It’s time for the criticism to stop. Whatever you think about the changes to higher education that have been made in recent years, in particular the decision in the autumn of 2010 largely to replace public funding of teaching with student fees, this is now the system we’ve got. Carping about the principle or sniping at the process is simply unhelpful: it antagonises ministers and officials, thereby jeopardising future negotiations, and it wins little sympathy from the media and wider public. This country is in desperate need of jobs and of economic growth, and in higher education as in every other sphere we are now competing in a global market. So pipe down, and let’s all focus on making this system work as effectively as possible.
If this is your view, you may not wish to read on – or you should at least be warned that this article contains material of an economically explicit nature and some strong language (not all of it mine). But everyone else, including those who are being cowed by their local variant of the pragmatist in a suit, may be interested to learn from these two exceptionally well-informed books just how far-reaching are the changes now under way in British (or at least English) higher education. The provenance of their authors could hardly be more different. Roger Brown has been, successively, a senior civil servant, the chief executive of the Higher Education Quality Council, and vice-chancellor of Southampton Solent University; he is currently professor of higher education policy at Liverpool Hope University. Andrew McGettigan did his doctorate at the highly regarded Centre for Modern European Philosophy that Middlesex University summarily closed down in 2010; in recent years he has distinguished himself as one of the best-informed analysts of the legal and financial changes reshaping universities in this country. Brown’s book is a sober, data-heavy overview of higher education policy in Britain since 1979, drawing on extensive secondary and comparative scholarship as well as first-hand experience. McGettigan’s is a detailed, at times technical, analysis of the funding of English universities since 2010; he explains these arcane matters with exemplary clarity and spells out the long-term financial implications of the new arrangements. But for all their differences, these two books provide a chillingly convergent description of the huge gamble that is being taken with higher education in England: an unprecedented, ideologically driven experiment, whose consequences even its authors cannot wholly predict or control.
A few caveats. First, criticising current policies does not signify that one believes all used to be well with British universities, or that there is some golden age we should try to get back to, or that universities are not broadly answerable to society – the imputations that are repeatedly used to discredit justified criticisms. The choice is not between endorsement of current policy or some head-in-the-sand sense of entitlement. Second, it should also be clear that previous governments have played their part in promoting the policies described in these two books. The changes since 2010 have been more fundamental than anything before, but in policy-making circles, and especially among officials in the relevant departments, there has been some continuity of approach over the past two decades. And third, the fate of British universities cannot be considered in isolation. Deep changes in the structure and dominant attitude of contemporary market democracies are everywhere putting pressure on the values that have sustained the ideals of public higher education. Unfortunately, the UK has put itself in charge of the pilot experiment in how to respond to these changes. Other countries are looking on with a mixture of regret and apprehension: regret because the university system in this country has been widely admired for so long, apprehension because they fear similar policies may soon be coming their way. In many parts of the world English higher education is, to change the metaphor, seen less as a useful pilot experiment and more as the canary in the mine.
The place to begin may be the US Senate. At the end of July 2012 the Senate Committee on Health, Education, Labour and Pensions presented an 800-page report, the culmination of a two-year investigation into ‘for-profit’ higher education institutions. The senators found that at such institutions a mere 17.4 per cent of annual revenue was spent on teaching, while nearly 20 per cent was distributed as profit (the proportion spent on marketing and recruitment was even higher). They also found that huge numbers of people from the least advantaged sections of society are stuck with large debts, having enrolled in, and very quickly dropped out of, courses which were never suitable for them. (‘Subprime degrees,’ McGettigan observes, ‘like subprime mortgages, are sold to communities relatively unfamiliar with the product.’) The explosive growth of the for-profit sector in the US dates from the late 1990s and the involvement of investment banks and private equity. For example, in 1998 Ashford University had just three hundred students; it was taken over by Bridgepoint Education Inc, and by 2008 boasted 77,000 students, nearly all online. Bridgepoint was described by the Senate committee’s chairman as a ‘scam’, still collecting profits despite having drop-out rates of 63 per cent for Bachelor’s degrees and 84 per cent for Associate degrees.
