After a lively three years, higher education reform in England appeared to reach the end of a chapter in July. David Willetts, Conservative MP and Minister for Universities and Science, announced a new operating framework to regulate the sector in the short term. Cobbled together using piecemeal measures and new interpretations of existing powers, this interim framework will probably be in place until 2015 when a new administration will inherit a problem that needs resolution. Willetts had earlier told the Higher Education Funding Council for England that ‘in the long run a new legislative framework is needed’.
The coalition government had retreated from a planned Higher Education Bill in 2012 as the junior partners, the Liberal Democrats, were—and are—still suffering the fallout from their leader’s decision to back proposals in December 2010 for higher tuition fees and an 80 per cent cut to the direct grants paid to universities for undergraduate tuition. His party had campaigned in the election earlier that year on a pledge to abolish tuition fees for home and EU students. Despite a public apology to the nation from Deputy Prime Minister Nick Clegg, the recent conference saw a failed attempt to relegate the matter to the past. The party will enter the next election campaign supporting the new maximum tuition fee of £9000 per year, but still maintaining the longer term aspiration to have done with fees entirely.
At the same time, the Labour party emerged from its own gathering in Brighton with a frontbench reshuffle that saw the reins of higher education policy now passed to Liam Byrne. Byrne worked in the Treasury when Labour were last in power and had a stint at the merchant bank NM Rothschild prior to becoming an MP. Although the mainstream press have described his move from Work and Pensions to higher education as a demotion, it may be that he has been put in place to get a grip on the increasingly financialised nature of higher education.
In 2011, Labour announced that they would have lowered the maximum tuition fee to £6000 had they been in power at the time (the conditional form here indicating that this should not understood to be a policy commitment for 2015). In the interim, there has been much discussion of what such a policy would mean for university finances—would their funding be restored through other mechanisms and, if so, how would such changes or restorations be funded? This matter soon becomes extremely complicated owing to the manner in which government-backed loans offered to students for fees and maintenance appear in departmental and national accounts. With the next election likely to be fought on the issue of macroeconomic competence, the impact of any policy shift on the public headline statistics of the ‘deficit’ and the ‘debt’ becomes a core question.
From a fiscal perspective, short-term accounting gains may trump long-term economic benefits. The ‘Indian rope trick of public finances’ (Elliott and Atkinson)—delivering more with less expenditure—may continue to be conjured for the simple reason that there is no better allusion to hand and any reckoning can be postponed for a few years yet. Politically, the doorstep effect of any higher education policy would have to be sufficiently compelling if it is to displace the fiscal considerations. It is not clear that lowering tuition fees passes this test, particularly if this policy is to be financed by raising the interest rates on the outstanding balances of graduates.
In many ways, higher education policy is now dominated by student loans. The new scheme is only modelled to reach steady state—when annual loan outlay is matched by annual graduate repayments—sometime around 2035. (Annual loan outlay is expected to be over £12 billion per year from 2014/15, while repayments from earlier iterations of the loan scheme are currently still below £2 billion). By this point, the official-yet-independent Office for Budgetary Responsibility predicts that the government borrowing needed to frontload the scheme will have crossed £100 billion.
Since we are also talking about the income contingent repayment loans familiar to Australian readers, it is clear that these models make a series of assumptions, the most contentious being that graduate earnings will outstrip inflation by 2 per cent per year once the economy has ‘returned to trend’. The government points to savings of £1 billion per year in the departmental budget, but as this is based on estimated loan repayments to 2045 and beyond, its accounting is looking decidedly shaky. It might be noted that a recent clarification from Andreas Schleicher, from the Organisation for Economic Cooperation and Development, was rather pointed: when he said that England had ‘probably the most advanced system of student support’ he was referring to what resulted from the 2006 reforms, not the subsequent changes.
The uncertainty and volatility then imported into higher education needs de-risking. It is increasingly apparent that the putative ability to sell loans as financial assets to third parties—moving the associated debt off-balance-sheet—has been an essential part of the transition to the new funding regime. Indeed, the Russell Group of twenty-four leading UK universities told an inquiry into undergraduate funding that the ability to sell the assets was a key advantage of using loans to back fees, when compared to a graduate tax model.
Labour introduced the new higher fee rate of £3000 in 2006 (subsequently indexed to inflation) and followed up two years later with the Sale of Student Loans Act, which gives the relevant Secretary of State the power to conduct outright sales or securitisations without consultation and without the need to seek the consent of borrowers. Planned releases worth £6 billion every two years were abandoned in 2009 once the full extent of the global financial crisis was felt. Following an 18-month feasibility review by Rothschild, the coalition recently announced efforts to recommence a sale program in 2015. This would look to raise up to £10 billion over a five-year period beginning with the outstanding balances on loans issued between 1998 and 2001. Notably, these accounts do not incorporate fee loans, which were only introduced in 2006, and may amount in face value terms to little more than a third of the current loan book. Moreover, any such sale will involve a large subsidy being passed to any purchaser to compensate for the below inflation interest rates currently in effect.
