Finding value in higher education

Today the British government launched a new review of English higher education, the aim being ‘to ensure a joined-up system that works for everyone’. This review has been heavily trailed for some time, and appears to be based on a sense of uneasiness with the existing framework. One particular angle was given expression by the Prime Minister in her speech announcing the review: she suggested that higher education was influenced by ‘outdated attitudes’, and that in particular there was too much much of a tendency to maintain a gulf between higher and further education.

The terms of reference of the review set out further concerns with the existing system:

‘… The system has encouraged growth in three-year degrees for 18 year-olds, but does not offer a comprehensive range of high quality alternative routes for the many young people who pursue a technical or vocational path at this age. The majority of universities charge the maximum possible fees for at least some of their courses and three-year courses remain the norm. Average levels of graduate debt have increased, but this has not always led to higher wage returns for all graduates. And the system does not comprehensively deliver the advanced technical skills that our economy needs.’

In the meantime, the Education Secretary, Damian Hinds MP, in a television interview on Sunday suggested that a problem with the current system in England was its pricing uniformity: as the BBC reported, he suggested that tuition fees should reflect each degree’s value to society:

‘What we need to look at is the different aspects of pricing – the cost that it is to put on the course, the value that it is to the student and also the value to our society as a whole and to our economy for the future.’

This again raises a number of questions about the value of higher education, and how that should relate to is cost. This is a complex issue in a system that bases university funding on tuition fees paid by students, but in a tightly regulated framework. Higher education in England is not a market (which few in the UK would want it to be), in the sense that universities cannot base their fees on supply and demand. But if not a market, then what? It is not offered as a social service, either. Indeed, it is much easier to say what it is not than to suggest what, in public policy terms, it actually is.

So the problem with the expectations that this new review may raise is that it is unclear what political perspective the UK government wants to adopt to inform its higher education strategy. Some of what we know is laudable: the drive for more participation by disadvantaged groups, for example. But it is hard to see an overall philosophical direction in the government’s pronouncements and actions.

In fairness, many (and not just the UK government) struggle to articulate and pursue a clear higher education policy. Is it all about protecting and resourcing a public good? Is it about recognising the benefits to the individual of a degree and extracting a contribution from that individual? Is it about meeting society’s skills needs? Back in 1963 the Robbins report set out a clear vision of turning what had been a benefit for the elite into a national resource. The sheer success of that vision eventually made its continued development difficult, because of the enormous cost involved. It will be interesting to see whether this new review, chaired by City equities broker Philip Augar, is able to make a significant contribution to finding a new vision that is based on a coherent outlook and is capable of being implemented successfully.

Frankly, that is quite a challenge.

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Student debt gets political

A key issue in the current (and often strange) American presidential election campaign is student debt. There are a number of reasons why it has taken on political significance, but as an issue it was initially raised by the Democratic candidate Bernie Sanders, who in his election programme promised to make university education ‘free and debt free’. The issue has also been taken on board by Hillary Clinton.

The prominence of this issue is underscored by various reports and news items. A blog post published by the Federal Reserve Bank of New York has pointed not just to the scale of student debt in America, but also its socio-economic consequences, increasing the gap between rich and poor and creating ‘negative wealth’ in a number of households. This finds a resonance on this side of the Atlantic, with a British lobby group suggesting that for many graduates the lifetime salary premium secured by a degree is likely to be overpowered by the weight of debt.

All of this tells us that nobody has yet found the silver bullet for higher education funding that is effective in providing necessary resources for institutions while also being socially equitable. Free tuition, notwithstanding the proposals by Sanders, places institutions at financial risk; a loans-financed higher education based on high tuition fees creates unsustainable debt. Sooner or later politicians will need to face up to the fact that means-tested support is the only way out of this. Maybe the US election campaign will help.

Irish higher education: the funding dilemma

As Irish readers will know, yesterday saw the publication of the report of the Expert Group on Future Funding of Higher Education (chaired by Peter Cassells), Investing in National Ambition: A Strategy for Funding Higher Education. Its recommendations had been well trailed in advance of publication, so while they merit discussion of course they are hardly new. Indeed they are not new in another sense: most of what is analysed in the report, and indeed of what is recommended, had been analysed and recommended 12 years earlier in the OECD report, Review of Higher Education in Ireland. Very similar conclusions were reached back then, particularly in chapter 10 of that report.

The problem requiring a solution is not hard to state, and has been a matter of pretty solid consensus for well over a decade: Irish universities and colleges are seriously under-funded. The consequences include an increasingly unacceptable student-staff ratio, degraded facilities, high levels of student attrition, an erosion of international competitiveness. The solution is very easy to state also: more money. The conundrum for politicians is who should pay for this, or where this money is going to come from.