The biggest player in this market is the University of Phoenix, owned by the Apollo Group. UoP claims to be North America’s largest university: at its peak in 2010 it was said to have some 600,000 students and annual revenue in excess of $4 billion (in October 2012, it announced plans to close 115 campuses owing to a drastic drop in its profits). The Senate investigation showed that 60 per cent of Apollo students dropped out within two years, while of those who completed their course, 21 per cent defaulted on paying back their loans within three years of finishing. It also revealed that 89 per cent of Apollo’s revenue comes from federal student loans and that it spends twice as much on marketing as on teaching. A lawsuit filed in 2003 alleged that UoP had wrongfully obtained at least $3 billion of federal student aid; in 2009 the Apollo Group agreed to pay $78.5 million to settle the suit, in one of the largest pay-for-performance compensation settlements ever reached. After a separate investigation in 2004, the Apollo Group paid about $10 million in fines to the US Department of Education, which had criticised UoP’s admissions practices: recruiters, for example, were paid bonuses depending on the numbers they signed up. A parallel investigation by the Huffington Post of another ‘private provider’, Educational Management Corporation, found that after it was taken over by Goldman Sachs, its recruiters were issued with scripts ‘which instructed them to find potential applicants’ “pain” so as to convince them that college might be a solution to their struggles’.
This would never happen here, would it? There can be nothing to worry about, therefore, in the written submission to the House of Commons Public Accounts Committee of 6 December 2012, which listed the amount of public money that, through student loans, now goes to private institutions (both for-profit and not-for-profit). The submission noted, among other things, that the cash paid to private colleges has trebled in one year and now exceeds £100m; the number of students studying with private colleges on unregulated courses has doubled in one year; 23 per cent of the total public money involved was captured by one provider, the Greenwich School of Management, which is owned by the private equity fund Sovereign Capital; Sovereign Capital’s co-founder advised the government on public sector reform, and is now government spokesman on education in the House of Lords.
The figures referred to in this submission are on public record. In 2007-8, £15 million of student loans were paid as fees to private providers in higher education. By 2010-11 this had risen to more than £33 million, and recently released government figures show that the total almost trebled to £100 million in 2011-12, the first full year under the coalition’s stewardship. With effect from 2012, the government also increased the amount of public money that private providers could receive in the form of student loans from £3,000 to £6,000; the number of courses designated fit for this form of public support has also dramatically increased. Private providers in the UK are subject to some regulation, perhaps a stronger regulatory regime than has historically been enforced in the US, but they are still exempt from many of the obligations of public institutions. They have not had to observe controls on the number of students they recruit and are not, it seems, legally obliged to publish information about recruitment figures or completion rates.
Private capital has been quick to spot its opportunity. In 2009 the Apollo Group formed a consortium with the Carlyle financial group to take over the now ubiquitous BPP College in a £303.5 million deal.Part of the attraction was that in 2007 BPP had been granted degree-awarding powers. It is now known as BPP University; together with BPP Professional it has study centres in Abingdon, Birmingham, Bristol, Cambridge, Glasgow, Leeds, Liverpool, London, Maidstone, Manchester, Milton Keynes, Reading, Newcastle, Nottingham and Southampton, as well as sites in Bulgaria, Czech Republic, Hungary, Malta, Poland, Romania and Slovakia. In 2011 Sovereign Capital acquired the Greenwich School of Management for an undisclosed sum. (Its American BBA degrees are awarded by Northwood University, Michigan, founded in 1993.) In 2012 GSM launched a second campus in Greenford, West London, to accommodate a further six thousand students. In 2012, Montagu Private Equity acquired the College of Law for around £200 million. With remarkable speed, the college was granted full university status a few months later: it is now known as the University of Law.
