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Who should pay for higher education in England, and how much

by Rob Cuthbert

SRHE News is a quarterly publication, available only to SRHE members, which aims to comment on recent events, publications, and activities in a journalistic but scholarly way, allowing more human interest and unsupported speculation than any self-respecting journal, but never forgetting its academic audience and their concern for the professional niceties. These are some extracts from the April 2022 issue.

Government uses high inflation as cover for hitting students, graduates and universities

The Government sneaked a student loans announcement out on Friday afternoon 28 January 2022. Ben Waltmann (Institute for Fiscal Studies) said: “Today’s announcement … constitutes a tax rise by stealth on graduates with middling earnings. … For a graduate earning £30,000, this announcement means that they will pay £113 more towards their student loan in the next tax year than the government had previously said. … What really matters is how long this threshold freeze will stay in place. If it is only for one year, the impact on graduates will be moderate, and the government can only expect to save around £600 million per cohort of university students. If it stays in place for longer, it could transform the student loan system, with a much lower cost for the taxpayer and a much higher burden on graduates than they thought … when they took out their loans.” However, some well-informed commentators thought that the Minister had made the best of a bad job.

Waltmann followed up in his 10 February ‘Observation’: ”Students will see substantial cuts to the value of their maintenance loans, as parental earnings thresholds will stay frozen in cash terms and the uplift in the level of loans will fall far short of inflation. This continues a long-run decline in the value of maintenance entitlements. The threshold below which students are entitled to full maintenance loans has been unchanged in cash terms at £25,000 since 2008; had it risen with average earnings, it would now be around £34,000. Separately, the student loan repayment threshold will also be frozen in cash terms. … Finally, tuition fees will remain frozen in cash terms for another year, which hits universities and mainly benefits the taxpayer. … as our updated student finance calculator shows, the government is saving £2.3 billion on student loans under the cover of high inflation.”

At last, the government response to Augar

On 24 February 2022 the government finally issued a detailed response to the 2019 Augar Report, setting out a series of policy proposals and further issues for consultation: “Put simply, we need a fairer and more sustainable system for students and institutions, and of course the taxpayer. We need a system that will maintain our world-class universities not just for today, but for the decades to come. And we need a fairer deal for students …”. Rachel Wolf wrote for The Times Red Box on 24 February 2022 that she was encouraged by the Augar response (and the separate consultation on Lifelong Learning Entitlement), because it suggested that there was proper Cabinet government with a sensible Secretary of State for Education, rather than No 10 being in charge of everything. Yes, but … there was precious little welcome for most of the proposals.

Nick Hillman blogged for HEPI just ahead of the DfE announcement, trying desperately to save the Willetts fee policy (he was Willetts’ special adviser) from being labelled as a political failure. That policy was designed to be redistributive and progressive, but in practice the shortfall in repayments (RAB) became much too high and not enough people understood that many students were not expected to repay loans in full. The Theresa May government misunderstood it to the extent that they raised the repayment threshold, which cost the Exchequer much more without giving much benefit to students. The Treasury tolerated it until the national accounting systems were properly changed to show the loans for what they were, rather than spreading them as a cost over 20-30 years. Hillman selectively quoted Moneysavingexpert Martin Lewis, but he would have done better to see the 24 February Lewis quote that loans had now become a graduate tax throughout people’s working lives.

Jim Dickinson for Wonkhe on 24 February 2022 noted the absence of any response to Augar’s chapter on maintenance grants: “Overall then, almost all students will end up paying significantly more for having significantly less spent on their education … we might have at least expected a response on the bits of Augar that were concerned with students’ costs or their maintenance. That they are not even acknowledged tells us quite a bit about what the government thinks about students and graduates.”