The Cassells expert group has identified three possibilities: (i) let the state pay for everything, but more generously than at present; (ii) maintain the current system of a €3,000 student contribution with additional state funding to make up the required amount; or (iii) an income-contingent loan system, under which higher education is free at the point of entry but where students contribute through re-payment of a loan once their income has reached a certain threshold after graduation. The report assesses these options, sets out the advantages and disadvantages of each, and in effect settles for option (iii), though not explicitly.

In the end this will not turn out to be a matter of choosing the best option, but of securing a policy that will not be damaging to anyone politically. The fate of Nick Clegg’s Liberal Democrats in the UK – who promised not to allow any increase in tuition fees but who were then in the government that did just that and ended up losing seats at the subsequent election – will be on everyone’s mind. If this is a problem that can be dodged it probably will be. After all, the OECD report has gathered dust for 12 years.

I confess I am hugely sceptical about an income-contingent loan scheme. Australia is held up as an example to follow, but the critical thing to note about the Australian model is that it has led to massive unpaid debts, estimated to lie at around or above a staggering AUS$40 billion. As the scheme also involves subsidised interest rates for the loans, it has been estimated that the cost to the taxpayer could be about the same as state funding for the system, but less predictable in its impact.

If it is our intention, as it should be, to ensure that access to higher education is unimpeded for those with the necessary talent, whatever their socio-economic background, then there are really only two options. One is full state funding: but this is meaningful only if that funding is generous enough to secure excellence, quality and international competitiveness. This in turn is unachievable unless taxes are raised to secure the necessary funds, and the revenues are hypothecated – i.e. ring fenced for expenditure on higher education only (which is not possible under current budget systems).

The other option is to have tuition fees for those who (subject to means testing) can afford it, free tuition for those who cannot, and perhaps loans-assisted fee payments for middle income groups.

There is no other realistic option that will actually work in practice and in the long run. There isn’t an easy silver bullet that requires no difficult decision by politicians. And because this is so, this report too may start gathering dust. I would love to think that I am wrong however, and that at least some steps will be taken to ensure that the erosion of excellence in Irish higher education is halted.

Managing debt. Or not.

For many policy-makers on higher education wanting to work out how to fund universities the answer has seemed simple: let students pay, but not at the point of use. This policy, which began in Australia and has spread elsewhere, is based on the view that students should be encouraged to enter university, that they should not pay anything up front, but that the cost of their education should be funded through a loan that eventually they will re-pay (or at least will pay if their salary rises above a certain threshold).

However, outstanding student loans are fast becoming the new major debt burden, in America even outstripping credit card debt. A recent report from Missouri documents a high school teacher who, through ‘a series of unremarkable decisions about college and borrowing’, ran up debts of $410,000.

Large debts also quickly become bad debts. In Australia the total amount of unpaid student loans is estimated to be around AU$70 billion. It is too early to say how this will play out in England, but it is unlikely to follow a completely different pattern. So far, nobody has put any particular thought into how this will be managed, and who will pick up the tab.

As I have said before in this blog, I am in favour of tuition fees, not least because the taxpayer simply cannot afford to fund the entire cost of a higher education system that is internationally competitive. I am also in favour of grants made available to support those who cannot afford to pay, so that nobody is barred from higher education by the inability to pay. But I am  not in favour of a loans-based system, not least because the delayed payment makes the student less conscious of the quality or  good value (or otherwise) of the education she or he is being offered, and because it appears to absolve the state from bothering with higher education funding at all.

The debt bubble connected with property triggered a severe global recession towards the end of the last decade. It is time to think again about the funding of  higher education.

It’s time to think creatively about higher education funding

The first time, a few years ago, that I visited Arizona State University (with whom my then institution DCU was developing a partnership),  I arrived at a particularly interesting time. Just as I was there the citizens of Phoenix approved by a significant majority in a referendum the proposal to create a $223 million bond to provide capital funding for a new ASU campus. This decision really impressed me: the willingness of the citizens to assume this burden, and the partnership it expressed that would allow the university to create state of the art facilities beyond the reach, at least at the one time, of almost any university in this part of the world. It also reminded me how unimaginative we tend to be when we look at the resourcing of higher education.

Interestingly, in Ireland the recently established expert group on higher education funding chaired by Peter Cassells, is reported to be considering savings bonds as a way of creating a partnership between families and the state in providing funding: families save, and the state matches their savings (or provides tax or other incentives on a significant scale).

It is time to move away from the binary obsession: that higher education must be paid out of general taxation; or else paid for by students or their families. Neither of these options now works well, leaving either serious under-funding or chronic personal debt. It is time to look beyond these old models.

