needed to renew all of its existing debt obligations this would likely double the costs of debt servicing from £7million to at least £14million. This would mean an additional annual outlay as a proportion of turnover in excess of 5%, dependent on the interest rates agreed with lenders and the term of their loan (e.g. revolving credit facility, private placement, bond or bank lending). For a university like Camberwick Green, which has also recorded large operating deficits in recent years, additional debt is likely to be more expensive and so the short-term options are likely to focus on selling assets or laying off staff; these are not easy or attractive options. Changes to course portfolios and/or increased international student recruitment and transnational operations are unlikely to produce the necessary returns quickly and without undue financial or reputational risk.
The more prestigious and selective universities in the more affluent parts of the UK are unlikely to face pressures that are likely to bear down hard on those which are, by conventional measures, less prestigious and less selective, in parts of the UK that engaged in levelling up activities with significant HE involvement. The impacts of high indebtedness, declining student recruitment and operating deficits are already being felt with significant redundancies planned at ten universities.
The next most significant impact of higher interest rates will be on student loan repayments and the arrangements for funding this activity. The student loan book currently stands at £206bn with an additional £20bn of loans being issued each year. The internal real interest rate charged on these loan arrangements by HM Treasury, i.e. the real discount rate (excluding inflation), was set at -0.7% in 2021 at the height of the Covid crisis and remains the rate proposed in the Plan 5 changes scheduled to come into place during 2024. The nominal discount rate taking account of inflation is 1.9%. If Bank of England interest rates and by consequence HM Treasury bond/gilt rates move to 6.25% in 2024, as has been forecast, and the student loan rate is changed as a consequence, this will create an adverse upward movement in real interest rate charges on the loan book of circa 5%. Dependent on the scheduling of the loans this will then feed through into the calculation of the principal debt students are required to repay and also the Resource Allocation Budget (RAB) charge paid by the UK Government on loans that are forecast not to be repaid. Under revised accounting rules introduced in 2021, a proportion of this increased RAB charge will need to be accounted for in the national deficit in the year it is incurred and cannot be delayed until the loan matures. With forecast increases in the scale of the student loan book through to the next decade there are likely to be powerful voices in the Treasury wishing to pay down this debt or reduce the scale of its growth. This in turn is likely to mean a need to revisit the current arrangements in advance of the next HM Treasury Comprehensive Spending Review (CSR) in 2025.
The current loan book is financed in part by the spread (difference) between the notional interest rate charged to students on loans they have taken out, which is currently set with some reference to the Prevailing Market Rate (PMR) for commercial loans, and the lower rate paid by the Treasury for its borrowings. The PMR was set at 7.3% in February 2023 and confirmed at this level for the period between September and November 2023 on 11th August. . At present the Bank of England Bank Rate is 5.3% and so the spread between the student loan rate and the Bank Rate was 2%. If a similar spread is expected if the base rate rises further to 6.25% the PMR could be 8.25% or even higher. Interest rates at this level would make almost all student loans un-repayable, effectively converting the loan system into a graduate tax confined to new students and also potentially introducing a significant element of “moral hazard” as many students would face little incentive to do anything other than maximise their student loans. Given that they will never repay them; they will face an additional marginal loan repayment (tax) rate of 9% on undergraduate loans and 6% on postgraduate loans, so why not take out as much loan as possible and complete a postgraduate taught or research degree, even when the economic returns to them individually and to the public purse are negative. Beyond this “moral hazard” argument there is also arguably a “moral outrage” argument to be had about imposing an age-related differential income tax rate on younger people who are recent graduates.
The problems outlined above are then likely to be heightened by forecast increases in the number of prospective undergraduate students entering the system over the next seven years. In 2021/2022 there were 2.16 million U.K. domiciled students in UK HE institutions and a further 0.68 million students from the EU and other overseas countries. By 2030 the number of UK domiciled students is expected to increase by between 200,000 and 400,000 as a consequence of increases in the number of people in the relevant age groups. This would be at an average additional cost per student of at least £60,000 per three-year undergraduate degree, based on loans for tuition fees of 3 x £9,250 and for maintenance of 3 x up to £13,022 for students living away from home in London. Many students study for longer than three years on foundation and/or masters programmes, hence the forecast of £60,000 per student. This is an additional annual cost of loan outlay of £12bn or more. This seems unlikely to be fundable.
