State funding to universities is stable, but questions remain over uncapped student numbers

What will more and more students mean for the sector? David Cheskin/PA Wire

In the run up to a general election, it would be unusual to spot radical shifts in the government’s higher education policy. The latest annual grant letter that the Department of Business, Innovation and Skills (BIS) send to the Higher Education Funding Council for England (HEFCE) meets these expectations with little that is truly eye-catching or especially novel.

Pride of place goes to reaffirming the government’s view that plans to abolish the cap on the number of people who can attend university from September 2015 is an “historic step” which implements the vision of 1960s reformer Lord Robbins “that university places should be available to all who are qualified by ability and attainment to do so.”

The level of government funding to universities remains broadly unchanged – with a budget of £4.01 billion for 2015-16, compared to £4.09 billion in 2014-15. With an estimation that universities’ income from fees will rise from £7 billion to £8.1 billion, this puts their total pot at an estimated £12.1 billion, up from £11.1 billion in 2014-15. But BIS has made a point of not setting out funding beyond 2015-16, saying it will be dependent on the next spending review.

In the light of statements by UCAS in the last few days, showing increasing applicants to university in 2015-16, the government’s estimations of student number growth and of more applications from low-income applicants could well be realised. But there will be consequences.

Who benefits?

With projections for full-time undergraduates rising – although part-time numbers are falling off a cliff – there are three major concerns. First, how likely are these additional students (and the taxpayer) to benefit from going to university or college? The Australian government’s withdrawal of student number controls a few years ago is instructive. It has led both to more undergraduates but also an increasing number with low-entrance qualifications.

Research evidence suggests that many of these relatively poorly qualified entrants will struggle to finish their degrees, or at least with good outcomes. In England, many are likely to find themselves adding to the existing third of undergraduates who are in “non-graduate” jobs. The economic pay-off – the reason why most students go to university – will probably be small. If so, this would be a waste of their time and money, plus that of the taxpayer. More vocational and apprenticeship opportunities should be developed instead.

Impact on learning

BIS is also encouraging HEFCE to continue its work on learning outcomes – or “learning gains” in the latest grant letter – and a programme for refining and testing new indicators of university quality, including on graduate earnings. The question then will be whether if such work shows that abolishing student number controls leads to little “added value” in learning, or hardly raises salaries, would the cap on student numbers come back – particularly in the light of continuing tight fiscal constraints.

The BIS letter rather supports this possibility by also emphasising new pathways into higher education through the expansion of Higher Level Apprenticeships and National Colleges. Yet employers’ needs for high levels of technical expertise might best be served if apprenticeships were considered more a pathway into employment than into higher education.

Second, it is not clear whether increasing demand for higher education in the era of £9,000 fees is really a “free choice” similar in kind to many other consumer decisions. The publicly funded student loan system means that high fees do not diminish demand. Students from even quite deprived backgrounds pay them because they can defer loan payments. Besides, if offered a chance to study for a degree without the up-front costs, and in line with family and school expectations about the need to get a professional or creative job that is less likely to be automated out of existence, what else are they expected to do? Switch to bricklaying?

Fee deregulation on the horizon

Will fees be deregulated? Lukiyanova Natalia / frenta

Third, given that in England we tend to follow Australia’s higher education reforms, perhaps buoyant student demand will reinforce arguments for “full fee deregulation” – removing the £9,000 annual cap on fees. The Abbott Government in Australia is currently foregoing a proposed AUS$2 billion worth of cuts to higher education in order to swing political support towards abolishing the cap on tuition fee levels. Recently, some vice-chancellors in England have argued for similar deregulation here.

Given that we are not sure how universities spend their income, it is not clear that a fair slice of this added funding will not be siphoned off to support an institution’s research, rather than its students. Whether students would be happy to have their fee payments support the country’s research effort should not be taken for granted.

Nonetheless, “fee deregulation” is never quite as it says on the tin. In Australia, the government’s legislation includes a significant cap on prices by requiring that universities charge domestic students less than they charge international students. Limiting the level of loan finance for students, whatever the fee levels, may also act as a “soft cap”.

The 2010 Browne review of higher education funding for the UK Government offers a further source of restraint. We could “tax” the level of fees above a certain point, returning the amount to the public purse. At least this might exert pressures for increased efficiencies on universities and colleges.

Could fees be pushed down?

Currently – and this is reflected in the grant letter – all the discussions are focused are on the student “demand” side and the impacts of policy reforms on these consumers. But rather than permitting large or regular increases in university charges – in a market where price signals are badly skewed by the availability of publicly supported student finance – we need more assurance that universities are justifying these increases through better organisational performance and cost-effectiveness.

In such a context, we might find that fee deregulation could lead to lower fees – not so much in the elite universities, but elsewhere, as online and low-cost providers increasingly challenge traditional university business models. Global competition, from computer-savvy for-profit conglomerates, might offer the best chance for fee deregulation to drive charges down rather than always up.

Next read: Abolishing cap on student numbers is a good use of government money