Gavan Conlon of London Economics issued his analysis of the government proposals. “Under the current funding system in 2021-22 … the Exchequer contributes approximately £10.630bn per cohort to the funding of higher education. … given that the RAB charge (the proportion of the total loan balance written off) stands at approximately 52.5%, maintenance loan write-offs cost the Exchequer £4.105bn per cohort, while tuition fee loan write-offs cost £5.303bn. The recent freeze in the repayment threshold reduced HMT costs by approximately £300 million. The provision of Teaching Grants to higher education institutions (for high-cost subjects) results in additional costs of £1.222bn per cohort. Higher Education Institutions receive £11.144bn per cohort in net income from undergraduate students … £10.112bn in tuition fee income … £1.222bn in Teaching Grants. … institutions contribute £189 million per cohort in fee and maintenance bursaries (predominantly the latter) in exchange for the right to charge tuition fees in excess of the ‘Basic Fee’ (£6,165 per annum for full-time students). For students/graduates, the average debt on graduation (including accumulated interest) was estimated to be £47,500 (for full-time first degree students), with average lifetime repayments of £35,900 for male graduates and £13,900 for female graduates. We estimate that 88.2% of all graduates never repay their full loan, while 33.0% never make any loan repayment.” The first scenario he modelled involved “removing the real interest rate, reducing the earnings repayment thresholds to £25,000 (and the associated maximum interest rate threshold), and extending the repayment period to 40 years”. That led to savings of £539million for the Exchequer, with no change for HEIs. The average debt on graduation declined following the changes by £1,600. Average lifetime repayments for male graduates  decline by £2,000 but increase by £3900 for female graduates. “However, these are averages and there are important distributional effects associated with these proposals”. Scenario 2 added the introduction of Minimum Entry Requirements and reintroduction of Student Number Controls. The savings for the Exchequer were estimated at £1322million, with a loss for HEIs of £840million. The effect on students was unchanged.

Conlon then co-authored a blog with Andrew McGettigan (independent) for Wonkhe on 25 February 2022, which showed that most of the savings had actually been achieved by changing the discount rate used for student loans, making them more valuable. “… the graduates who will benefit the most are the highest earning – predominantly male – graduates. The messaging has been that lower earning graduates need to pay more to make the system sustainable. In fact it’s the discount rate change that does most of that – with the extra contributions from lower earning graduates helping to fund the reduced contributions from the richest. … It’s hard to see this when there is a lot of smoke and mirrors. What makes all this worse is the government knows that its discount rate change means that the extra payments made by lower earning graduates in years 30 to 40 are doing most of the heavy lifting.” Student finance campaigner Martin Lewis of Moneysavingexpert called it “a very damning piece”.

Ben Waltmann of the Institute for Fiscal Studies wrote on 24 February that: “The largest student loan reform since 2012 will reduce the cost of loans for high-earning borrowers but increase it for lower earners. Today the government has announced the largest changes to the student loans system in England since fees were allowed to triple in 2012. Starting with the 2023 university entry cohort, graduates will pay more towards their student loans each year and their loan balances will only be written off 40 years after they start repayments. For the same cohorts, the interest rate on student loans will be reduced to the rate of increase in the Retail Prices Index (RPI), a large cut of up to 3 percentage points. Maximum tuition fees will be frozen in nominal terms until the 2024/25 academic year. These changes will transform the student loans system. While under the current system, only around a quarter can expect to repay their loans in full, around 70% can expect to repay under the new system. This is partly due to substantially higher lifetime repayments by students with low and middling earnings and partly due to less interest being accumulated on loans. The long-run benefit for the taxpayer will be around £2.3 billion per cohort of university entrants, as higher repayments by borrowers with low or middling earnings will be partly offset by lower repayments of high-earning borrowers.”

Richard Adams in The Guardian on 24 February 2022 pointed out the DfE’s own analysis showed the poorest would suffer: “An equality analysis on the proposals by the Department for Education, states that “those likely to see some negative impact with increased lifetime repayments under the reforms” include younger and female graduates as well as graduates “from disadvantaged backgrounds, or reside in the north, Midlands, south-west or Yorkshire and the Humber”.