The implication of these cost pressures would be serious enough if they were confined to HE, but they are not. Far from it. At present the growing costs of HE are being paid for by other parts of the UK Government’s education budget, resulting in real terms cuts to the further education budget, consequent low rates of pay for FE college staff, and cuts to the adult education budget. In adult education, FE and apprenticeship provision pay rates are set locally rather than nationally and so reductions in institutional budgets in this part of the education sector have tended to be accommodated by falling wages and unfilled vacancies rather than through redundancies as has been the case in the university sector. These different parts of the post-school education system are making greater use of part-time and temporary contracts and precarious jobs. This at a time when the need for more and better vocational education is increasingly widely recognised and the need for “industry standard” staff capable of delivering the new and upgraded skills required by rapid technological change has never been greater.
Across the UK 70% of adults have not been to university, but like many older graduates they would benefit from the opportunity to take a course at a local college or other adult education provider. With 20% of the adult working age population (5 million people) currently economically inactive and with chronic skills shortages in all parts of economy it is very worrying that the pay of college lecturers in catering, construction, digital, engineering, health and social care is considerably below the rates paid to comparably skilled people working in the private sector. Employers in the UK spend on average 50% less than their counterparts in mainland Europe on workforce education and training. The combination of reductions in employer spending on training and cuts in UK Government funding for FE and apprenticeships has led to a reduction of over 1 million student places in adult education, apprenticeships and FE per year in the last ten years. This is not the position the UK needs to be in to improve productivity. Indeed, it is the very opposite of what is required to support such mission – let alone to promote inclusive and sustainable economic growth.
Who is responsible for monitoring and governing this system? At the moment the financial position of individual universities is overseen by their governing bodies, aided by internal and external auditors predominantly drawn in combinations of two of the big four audit firms. The Office for Students (OfS) monitors the financial position of individual higher education providers as part of its regulatory function, but it is not formally required to intervene financially at an early stage to support institutions in difficulties. It may issue a requirement to improve the plans for protecting students, but it is not required to prevent an institution from failing. The Student Loan Company (SLC) is overseen by an independent board and supported by a representative from the sponsoring departments in the UK’s national governments (i.e. Department for Education, Scottish Government, Welsh Government and Northern Ireland Office in the absence of the Northern Ireland Executive). Whether the OfS, national regulators in the devolved nations or the SLC have modelled the scenarios outlined in this note is a moot point. Indeed, it is more of a mute point because no one is publicly talking about these issues and the problems that go with them in a joined-up way with a long-term perspective. It would be helpful if they did, and if there was a debate about the consequences for higher and further education providers and student loans of the return to real interest rates more in-keeping with the long run historical average. Given the commitment of central banks around the world to move in this direction after 15 years of ultra-low interest rates there is a pressing need for a comprehensive review of where we are heading and what needs to be done about it.
As we approach a General Election in 2024, now is the time for the major political parties in the UK to commit to the appointment of a Royal Commission or equivalent to look at these issues with an impartial, sector neutral and critical eye. Over the last hundred years all major changes of this type have proceeded in this way (i.e. Smith Report 1919, White Paper on Education 1943, Robbins Review 1964, Dearing Review 1997 and Browne Review 2011). Indeed, in 1997 Gillian Sheppard (Conservative minister) and David Blunkett (prospective Labour minister) agreed in the run up to the General election to respect the Dearing Committee proposals. A similar arrangement was reached regarding the Browne Review between Peter Mandelson (Labour Minister) and George Osborne (prospective Conservative Minister) in the run up to the general election in 2010. The settlements in 1944 and 1963 were similarly effectively cross-party. This is a fundamental issue for the future of the UK and deserves to be made non-political with recommendations for the long term. Previous reviews have produced long term plans which have been implemented when they had cross-party support and straddled a General election.
