How can we fix UK higher education? – part two

Separate tuition fees from loan caps

Universities are critical for the UK’s future. They are the major source of new ideas-led businesses, they educate the skilled workforce of tomorrow and they enable the UK to compete internationally as a science superpower and to exert long-term global influence.

Yet their business model is at risk of failing. The costs of both educating UK students and undertaking research are not covered by the public money awarded for either; in Russell Group universities, for instance, the fee paid by UK STEM students covers just over 65 per cent of the cost of course provision.

This shortfall is typically met by recruiting overseas students paying uncapped fees, set by international market rates. But constraints on international student visas are making this model increasingly difficult to operate. Across the entire sector, a more than 30 per cent drop in the number of international students recruited in the past year has highlighted the precarity of the situation.

It has been stimulating to see many potential solutions being suggested, from reforming the student loan regime to differential course fees or increased funding by industry levies or the government.

Here’s another option for home undergraduates in England. We could separate tuition fees from loans, so that institutions could set their own fee levels independently of the loan level specified by the government.

This would allow universities to recover more of the cost of educating UK students, based on the quality and attractiveness of their programmes, without increasing loan bureaucracy or the burden on the public purse. A consequence is that institutions would have differentiated fees, introducing the element of competition that the 2010 Browne review recommended as an integral component of the loan scheme.

It would, of course, require some students to pay more to their chosen institution than is covered by the governmental tuition loan. These additional funds would likely have to come from a variety of sources, derived from those who benefit most from the courses in question. This might include employers with a need for particular skills, as well as graduates themselves – perhaps by means of an additional, university-underwritten loan scheme, as well as from new scholarships funded philanthropically.

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Universities would be permitted to charge no more in domestic fees for each course than the cost of provision. This would be determined through some open methodology, one candidate being Transparent Research Accounting Costs (Trac), which provides an auditable survey and is currently used by government to set full economic costing of research – though it may need adjusting to apply to teaching. Also, since new revenue would still only cover teaching costs, the quality-related (QR) funding that supports research costs must remain open to all universities regardless of any changes to the current capped fee structure.

To ensure that those from less advantaged circumstances were not deterred from entering and progressing through university, determining who pays would need to be done in a means-tested way. One option is the tuition discount model common in US universities: admissions are done in a “needs blind” way, based purely on merit, with tuition waivers given as needed, according to an assessment of individuals’ (and households’) capacity to pay. UK universities already have schemes to direct bursary funding to students with financial and other needs, and the government already operates a means-tested bursary, so identifying those most in need should be straightforward.

The discount model leads to a difference between the “sticker price” and the actual amount an average student pays. At the Massachusetts Institute of Technology, for example, 58 per cent of students received funding to reduce tuition and living costs by nearly 90 per cent. Students who have a real financial need pay little, while those with greater means pay more.

UK universities already recycle a super-majority of funding beyond the minimum fee (£6,000) into bursaries, access programmes and support for progression for lower-income students. At Imperial College London, for instance, 22 per cent of UK students meet widening participation criteria, and 35 per cent are awarded bursaries. Nevertheless, even assuming these students all received fee waivers or reductions, our modelling indicates that a US-style discounted tuition approach would reduce the deficit in the cost of course provision for UK students by more than 50 per cent (excluding medical degrees).

A further consequence of this approach would be that recruitment of overseas students would be driven less by finance than by the contributions they make: providing a broad global perspective to UK education and bringing skills and ideas to local economies and to regional innovation capacity after graduation. Overseas fees would still be needed to contribute to the costs of research, but the additional income from home students would contribute to the other outstanding costs for teaching facilities, including laboratories and equipment.

Since high-quality infrastructure is essential to realise the public benefits universities bring to wider society, some government investment will still be required. But rather than blanket additional funds for all students, it will suffice to direct funding towards the facilities needed for world-leading education, student support and research. For example, capital funding for infrastructure can be directed to areas where there is a clear opportunity for education and innovation to make a difference to communities and to national aims.

These two actions taken together – a means-tested approach to tuition that reflects cost of provision and targeted capital for research and teaching infrastructure – would be a cost-effective way to ensure that UK universities remain the envy of the world.

Ian Walmsley is provost of Imperial College London. He thanks the Imperial College finance team, and, in particular, Izzy Savage, for their analysis and modelling quoted here. Many colleagues provided helpful comments and critique of these concepts and on earlier drafts, including Mark Smith, Keith Burnett, Peter Haynes and Ruth Arnold.

Guns away. Let’s have a UK Universities Accord

At the end of last year, Nick Hillman, director of the Higher Education Policy Institute, observed that, “in the 1990s, the incoming Blair Government’s reforms were heavily influenced by the system of fees and loans then in place in Australia. So…if you want to know what an incoming Labour Government might do, then it might be worth looking Down Under too.”

That is particularly relevant given the opinion polls’ prediction of a Labour landslide at the general election and the recent publication of the Australian Universities Accord’s policy recommendations.

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The 400-page final report marked the culmination of a process begun in November 2022 by Australia’s minister for education, Jason Clare, following the Australian Labor Party’s election victory earlier that year. Led by Mary O’Kane, former vice-chancellor of the University of Adelaide and chief scientist of New South Wales, the process took 12 months and cost a relatively modest A$2.7 million (£1.4 million).