Rothschild concluded that no sale could be achieved for the much riskier loans issued to cover the new fee levels. But from 2015, each year’s issue of the new loans will exceed the entire value of the planned sale. Questions of sustainability were thus to the fore, even before December’s surprise announcement from the Chancellor, George Osborne. The sale proceeds will now be used to fund an additional 60 000 places per year from 2015/16; this expansion would be accompanied by the removal of all institutional caps on undergraduate numbers. With the department also facing a ‘major fiscal challenge’ due to ‘over-recruitment’ and emergency cuts of over £500 million to the budget, there is an air of confusion hanging over the sector. The details of financing still need to be ‘bottomed out’ according to the senior civil servant responsible. The maximum tuition fee will be frozen at £9000 through to 2014/15 at least. However, the most selective universities have benefitted from a new ‘high grades’ policy that has enabled them to expand, freezing the fee cap will cause problems for the system.
At the level of market ideology, the fee cannot signal as a price if everyone is charging the same: average fees after need-tested waivers will come in at £8500 in 2015 across 130 plus higher education institutions. In practical terms, other universities complain that they cannot meet the costs associated with tuition. According to vice-chancellor Andrew Hamilton, ‘the real cost of an Oxford education is at least £16000 per undergraduate every year’, though the workings behind this figure have never been revealed. For this reason, Oxford, like Cambridge, has opted not to use ‘high grades’ to expand.
Hamilton reiterated the call for ‘better’ universities to be allowed to charge more. This indicates that the likely future of English higher education is the breakdown of the unitary funding and regulatory model that has been in place since the early 1990s. At the other end of the hierarchy, the government is encouraging cheaper private and for-profit providers to enter the system to compete on price, while the most selective universities want more concessions so as to maintain their global standings.
Further tensions arise once transnational education enters into consideration. The UK government is keen to exploit higher education as an export industry—one of our few areas of relative advantage—and has given backing to overseas campuses, online learning and international partnerships. The department of Business, Innovation and Skills, which is responsible for higher education, would also like to encourage more students to come to the UK to study, but it has lost an internal argument to exclude student visas from the net migration figures used to judge the success of the Home Office’s immigration policy. The latest data shows that numbers coming from India have halved, with Australia benefiting.
The recent launch of the United Kingdom’s first MOOC platform may provide additional clues to coming trends. FutureLearn is a subsidiary of the Open University, but has been established as a for-profit entity. In July, the government published its new international strategy for higher education. Therein the profit motive and engagement with private equity for investment were elevated to a pitch not heard previously in official documents.
The governance structures and obligations of charities … were not designed to grow rapidly, or to run a network across the world. … A positive strategic commitment to remain at a certain size is one thing. A reluctant ossification and decline, caused by an inability to see how to change a structure that is thought to have outlived its usefulness, would be quite another.
Despite all the aping of corporate practices and management structures in English universities, it had been assumed that established institutions would continue to pursue public goods, a commitment reflected in charitable status. But competitive pressures and restrictions at home have meant increasingly reliance on overseas sources of funding—the new global opportunities may trigger fundamental changes for institutions no longer happy with their position in the new domestic market.
One option is to prune provision. The University of Salford announced earlier this year that they would ‘no longer recruit, after 2013, to modern languages, linguistics and areas of politics and contemporary history … the School of Humanities, Languages and Social Sciences would eventually be disestablished.’ The alternative is to seek investment—traditionally through grants or debt, but now joint ventures are preferred. What the department for Business is promoting is a much more radical break. Such transformations make the specific contours of English higher education hard to predict even over the short run.
That said, we should underscore that the corporate strategies of over one hundred businesses aggregated together are unlikely to produce anything resembling a coherent system. The already existing stratification seen in England will be exacerbated by an elite aiming to escape the gravitational pull of mass higher education and the arrival of cheap, newly competitive, professional training providers. Willetts put the rhetorical question to vice-chancellors in February 2011: ‘How can competition work, whether on prices or quality, if it does not lead to variation and divergent outcomes?’
As universities mirror the increasingly unequal nature of English society, what they offer is a positional rather than a market good: their role in advancing social equality, or minimising embedded disadvantage, will be traduced in a meritocratic game of spotting ‘talent’ and ensuring that it is slotted into the appropriate tier. But the possibility of ditching even such minimal commitments to fair access hits a tipping point if the conversion from charity to for-profit is facilitated by government. This is so novel that we do not even have a term for such a process (‘privatisation’ does not cut it, since the charity is already private). We do though have a precedent. In 2012, College of Law was sold to Montagu Private Equity for £200 million. The export strategy document encourages universities to consider this option if they wish to exploit the new opportunities opened by the digital revolution that fixes education as a tradeable service.
It goes without saying that this process and that of the financialisation associated with a generalised loan scheme will feed off each other. Although the policy terrain is settled temporarily, the ball is very much in the court of individual institutions: there are few safeguards against the ambition of overweening vice-chancellors fuelled by new financial options.
I am frequently asked, ‘what then should be done?’ My answer is that unless academics rouse themselves and contest the general democratic deficit from within their own institutions and unless we have more journalists taking up these themes locally and nationally, then very little can be done. We are on the cusp of something more profound than is indicated by debates around the headline fee level; institutions and sector could make moves that will be difficult, if not impossible, to undo, whether it is negotiated independence for the elite or shedding charitable status the better to access private finance.