Sir Adrian Webb was an academic at the London School of Economics and Loughborough University; he was Deputy Vice Chancellor at Loughborough and Vice Chancellor at the University of Glamorgan. As well as holding a number of senior management positions and a wide range of public service/consultancy roles in local and central government (including HM Treasury, DHSS, Home Office, DFES, and the Ministry of Justice) and in Wales, he has also held many roles in the Third Sector. Sir Adrian was a member of the Dearing Review committee in the late 1990s and chaired a review of further education colleges and funding in Wales in 2007.
The views expressed in this article are those of the author and do not necessarily represent the views of any organisation with which the author is affiliated.
The year-long pantomime that was government in 2022 started trying to be managerial and serious, just as the true pantomime season got into full swing and TV started showing the usual repeats specials. Rather too much sherry and mince pies before the pantomime highlights compilation meant that I fell asleep during A Christmas Carol – so I’m not sure if this was just a dream (or a nightmare) …
This year every university and college is putting on its own pantomime. What’s showing near you? We offer these plot summaries to help you choose what to watch.
Cinderella
Higher Education Cinderella has been condemned to a life of servitude, enforced by the ugly sisters DfE and the Office for Students (you can’t usually tell them apart). Life is only tolerable for HE Cinderella thanks to all the friendly student mice, and UUK, an apparently kindly character in the service of the household, but with suspiciously shiny Buttons. There is much excitement in the land as Parliament decides to stage a magnificent Election Ball to find a suitable person to be the government Prince. Cinderella would love to go but has no well-paid staff to wear; the DfE and OfS ugly sisters prepare eagerly by appointing more recruitment consultants. Suddenly the UCU Fairy Godmother appears and declares “You shall go to the Election Ball”. The USS pumpkin is miraculously transformed into a golden pension and the student mice turn into horses, although there do seem to be fewer of them. Best of all, Cinderella’s pay rags turn into a shimmering and apparently permanent contract, and her glass ceiling is transformed into slippers. Cinderella climbs into her pension, pulled by all the student horses, to attend the Election, but her Fairy Godmother warns her that she must return home before the election result is announced. At the Election Ball there are several wannabe Princes: none appear to be very Charming, but nevertheless they pay her close attention, making all kinds of promises. Some even make pledges. Suddenly the first exit poll appears and Cinderella rushes back home, losing a glass slipper in her haste. The pension turns back into a pumpkin, and the Fairy Godmother has disappeared and seems unable to work her magic. However there is a new Prince after the Election Ball, who has announced that he will scour the kingdom to find the person who can wear the glass slipper. He visits the household and cries with delight that Higher Education Cinderella is the one for him, but since there is only one glass slipper there must be a cutback in student numbers. Cinderella goes back to sit on the pumpkin with her low pay, weeping over the lost mice. She realises the glass slipper thing was all cobblers.
Dick Whittington
Higher Education Dick has lost more and more income as his student fees were eroded by inflation, but he hopes that if he strikes out for a better life he might find somewhere the staff are paid with gold. He travels hopefully and reaches what might have been the golden triangle, but it seems no better than the old place. He spends years trying to make his fortune, without success. His Admissions Cat catches lots of home student mice, but he is forced to send it abroad in the hope of making his fortune from lots of international students. In despair Dick strikes out again, accompanied by Freedom of Speech Bill.
Dick (suspiciously): “Is there somebody following us?
Bill: ”Let’s ask the audience. Is there anybody following us?”
Audience (shouting excitedly): “It’s the minister!”
Bill: “Where is she?”
Audience (still excitedly): “She’s behind you!”
Bill: “Oh no she’s not”
Audience: “Oh yes she is!”
And they were right, the minister was right behind the Bill. Bill trudges on but suffers so many proposed amendments he slows down until he eventually gets passed. On the road Dick hears the sound of UCU bells saying to him “Your turn again, Whittington” and he goes back to his place on the picket line.