Higher education investment and the role of the state

A few days ago several thousand people took to the streets of London to protest against higher education cuts, tuition fees and student debt. The protestors carried placards and heard speeches that called for free higher education, the end of student debt and progressive taxation. It is unlikely that their cocktail of complaints and demands will be taken on board, at least in its entirety, by any political party seriously aiming for government in Westminster, but it is clear also that there is a fair amount of unrest in student circles in England. But in targeting tuition fees above all else, the protestors may be addressing the wrong priority.

It may be worth saying that the argument for ‘free’ higher education (which is of course not really free, but rather consists of tuition funded by the taxpayer) is not without its difficulties. The financial burden of university studies is not felt evenly by all sections of the population. Students with access to significant private resources will not necessarily be troubled much by tuition fees; but disadvantaged students will always be affected by general living and material expenses even where tuition is free. In other words, wealthier students will notice relatively little difference between having tuition fees and having none, while disadvantaged students will find it challenging to afford even ‘free’ higher education. This is one of the reasons why universal free tuition does not, contrary to what its advocates often assume, necessarily draw poorer students into higher education.

A much more significant factor in the social (and indeed economic) impact of higher education is state investment. Many European countries have tuition fees, though on the whole these are low by English standards. However, such fees supplement (rather than replace) state investment, so that the latter can be effectively targeted at genuine need, whether this is institutional (investment) needs or personal student needs. It is arguable that American universities achieved global prominence once the US government realised that higher education investment would generate massive economic benefits; and now US disinvestment is coming at a time when we can discern a gradual slippage by American universities in global rankings, while aggressive investment by China and others is allowing their institutions to advance. The perfect model of higher education funding is serious public investment, accompanied by affordable tuition fees and targeted support for poorer students.

Some countries seem to have lost a mature understanding of what the state’s role is in higher education funding. This needs to be recovered.

Dealing with debt

As the global debate continues about how to resource higher education, there are some strong voices suggesting that the only way to generate sufficient cash to pay for educational excellence without discouraging the less affluent from entering universities is through tuition fees funded through student loans. Under such systems students pay nothing on commencing their studies, but rather take on a loan, with the sum of the loan representing some or all of the cost of their courses. That loan is later repaid by instalments when the student, now a graduate, is in employment or economically active and earning more than a specified income.

This system, it is suggested, is superior to ‘free’ higher education (i.e. studies funded entirely by the taxpayer) because it secures more resources for universities than the taxpayer could afford to provide, and to a tuition fee-based model because the student pays nothing up front or during the course of their studies and so is not excluded by lack of means. It is used in Australia (where the Higher Education Contribution Scheme – HECS – was introduced in 1989) and more recently in England (and not, as is sometimes suggested, in the United Kingdom as a whole).

The introduction of a similar scheme in Ireland has been proposed by some for a while. The Irish Universities Association began to argue for the ‘introduction of a system of income contingent loans and top up fees’ by 2009. More recently the new President of University College Dublin Professor Andrew Deeks, in an interview with the Irish Times, said:

‘My personal view is that the contribution system that has worked in Australia for the past 20 years now provides a good model. It is a deferred payment of a debt, which is accumulated module by module as students progress through the course.’

There is little doubt that the Irish system of higher education is now seriously under-funded. It is also easy to see the attraction of a resourcing framework that does not create a financial entry hurdle for students. Whether the Australian model is as good as is suggested could however be open to argument. One of its significant features is the by now very high level of unpaid debt. It is estimated in Australia that over A$30 billion in student debt is outstanding, of which up to A$7 billion will never be recovered (nearly £4 billion). Now one of the live issues in Australian politics is the question of whether student debts owed by people now deceased can be recovered from their estates. Other studies have suggested that the prospect of high indebtedness is also discouraging some poorer students from entering higher education.

Nobody has yet found the silver bullet for funding higher education, and all debate and exploration should be welcomed. As countries in the developed world identify the need to promote universities that are resourced to host world class discovery, attract very high value industry investment and provide graduates with top skills, it is clear that the funding burden is not an easy one for the taxpayer to carry. Equally it remains of vital importance that appropriately able people from all socio-economic backgrounds are encouraged to pursue a university degree. However, whether a loan system is the answer is, in my view at least, somewhat doubtful.

Irish higher education: mind the funding gap

Towards the end of my time as President of Dublin City University, I calculated that over my ten-year term of office the funding received for educating each Irish and EU undergraduate student (the unit of resource) had, after allowing for inflation, decreased by around 40 per cent. With the exception of the student registration charge (which had by then become the ‘student contribution charge’), all funding came from the government. The actual amounts of funding had increased over the period, but this was because of a mixture of inflation and significantly increased student numbers; once you adjusted for that the picture was very different. Even during the affluent Celtic Tiger years the funding in real terms declined significantly.