On 24 February 2022 Wonkhe’s Debbie McVitty suggested the proposals were looking for “a third way between capping opportunity and letting the HE market run amok”. John Morgan’s article for Times Higher Education on 28 February 2022 had expert commentators describing the Augar response package as a ‘missed opportunity’, with Chris Husbands (Sheffield Hallam VC) saying “what the package essentially does is to kick the difficult questions down the road”. David Willetts, in Times Higher Education on 3 March 2022, thought the Augar response was “balanced tweaks”; he was trying to rescue his fees policy, which worked in theory but not in practice. Nick Hillman was still trying in Research Professional News on 6 March 2022.

Universities Minister Michelle Donelan wrote a Conservative Home-spun version of the changes, in which she interestingly she referred to “Our top university cities – Cambridge, Oxford, Bristol, Manchester and London …”. Donelan’s speech to the Conservative Party Conference in March 2022 set out what the Minister wants the narrative to be. Diana Beech (London Higher) blogged for HEPI on 7 March 2022 about the government response to Augar and the recent flurry of OfS consultations: “… what we are facing now is not a series of seemingly independent consultations concerned with the minutiae of regulation, but a multi-pronged and coordinated assault on the values our higher education sector holds dear.” Alan Roff, former Deputy VC at Central Lancashire, reprised his 2021 argument for a graduate contributions scheme with his 22 March HEPI blog. We assume that still, no-one in government is listening.

Mary Curnock Cook, former UCAS chief executive, was upbeat about the possibility of setting a minimum entry requirement (MER) in terms of grade 4 English and Maths at GCSE, in her HEPI blog on 24 February 2022. However SRHE Fellow Peter Scott pointed out, in his 28 February 2022 HEPI blog, that “In Scotland, universities set MERs to widen access. In England, the State imposes MERs to curb it. So, it is very difficult to claim the UK Government’s package of measures in response to the recommendations made by Augar are somehow progressive, let alone favourable to fair access.”

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.

Email rob.cuthbert@uwe.ac.uk, Twitter @RobCuthbert.

To join a global community of scholars researching into HE, see the SRHE website.


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From money to the market: the transformation of the Strategic Plan

by GR Evans

Speaking on a Topic for Discussion, a draft of Oxford’s Strategic Plan for 2013-8, Shearer West, then Head of Humanities, spoke as a woman with experience of strategic plans. She had “been involved” with their “development” in other places. She wanted to see the new Strategy “regularly revisited and subject to adjustment as times change”. As to its content, she spoke as a pragmatist. “Oxford academics rightly pride themselves on elegant and incisive writing”, she said, but “a strategic plan will certainly never win a prize for inspiring prose, because it is an operational document”.

The Strategic Plans of Britain’s universities may have begun on that practical and unpretentious assumption, but they have evolved into glamorous presentations designed to market their universities to prospective students and benefactors as well as to offer assurance that they are well run and not in financial difficulties. As headlines announce that a dozen universities may now be at risk of financial collapse it is a topical question whether this is a desirable trend. The Institute of Fiscal Studies’ Briefing Note provides a table. Yet universities which may fall into the category of the financially vulnerable have Strategic Plans as confident and optimistic as those far higher in the league-tables. The University of Sunderland, reported by THE in January as facing a ‘challenging financial environment’ and closing courses, has a Plan for 2020-2025 presenting it in visually exciting terms and glowing wording as ‘a twenty-first century global university’.

The principal reason at first for requiring universities to have Strategic Plans was ‘operational’. They began as a device to ensure they took long term financial planning seriously and to facilitate monitoring of their use of the public funding of higher education. They became a requirement for universities when the Further and Higher Education Act 1992 created the Higher Education Funding Councils, replacing the short-lived single Universities Funding Council. For nearly a century until it was abolished in 1989 public money for university higher education been distributed through the University Grants Committee.

