Does the university funding system work well?

There is a threat to the quality of education students receive as a result of the real-terms decline of resource per student which has resulted in tuition fees being frozen for a long period of time. There is also the real and perceived unfairness of who pays for higher education, with a shifting of the burden onto students away from the Treasury, and a more regressive system because of the 2022 changes to repayment terms. Additionally, there is the difficulty of demonstrating value for money in terms of positive educational outcomes for publicly funded students. 

The best way forward would be an explicit graduate tax, designed carefully to be progressive, combined with a larger proportion of university funding to come in the form of grants from the Treasury. 

To restore confidence in the system and ensure that universities are making the most out of the resources they do have, funding should be linked more explicitly to independent quality assurance mechanisms such as some measure of learning gain. However, I am open minded and believe that there are a range of pragmatic improvements on the status quo. 

The current system has been the source of much debate for years, yet it has persisted. While it is not infrequently described as broken by diverse voices, an alternative has not been forthcoming. 

Many countries fund their higher education via a split between government/taxpayer, student, and other income from donations, projects and contracts, yet the UK system remains poorly understood even by those within it. A clear, connected narrative as to the benefits and value of higher education and how and why a funding model delivers such benefit and value is rarely heard. The sector therefore has work to do, both in terms of making sure institutions are the best they can be and in effectively communicating their value.

Although more students from disadvantaged backgrounds are entering higher education than previously, there are threats to this positive trend as increasing numbers of students are experiencing hardship due to the cost-of-living crisis. UPP and HEPI polling reveals public support for the return of maintenance grants to those from the poorest backgrounds. This issue is not just about equity but also about ensuring that the highly-skilled workforce in the UK benefits from diverse talent. 

The siloed working of government departments makes holistic, sustainable policy change difficult. The most obvious example is the febrile nature of policy on international students and the inclusion of international students within the net migration target. These moves threaten the UK’s international standing whilst also potentially destabilising the HE sector. 

The solution lies in a holistic considered approach to the purposes and value of higher education and the need to balance how it is paid for via contributions from taxpayers, students, and other sources. Such a ‘narrative’ needs to be accessible, explicit, evidence-based and embedded into societal discourse. Comprehensive and thoughtful consideration of what is in the interests of a successful society, balanced against the very real constraints on the public purse, needs to give rise to a solution that is affordable, fair, and sustainable.

The reliance on fees from overseas students plus government funding in the UK creates susceptibility and vulnerability to negative shocks from several possible causes - geopolitical events, major global economic troubles, and shifts in UK government policy being the main ones. The combination of dependence on vulnerable funding and the collective incentives facing the sector leads to competitive overspending and places a significant number of institutions in financial hazard.

The system of fees and student loans that gives bad value to the taxpayer and many graduates has not led to either price competition or price discrimination - both of which would be found if we had a truly competitive market-based system.

This means the fees charged to domestic students do not perform the signalling function that they should, resulting in excessive demand for some subject areas and deficient demand in others. The system as it stands is the worst of both worlds, combining the defects of both government funding and market driven private funding, while having none of the good effects of either.

There is also an excessive reliance on central government funding, for research through exercise such as the REF.

There are two key problems with the current system in the erosion of the unit of resource and the gaps in meeting the full economic cost of research.

The erosion of the value of the tuition fee cap reduces actual funding per student substantially and to unsustainable levels. This is exacerbated by policy uncertainty that makes it harder to plan and innovate. Further, poor national communication of the student loan system leads to significant misunderstanding of the income contingent nature of repayment and the important state subsidy for graduates on lower salaries. There is also a lack of funding flexibility to support a wider range of qualifications (particularly for upskilling and reskilling), with particular issues around ELQ, modular and conversion learning.

Funding research has become a complex mess of interdependencies that seek to offset significant gaps in the full economic costs of undertaking research. The dual support funding structures need to be reviewed in line with the priorities and capacity of the system to deliver in effective and efficient ways.

An important factor that politicians, policy makers and institutions need to address is the need to develop long-term and sustainable solutions. There are many advantages for a connected system approach but where pressures are applied in one part (for example,  international students) this will have impacts in other parts (such as research funding). Any solutions therefore need to understand the consequences of fixing one part of system on the other dependent elements.