Jack and the Beanstalk
Jack lived in desperately poor circumstances with his departmental colleagues, until one day all he had left was one research grant. He decided to take his research to the conference market to see if he could generate any more funds. But even before he got to the conference he met a pro vice-chancellor (Research) who said if he handed over his grant as a contribution to overheads the PVC would give him a handful of sabbatical beans. He went back excitedly to his department to tell them the good news, but they pointed out that by giving the grant away the whole department was doomed. Jack was distraught and he threw the sabbatical beans into the departmental workload model. The next day when he woke up he was astonished to see that everywhere he had thrown a sabbatical, a research grant application had sprung up. Pretty soon the grant applications had grown into a full-fledged research grant money tree which stretched right up into the UKRI. Jack started to climb and when he got to the top he discovered a land where there lived a giant called Russell G. He crept into the giant’s home, sneaked away with some more research grants and went back to his department. That kept them going for a while, but soon they needed more funds and Jack had to climb the money tree again. This time the giant was waiting for him, and roared “Fee, Fi, Fo, Fum, I smell the blood of a teaching institution.” Jack raced back to the money tree with the giant close behind, scrambled back down to the ground and hacked at the money tree until it toppled over. Unfortunately the giant was already halfway down. It fell right on the top of the department and squashed it flat, leaving only a handful of the most research-active staff, which Russell G picked up before leaving.
Sleeping Beauty
A Higher Education princess is warned that if she pierces her tuition with a student fee she will die. She tries to rid the kingdom of all traces of tuition fees, but still they slip in and gradually get bigger until they become impossible to avoid. At last she succumbs and as the fee takes effect she falls into a deep sleep, becoming lost because she is, like almost everyone else, beyond the reach of Test and Trace. Nothing will wake her until one day a prince arrives on a pantomime horse and vows to rescue her from her slumbers. The horse is played by the twins REF and TEF: no-one is quite sure which end is which, until the front half confirms the protection of the research budget and all the talk about low quality courses comes out of the rear end. Before the Prince can rescue the princess he decides, out of an abundance of caution, to commission a review by the Office of Budget Responsibility. (In the past this had, unwisely, been deemed unnecessary for a pantomime with a short run.) The OBR review shows that waking the princess will cost almost as much each year as Covid PPE contracts, whose benefits are mostly still being sought long after the VIP lane was closed. So the prince decides to leave her asleep.
In every case the performance ends with the audience singing a seasonal favourite, “The 2022 days of government”, ending with the chorus:
“On the last day of 2022, the PM sent to me:
five Secretaries of State
four DfE reshuffles
three HE Ministers
two pension schemes
and an HE (Freedom of Speech) Bill)”
… then I woke up, and I wasn’t sure whether this was Christmas Past, Christmas Present or Christmas Future. You decide.
Rob Cuthbert, editor of SRHE News and Blog, is emeritus professor of higher education management, Fellow of the Academy of Social Sciences and Fellow of SRHE. He is an independent academic consultant whose previous roles include deputy vice-chancellor at the University of the West of England, editor of Higher Education Review, Chair of the Society for Research into Higher Education, and government policy adviser and consultant in the UK/Europe, North America, Africa, and China.
When they were in opposition, the now Australian government promised they would make no cuts to education if elected. But that was before the election, you see. Now they have been elected, they are proposing a twenty percent cut to base funding for universities. It’s after the election now and things are very, very different. The main difference I can see is that opposition are now the government.
While in ‘proposal’ form at the time of writing, this cut will almost certainly go ahead. The government have also proposed a significant increase in the interest rate for the loans Australian students take out to pay their contribution to their study costs through the Higher Education Contribution Scheme. This increase and related changes will deter some students from studying at all; will create lifelong and crippling debt for many graduates; and will have a particularly adverse effect on women graduates who take time out to have and raise children while their study loan debt compounds. There is almost universal opposition to this component of the government’s suit of proposals so its trajectory is less certain.
The government have also proposed the deregulation of fees for study. Fee deregulation has gone so smoothly in the UK, you see, and resulted in such an improvement in fairness, equity, quality and all-round happiness for everyone that they simply could not let the opportunity to do this in Australia pass. Oh, wait … maybe that’s not why we’re doing it. I can’t remember … Continue reading →