Although the new Councils were intended to act as buffers betwee Government control and the allocaton of block grants of public funding, the Government nevertheless gained closer control of the spending, for each year the Minister send a letter of guidance and instruction. The Councils’ Financial Memoranda required universities to give an accurate account of their finances as a condition of funding.

In 1997 the Dearing Report took it for granted that:

institutions share their strategic plans, including an estates strategy, with the three Higher Education Funding Councils; and the financial memoranda require institutions to secure value for money in the use of their assets and to follow a maintenance plan for their estates.

The Higher Education Funding Council for England was by now duly receiving and analysing these plans. In 2000 it published a guide for heads of institutions, senior managers and members of governing bodies, Strategic planning in higher education.

The call for such plans was reinforced in 2003 the White Paper, The future of higher education. The intention was to ask HEFCE to

look at how funding for departments with lower ratings under the existing system can be related to potential to progress further, and linked to good planning for future improvement.

HEFCE felt it had to set an example. Introducing its own internal Strategic Plan 2003-8 its then CEO, Howard Newby, said:

We hope that our colleagues in universities and colleges, for their part, will find in our plan a secure and practical framework for their own planning and activities throughout and beyond the planning period. We look forward to working with them to ensure that national policies and our strategy are put fully into effect, and to support and maintain a national HE system working consistently to international standards of excellence.

However, in 2017 the Higher Education and Research Act replaced HEFCE with the Office for Students and the Financial Memorandum requirement disappeared. The other parts of the UK have made their own arrangements under devolved powers. The Scottish Funding Council funds further as well as higher education and in 2020 it requires each college and university to have an Outcome Agreement in line with both ‘ministerial priorities and the SFC’s own ‘strategic framework’. It explains their purpose:

Outcome Agreements articulate how institutions provide an education that best meets the changing social and economic needs of their regions, reflecting a changing and increasingly diverse profile of students. They are an important part of the framework in which we ensure that institutions make best use of public funds and exercise good governance.

The Higher Education Funding Council for Wales published a Corporate Strategy (2017-20) setting out its strategy for ‘delivery of the Welsh Government’s priorities for higher education’, as ‘informed by our annual remit letter’. It promised to: Monitor the financial sustainability of HE providers, and the organisation and management of their financial affairs, with particular reference to the requirements of our Financial Management Code. Northern Ireland’s Government funds its universities directly through the Department for the Economy without the intervention of a Funding Council.

On 9 September 2020 the Office for Students published its Guidance for providers for the financial monitory returns. It requires an Annual Financial Return with ‘workbook’ and commentary’, and in the case of relative newcomers to higher education provision, a Business Plan. It has a Strategy (2018-21) of its own but it does not seem to see it as a regulatory essential for a university to have one.

Nevertheless, it has become a continuing custom for universities to publish their Strategy or Strategic Plan. Such Plans have broadened far beyond the endeavour to assure funding councils and government that they had their finances in good order and are spending public money appropriately and to good effect. They are unlikely to mention their finances except to invite donations. They now tend to include Visions and Missions, often dividing their content into small pieces for easy consumption. They offer photographic and even video illustrations . In its interim ‘refresh’ of its current Plan Delivering Impact for Society, our Strategic Plan 2016, Edinburgh points to developments so far and a video to watch for ‘a short summary of the values, strategic priorities and aspirations of the new draft plan’.

The transformation of a vehicle for reporting financial soundness to a public relations and marketing opportunity in which the plain truth is edited for frankly presentational purposes should surely sit uncomfortably with the purposes of a university.

SRHE member GR Evans is Emeritus Professor of Medieval Theology and Intellectual History in the University of Cambridge, and served as CEO of the Independent Dispute Resolution Advisory Service for HE.


