Taking on student debt would be a corruption of university ideals

Lie back and think of your debt. Owen Humphreys/PA Wire

The funding of higher education is a mess, and it is getting messier. New proposals on the table to allow universities to take on the debt burden of their own students could have profoundly worrying consequences for who gets to go to university.

A lot has changed for universities in the past 40 years. Once upon a time, universities enjoyed what was quaintly called “quinquennial” funding – in other words, they knew five years ahead what state funding they would receive via the arms-length University Grants Committee (UGC). That guarantee crumbled during the inflation of the 1970s.

But, if the actual money could no longer be guaranteed, at least the funding system was fairly stable. After a wobble when former polytechnics were incorporated into the university system in the early 1990s, the method of funding higher education settled down. Overall, student numbers were controlled; successful universities could bid for extra places; and excellence in research was rewarded. Most of the money was still channelled through the Higher Education Funding Council for England, the UGC’s successor, although (modest) fees were reintroduced.

Until 2010. That saw the introduction of the current pseudo-market system following the Browne report on higher education. Student fees shot up to a maximum of £9,000 and direct funding to institutions was cut (completely for the humanities and the social sciences). The new system was hailed as a “paradigm shift”.

A broken system

Only four years later it is clear this system isn’t working. First, it has sowed the seed of massive indebtedness among graduates. We should remember the Americans first introduced systematic loans in 1962; today student debt in the United States stands at more than $1 trillion, and exceeds credit card debt. That is where we are heading.

Second, the new funding system has produced serious turbulence, as universities that don’t really want more students have expanded and those that do have been forced to contract (threatening their long-term viability in some cases). The pattern of institutions that has been relatively stable since the 1960s (give-or-take some changed labels) is threatened.

Private, for-profit institutions of marginal worth have also been allowed into the higher education “market”, raising the spectre of rip-offs of public funding (already duly noted by the House of Commons Public Accounts Committee but ignored by ministers). The government has actually made things worse by weakening the instruments, notably HEFCE, that might have brought some order to the approaching chaos. With less funding, it has less influence over the behaviour of institutions. At the same time, the government has also failed to establish a fit-for-purpose regulatory regime.

But, third, the new system is heading for bankruptcy because almost half of the loans students receive to pay their fees will never be recovered, leaving the tax-payers with arguably an even bigger bill than before.

Unpalatable to sell loan book

Massive student debt and sustained institutional turbulence, leading to the inevitable closure of some universities, can be ignored – for now. So it is this third flaw of the student finance system – the cost of student loans to the state – that is now concentrating political minds.

The Coalition government first toyed with the idea of “selling” the student loans book to the banks (or indeed any financial institutions – Wonga perhaps?). That hasn’t worked for two reasons. The first is it is widely recognised that the loan book could only be “sold” on such financially disadvantageous and risk-free terms that the arrangements would be difficult to defend (or, in reality, save a penny of public money).

But the second, and decisive, reason is that, after the scandal of the give-away Royal Mail privatisation, the appetite for a repeat simply does not exist. It seems that the business secretary Vince Cable has now backed away from the idea in this parliament.

Academia to take on the debt?

Then in late July, the former universities minister David Willetts floated the extraordinary idea that universities themselves could take on the debts incurred by their own students. Precisely how they would fund such high levels of additional debt has not been explained. Oxford might be able to raise the finance, although this would crowd out far more urgent (and academic) investment. But the urban universities that have done all the heavy lifting in terms of expanding opportunities for disadvantaged students would face punitive charges.

Under such a scheme, perverse incentives would proliferate. Students with less lucrative career prospects (like those in the humanities), or who were perceived to be more likely to drop out (like women or working-class students), or who were less likely to receive “good” degrees (like students from – most – ethnic minorities) would become less attractive. Their opposite numbers – posh, privately educated, white, male students (aiming at careers in business and the “traditional” professions) – would become more attractive to universities.

There are two fundamental, and principled, objections to such a scheme. First, far from widening participation in universities, it would narrow it – thus reversing a century or more of social and educational progress. Universities would not be meeting the legitimate aspirations of all citizens in a liberal democracy, nor building the human capital all 21st-century advanced economies need. Instead, such proposals would amount to reverse “affirmative action” – with a vengeance.

Second, it would require universities to admit students no longer solely based on their academic merits and potential but according to their ability to pay back their loans.

It would be like if doctors no longer treated their patients solely according to their clinical needs but according to their ability to pay (but maybe that is just down the line if the current government is re-elected?). It is difficult to imagine a greater corruption of academic ideals.