When the credit crunch and the resulting recession began in 2008, it became clear very quickly that major funding cuts were about to hit the system. Some of this was absorbed through reductions in staff pay, but what was much more significant was the reduction in staff numbers, forced on the system through the notorious ’employment control framework’. The continuing squeeze on budgets has in the meantime also led to other dramatic effects, with universities having to face impossible decisions regarding staffing, library and technology resources, and other such vital parts of the infrastructure.

Nobody doubts that recent Irish governments have had to take very difficult decisions, and it would have been unrealistic to suggest that higher education should (or could) escape that. But it must be remembered that Ireland’s ability to generate either inward investment or indigenous entrepreneurship increasingly depends on a successful university sector. This is now at risk. It would be foolish to think that a starved sector enjoying half of the per capita funding of other OECD countries could compete with them for investment or for skilled leaders.

The problem for Ireland is that very few people are making this point explicitly (although there are some exceptions, including Dick Ahlstrom’s recent piece in the Irish Times). Does anyone know, or say, how much funding a student must attract for that student to be able to receive a quality education? In England Oxford University suggested to the Browne review that it was £16,000. Perhaps more realistically, an American study recently argued that the minimum quality threshold lay at $15,000 per student – roughly €11,500. Ireland’s funding is now very far below that.

Ireland is facing a crisis on a number of fronts, but right now the asset stripping of higher education is creating an additional problem that may make an economic recovery both less likely and much less sustainable. And most alarming of all is that all this is happening with very little public noise, perhaps in part because the system has been distracted by a very doubtful new framework of restructuring. If I were still working in Ireland, I would be very afraid.

Give us a loan?

As the complexity of higher education funding, and the scarcity of available resources to provide funding, has become greater, an increasingly popular method of addressing it has been the idea of student loans. When the Westminster government introduced its recent framework for increased university fees for England, ministers emphasised that a university degree programme was still accessible to students without paying anything up front, and indeed without repaying anything until a reasonable salary threshold has been reached. By providing student loans, the system allows students to embark upon their studies without either them or their parents having to fork out anything at that point.

So is this as good as it sounds? No financial hurdles for students while studying, but financial benefits for universities from fees? Actually, England was not first to try this idea. Australia has been operating a fees/loans system for some time. It was introduced in 1989 as the ‘Higher Education Contribution Scheme’ (HECS), which has more recently been replaced by the ‘Higher Education Loan Programme’ (HELP). This scheme has been used as a model for higher education funding programmes contemplated or introduced elsewhere, including in Ireland. Student loan programmes are also common in the United States.

However, all these schemes are somewhat problematic. In Australia it was estimated in 2010 that outstanding student loans debt was $15.8 billion. In the United States student debt overtook credit card debt around the same time. Furthermore, it has been revealed in America that where graduates begin to re-pay their student loans, nearly 10 per cent default within two years. It is not unlikely that this pattern will be repeated in England, and if it is, it will create a whole new funding issue as the expected resources from loan repayments do not fully materialise.

There is, I believe, a strong case for tuition fees paid by the well off, with financial support for those who cannot afford to pay. There is also a case for state funding of higher education fees, provided the state understands the scale of the funding requirement. There seems to me to be no convincing case for loan schemes. They deter students, and they create unpredictable financial issues. It is time to move away from the whole idea.

Irish university funding: the continuing uncertainty

Yesterday in the Dáil (Irish Parliament), the Minister for Education and Skills, Ruairi Quinn TD, refused to rule out the return of tuition fees. though clearly showing some level of discomfort at the prospect. However, according to a report in the Irish Times the more likely development will be a continuing year-on-year increase in what is now called the ‘student contribution charge’, perhaps to €2,500 in the coming year. All of this is in the context of a major student protest in Dublin yesterday, and the submission earlier this week of a report by the Higher Education Authority to the government on university funding.

It is clear that the Minister has a difficult task – though admittedly one made more difficult by his signing of a USI-organised pre-election pledge not to reintroduce tuition fees (which I argued at the time was not a good move). The problem is that the Irish taxpayer cannot afford to fund universities properly at the current time, but the political establishment does not want fees. In reality of course the ‘contribution charge’ is now a fee, albeit an inadequate one for resourcing purposes.

In all of this there is a risk of policy drift. Right now it is not clear what the government, or for that matter anyone else, wants to achieve in higher education funding. There is no clear strategy and therefore a large amount of confusion as to what will happen next. In the meantime the global standing of the Irish institutions is eroding, which in turn may damage economic regeneration. It seems to me therefore that the key requirement right now is to produce a clarity of purpose. Uncertainty is the biggest risk of all.