So what lessons does the accord offer to Labor’s UK cousin, assuming it does form the next government? The first is straightforward: that an expert, long-term, widely supported review, with access and resources only available to government, is a good way of considering policy decisions. That is particularly true when policy, funding and accountability for higher education have become complex and fragmented, and where long-term spending must be subject to fiscal rules and forecasts that can’t sensibly be anticipated outside government. As in Australia, there is also a window in which to do it, especially if the next spending review takes place in the autumn of 2025.

The second lesson is equally clear. Lasting reform that contributes meaningfully to a “strong, equitable and resilient democracy” and “drives national economic, social development and environmental sustainability”, as the accord puts it, needs to be undertaken on a stable, long-term basis, even if it takes time and several stages to implement. This is the opposite to damaging short-termism, policy churn and ministerial whim – described by one contributor to the accord as “programmatic confetti”.

The third lesson relates to the accord’s recognition that a new approach should address the incoherence of the different competing systems across higher education and vocational training. Here there are familiar challenges in both Australia and England (though perhaps a little less in Wales, Scotland and Northern Ireland following recent reforms). As the accord notes, there is a lack of shared purpose and direction between the two strands to tertiary education, with funding and regulation “fragmented across different institutions, levels of government, industries and places”. The overarching recommendation is therefore to establish a Tertiary Education Commission to provide the “leadership and stewardship necessary to transform the tertiary education system”.

Stewardship sits somewhere between the extremes of markets and planned systems but recognises that long-term coordination and oversight matter, including within government. In the UK, we have witnessed near permanent revolution in the departments that have an interest in higher education and research over the past two decades. This has led to inevitable instability in policy concerning universities and colleges and also in the economy as a whole.

“Australia has lacked deep thinking and clarity of direction…At the same time, and across successive governments, there has been a decline in the capability and capacity of the public institutions responsible for overseeing the system. This has been compounded by the shape of the institutional structures governing it, which are centred in policy departments which lack a long-term system focus and have instead prioritised responsiveness to ministerial and government priorities.”

We could easily substitute “England” for “Australia” in this description, taken from the accord’s final report. And this points to a further area where England might usefully learn lessons: in our approach to universities and colleges themselves. In Australia, “fragmented policy changes have eroded both the stability and sustainability of higher education providers”, leaving them in a deepening financial and existential crisis. The aim is for a “stronger, more diverse, innovative, mission-driven system, likely with more public providers and greater differentiation between those providers”. They are keen to find ways of “quickly ramping up delivery, including through use of newly developed collaborative infrastructure”.

All this will strike a chord with a UK Labour Party wishing to enact “mission-based government” with urgency. The party will surely recognise the relevance of tertiary education reform to individual missions, such as housebuilding, net zero or industrial strategy, in support of which it has recently proposed to create “Technical Excellence Colleges”.

Rishi Sunak has an attack line that voters should not let Labour take the country “back to square one”. However, for tertiary education in England – and for the wider economy that depends on it – this might be exactly what is needed. We shouldn’t fear such a fundamental rethink of the way we do things even if it takes time and effort to get there. That, in a sense, is the point.

Andy Westwood is professor of government practice at the University of Manchester.

Don’t give up on the current system

English higher education does not need another review. It needs practical action to tackle the most urgent issues it faces. 

First, there are the growing financial pressures on universities because fees have been virtually flat for a decade. No other stage of education is expected to operate with such real cuts in funding. Students are losing out as lectures and seminars become more crowded and there is less investment in facilities. The minimum necessary is to index fees to inflation.

It is disappointing how many in the sector have got into a defeatist mindset that somehow this is impossible to do: instead, they think we must try to find an alternative funding model that has eluded everyone over the past 25 years of reviews and debates. But universities need help now and the best way to get it to them is to increase fees.

This argument is winnable – it just involves going back to persistent and persuasive explanations that these are not costs facing students upfront: they would not add to the cost of living. Indeed, I doubt that even the National Union of Students would campaign against such an increase. This measure would itself directly benefit students as they get a better-quality education.

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But there should be something directly for students as well. And that is more money for them to live on now. That means an increase in maintenance support, starting with maintenance loans. There are real threats to social mobility when low-income students struggle to make ends meet while they are at university. Living costs either put them off altogether or they spend so much time in paid work while they are studying that their education suffers.

The public finances have gained significantly from substantial reductions in the RAB charge (the cost to the government of unrepaid loans) in the 2022 package, which lowered the repayment threshold and extended the repayment period from 30 to 40 years: this reversed the damage done by Theresa May’s big and completely unnecessary increase in the repayment threshold in 2017. So my suggestions should not affect the public finances: the RAB charge is now very low and should remain so.

That means that these costs will be borne mainly by graduates over future decades. That is how the system should work. But there are arguments that the taxpayer should make a contribution, too. If so, there are two further priorities. First, bring back means-tested maintenance grants, which were abolished in 2016. And, second, introduce extra help for high-cost subjects – particularly the lab-based Band B subjects, whose current grant does not properly cover their real costs.

All this is eminently doable. Indeed, as one looks at the landscape facing an incoming government, there are few policy areas where such a straightforward package would have such a positive effect.  

David Willetts was minister for universities and science from 2010 to 2014. His book, A University Education, is published by Oxford University Press. 

Click here to read part one of this article