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Five reasons why rich people shouldn’t found universities

By Paul Temple

Some ‘alternative providers’ are the product of a rich person’s ambition to create something different or distinctive in the HE sector. But it doesn’t always work in the longer term…

1             Rich people expect to get their own way

Rich people – I mean seriously rich, not merely well-off – tend, in my limited experience, to want to have things their own way. Doing what other people suggested probably wasn’t how they became rich in the first place. So a university founded by someone like this will be planned the way they want it, with other ideas being pushed aside. (If the person had simply wanted to support higher education they could have become a benefactor of an existing university – as many rich people of course do – but they would then have had to fit in with how an established institution worked or risk having their money politely declined.) The founder’s ideas may have been quite sensible, perhaps even innovative, at the time of the university’s creation, but he or she will have been reluctant to adjust their views as time passed and the original conception became less attuned to contemporary realities. Universities need to be in states of constant evolution, while pretending that nothing has really changed: that is the secret of their longevity. A single founder, continuing to exercise at least a degree of control and certain of the correctness of their original “vision”, impedes this evolutionary process.

2             “How did you go bankrupt?” “Two ways. Gradually, then suddenly.” (Ernest Hemingway, The Sun Also Rises)

Having access to a seriously rich person’s cheque-book might seem like a dream come true to most university finance directors. But a kind of dependency culture develops if, whenever a financial problem arises, some more cash magically appears. The university comes to resemble an oil-rich sheikhdom, able to buy-off internal tensions without having actually to resolve them, and not having to bother much about external pressures. So the university business model appears on the face of it to be working, because of regular cash injections into the balance sheet. Difficult questions about the university’s priorities and how its future sustainability can be ensured don’t get asked seriously, let alone answered: the priority is to ensure that the founder is happy in order to keep the cheque-book open. Short-term imperatives obscure longer-term perspectives. The university gradually drifts further and further away from real sustainability – but…

3             Even the rich don’t live for ever (yet)

If the university had problems when the founder was alive, they can become much more intractable once they’re dead. However clear the founder thought his or her intentions were about supporting the university financially after their death, there will be others with their own claims to understand the founder’s “vision” and what should be done to protect it (see below). The magic cheque-book is suddenly not so open: it’s not that the money isn’t there, it’s just that, well, we maybe need to reflect a little on what the founder “really” wanted and how best to achieve the “vision” in the new circumstances. Someone involved in a “wishes from beyond the grave” discussion of this sort remarked that early Christianity must have been a little like this: “Speaking as someone who knew Jesus well, I can say that what He would have wanted is…”

4             “Let me tell you about the very rich. They are different from you and me.” (F Scott Fitzgerald, The Rich Boy)

You might perhaps think that your financial affairs are complicated because you have a couple of bank accounts, a few credit cards, a mortgage, and an ISA. The seriously rich, though, are surrounded by a horde of financial advisers and lawyers who set up offshore accounts, “investment vehicles”, trusts, foundations, real estate portfolios, the list goes on, to protect their wealth. When their client dies, these advisers become strangely reluctant to hand money over, regardless of what seems (to the intended beneficiary) to have been their client’s clear intentions (see above). Those controlling the money emphasise their heavy responsibilities to safeguard their late client’s “vision”, and can they be quite certain that the university’s plans are consistent with it? How can they be completely sure that the founder’s money will be managed wisely? “Tell us more about your plans” is a request to which the answer can be, as university planners know, a one-paragraph mission statement or volumes of studies and data – to which endless queries and objections can be presented. When the late founder’s wealth is tucked away in different forms, controlled by different people, under different legal jurisdictions, getting it can be slow, expensive – or, in practice, with the clock ticking and the university budget going into the red, impossible.

5             Just buy the yacht

Instead of founding a university, just buy a nice yacht and sit on deck in the sunshine at Monte Carlo with other rich people and, really, save the rest of us a lot of trouble.

