The Funding Challenge for Universities

FundingChallengeForUniversitiesA new publication by Universities UK entitled”The Funding Challenge for Universities” came out last week, with the following chapters and key points.

Chapter 1 The Economic Challenge

Under economic challenge the report reviews the evidence that graduates earn more than those without a degree, and concludes that this is still the case. Although there is evidence that some graduates enter non graduate jobs initially, they rapidly move upwards through organisations to positions where a degree becomes necessary.

The report concludes that even with the growth in the number of graduates, the continuing differential in pay indicates that there is not an over supply of graduates and that with evidence of a future need for more graduate level skills, that there may be scope for the number of graduates to grow further, to support economic growth.

Chapter 2 The Funding Challenge for Universities in England

This chapter reports that between 2005-06 and 2011-12, income to universities rose by 44%, while expenditure rose by 39%. The income has changed from being dominated by HEFCE teaching grant, to being mainly from tuition fees.

At the same time, there has been an increasing reliance on organisations to fund infrastructure improvements from their own reserves, which suggest that should student number controls be lifted , resulting in any increase in enrolments, universities may not be able to fund the capital infrastructure needed to support the student experience.

Reviewing the difference between the number  applicants to university, and the number who accept places, suggests there is still unmet demand which could also support a growth in the number of enrolments.

Chapter 3 The Funding Challenge for the Government

Clearly any increase in the number of students enrolling would lead to an increase in the cost of student loans and an increase in public sector borrowing.

A number of ways to mediate against this are proposed, for instance increasing interest rates, increasing time for repayment, reducing the repayment threshold. The other changes are more macro – reducing other elements of spend by BIS, reducing spend by other government departments, or increasing government income.

Private funding is mentioned at this point.

Chapter 4 Funding Challenge Faced by Other Countries

This chapter looks at funding mechanism in other countries, where growth in tertiary education is happening at the same time as constraint on public resources.

The US, Korea and Hungary are considered in detail.

Chapter 5 Conclusions

The report concludes that there is a need to continue to increase the number of graduates, while recognising that funding challenges exist if quality and competitiveness are to be maintained. Three main factors are identified: increased government funding; reduction in RAB charges; need to acres funding for capital expenditure now to accommodate student numbers in the future.

The amount of private funding in other systems is highlighted, and the report goes on to state that UUK will now be looking at alternative student finance models for England, with the following principles:

  • student number control – that institutions should have autonomy over admissions and selection and thsi shoudl not be dictated to by the funding process
  • no student to be disadvantaged by background
  • public-private finance models – recognition that public funding should be part of the system but should be focused on providing support where the market cannot sustain investor return requirements, eg if the student or course presents an increased level of repayment risk to investors
  • alternative forms of funding – should not constrain other forms of funding or prevent insttutions developing independent models to fund their students
  • system to cover all institutions
  • tuition fees – flexibility to be retained to vary key aspects, eg level of level of fee cap, earning threshold before repayments

 My Comments

A no doubt welcome and realistic paper which is looking at the reality of how we will fund HE in the future, particularly since there is  a recognition of the need to increase further the number gaining degree level qualifications. The report certainly starts to provide some ideas to what Steve Smith described as an avalanche (from an earlier blog post)

“an avalanche really is coming in terms of the costs of student support.

I cannot see that system surviving, and expect any incoming government in 2015 to look again at the student finance system and to try to reduce its costs. Think for a moment about how it might do that, and how that might influence student demand for different types of institutions. To mention just one controversial way to reduce costs, what would be the effect of re-examining the Browne review’s notion of requiring minimum qualifications before students gain access to the loan system?”

There must be some worries here though too though. The paper suggests that extra funding could come from a realignment of BIS or other budgets, or increased government revenue. In the current climate of austerity, that seems unlikely, and the focus is more likely to be around how the student finance system will be able to operate in future.

There is acknowledgement that the fee cap should be able to rise (it cannot stay where it is anyway, as inflation will reduce the real income to universities over time). the question will be whether a raised fee cap would see all institutions again charging the maximum or close to it, or a real market in fees.

The suggestion of allowing different forms of finance is interesting – eg parental support or increased private investment. This does worry me though, particularly in terms of being able to ensure that social mobility of those who do not have access to such funding is not affected.

The suggestion that public funds should be used to provide support for those students and courses where investors may not see a return is equally worrying – will students, particularly those from lower income or risk  and debt averse households be more likely then to be channeled in to the subjects where there is a clearer economic reward, rather than the education that they want.

An area not covered is how we might actually deliver undergraduate education. The implication in the reports is that any growth in numbers needs to be matched with a growth in capital investment and infrastructure. Although this is desirable, there are other things that could be considered. For instance, how can universities use their estate more efficiently? Can fast track degrees allow growth in graduate numbers with a reduced capital requirement? Can clever use of technology reduce the reliance on the physical campus?

I look forward to the next publication in the series.