SRHE member Paul Temple is Honorary Associate Professor, Centre for Higher Education Studies, UCL Institute of Education, University College London. See his latest paper ‘University spaces: Creating cité and place’, London Review of Education, 17 (2): 223–235 at https://doi.org/10.18546


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The VERY big financial picture for English universities?

By David Palfreyman

The Financial Sustainability Strategy Group, a dedicated bunch of HE nerds, has churned out 90 pages on the funding model of UK universities (February 2019), based on TRAC data (Transparent Approach to Costing, as compiled and collated since 1999). 

The core activity of teaching UK/EU undergraduates brings in c£13.25billion of income and covers its full economic cost (FEC). Within that overall picture, subjects vary in matching fee income to their FEC. Even after some (HEFCE) top-up grant subsidy for STEM, there is an internal transfer as subsidy to STEM from the cheap-to-teach and massively expanded subjects such as Law and Psychology, as well as the cheap but less expanded Humanities. International student fee income is c£4.5billion, with a third of such high fee-payers coming from China. The FEC is more than covered – leaving a 40% surplus transferred to subsidise research. 

Research generates c£9.25billion (£1.5billion as HEFCE QR and the rest as grants/contracts from various sources) but recovers only about 75% of its FEC. Research grants from Government cover 80% of their FEC, from industry and the Research Councils 75%, from the EU 65%, and from charities 60%. The overall loss on research will, therefore, vary according to the mix of research funding from these various sources. The Russell Group lose the most but are best placed to attract more international student fees. A thing called ‘Other Activities’ generates c£5.5billion and has a 15% profit on its FEC – again a source of subsidy for over-trading in under-priced research. 

What are the challenges and threats to this financial model? 

  1. Any wobble in the UK share of the global student market – especially since most universities in their financial projections make happy assumptions about growing their International fee income. 
  2. The hikes due in employer contributions to USS (c5%) and to TPS (c8%). 
  3. The freezing of the £9250 UK/EU UG fee.  
  4. The impact of (now unlikely?) Brexit on EU undergraduate numbers and their fee income – although the loss of EU research grants when every one involves a subsidy of 35% of the FEC would be no bad thing!
  5. Whether the Augar Review will recommend UK undergraduate fees should be cut from £9250 to, say, £7500 – and, even if it does, whether any Government ever implements the proposal.
  6. How those universities that have borrowed massive amounts will be able to service the interest payments as the above happens – let alone save up so as one day to repay the capital. 

In the current financial year English universities get c£1.5billion of funding from the OfS, mainly for the extra cost of STEM teaching over and above the £9250 tuition fees but also for various specialist programmes. Then some £1.6billion is shared out by UKRI to all UK universities as support for research (based on the REF). The OfS and UKRI funding is the job HEFCE used to do before the 2017 Higher Education and Research Act. So the direct taxpayer spend on HE is c£3billion pa, plus spending on support for teaching in UK universities beyond England – and not counting the cost of the subsidy to the student loans system, nor the financing of the various research councils. 

We await the Augar Review; meanwhile the supply of UK 18-year olds continues to decline until the early 2020s, which can be bad news for some universities, as the OfS warned in its analysis of Financial Sustainability of Higher Education Providers in England on 4 April 2019. The flow of EU students may reduce IF Brexit ever happens, and on the spending side institutions face significant increases in employer contributions to pensions. All in all, this is not a rosy picture in the short term and potentially grim in the medium term – unless, of course, the Augar Review gets lost in the context of Brexit-induced government chaos or the Treasury generously substitutes extra grant funding for any Augar reduction in the £9250. Unless indeed any ‘Brexit dividend’ leaves room for more public spending on HE as a call on taxpayer largesse alongside the NHS, social care for the elderly, the funding of schools, etc etc…

SRHE Treasurer David Palfreyman is Bursar, New College, Oxford, Director of the Oxford Centre for Higher Education Policy Studies (OxCHEPS), and a member of the Board of the Office for Students. He writes in a personal capacity.