New ‘not-for-profit’ private institutions are growing at a similar rate. In July 2012 it was announced that Regent’s College (in Regent’s Park) had been given degree-awarding powers by the Privy Council. In February this year Regent’s College acquired the for-profit American InterContinental University London from Career Education Corporation. In March the Department for Business, Innovation and Skills (BIS) announced that Regent’s College had met the criteria to become a university. Since then, Regent’s University London, as it is now known, has advertised itself vigorously. For most courses it charges £14,200, far more even than top-charging ‘public’ universities. It does offer bursaries for some students unable to meet the high fees, but it appears the take-up is low. As the head of RUL put it, ‘the majority of students who come here are from relatively comfortable families, ranging from comfortably middle-class to staggeringly wealthy.’ At present, only 18 per cent of its students are from the UK; it is thus regarded as a significant contributor to the ‘higher education export industry’. Its plans include ‘a projected doubling of student enrolment in the next seven years, the opening of overseas campuses in Hong Kong, Eastern Europe and South America, and the acquisition of a design school and a law school’.
At first sight, the distinctions between public and private institutions, and among the latter between those that are for-profit and those that are not-for-profit, may seem clear-cut. In fact both distinctions are rather complicated. Most of Britain’s older universities were originally chartered, autonomous corporations, but they are rightly regarded as public institutions in the same way that, say, the BBC is regarded as a public broadcaster, receiving the bulk of their funding from public sources and regulated accordingly. Private universities do not directly receive public funding and are, to a considerable extent, exempt from such regulation. However, the distinction between private and public universities is becoming blurred, first in that some universities have since 2012 received very little in the way of direct government subsidy and are now heavily dependent on the income from loan-backed fees; and second, in that approved private institutions can now get the greater part of their revenue from exactly the same source.
A for-profit private provider is a business like any other: even though it may make a lot of noise about its ‘educational mission’ and so on, it is geared to making money for parent companies, directors and shareholders. A not-for-profit institution is different: as an educational charity, it is legally prohibited from directly allocating any part of its surplus to the profit of any other institution or any individual. However, as McGettigan shows in a particularly penetrating analysis, where a not-for-profit educational institution is concerned, what matters may not be its own legal status but its position within a larger corporate or group structure. A parent company may have several ways of making money from a not-for-profit college without violating its charitable status, from management fees, for example, or being the monopoly provider of certain services. Doubtless most investment companies and private equity groups are motivated by a concern for the public good, but the fact that at the moment the waters around higher education institutions are so full of eager predators may suggest, even to the most naive, that they have been aroused by the scent of profit. The government has made it much easier to acquire the title and status of university, once so jealously protected. There is, surprisingly, no requirement to have a spread of subjects or to offer postgraduate degrees, and it has now been decreed that no more than 750 students need to be following degree-level courses. It also seems that if an existing college is subject to a private capital buy-out it will still be allowed to keep its precious degree-awarding powers, even though the ‘charitable’ institution may have become part of a larger corporate empire.
Among the various new types of institution, none has attracted as much media interest as A.C. Grayling’s New College of the Humanities, though in terms of student numbers it is as yet of negligible importance. Its founding in 2011 was accompanied by high-toned claims about how it would provide the kind of top quality liberal arts education that is allegedly disappearing from established universities. But the reality, as McGettigan demonstrates, is that NCH is essentially an upmarket crammer, a sleek private tutoring organisation for the age of the global elite. It is not a university and does not award degrees. It ‘prepares’ students for existing University of London International Programme examinations – as a number of private tutoring institutions across the world have long done. It promises small-group tuition, and several academic superstars who hold full-time appointments at universities in Britain and the US feature in its advertising as ‘visiting professors’. For this it charges fees of £18,000 a year, twice the maximum that even the most famous British universities are currently allowed to charge. Thus far, its students do not qualify for publicly backed loans nor has it obtained ‘trusted sponsor’ status from the visa authorities (and so cannot bring in students from beyond the EU), which may cramp its business plan somewhat. One has to wonder why British applicants with grades high enough to get them into a good British university would choose instead to go to this curious institution. It’s also worth asking why serious academics with posts elsewhere would wish to enlist in its ranks at this delicate moment, given that the college is bound to appear to be diverting talent away from the hard-pressed publicly supported universities from which they themselves benefited so much.
But the real bite of McGettigan’s analysis lies in its unravelling of NCH’s corporate structure. In essence (the story is complicated), the not-for-profit college is now a subsidiary of a parent company called Tertiary Education Services Limited, which can distribute its own profits (when there are any) to directors and shareholders. Despite Grayling’s protestations to the contrary, this is the reverse of the situation in which existing universities set up spin-off companies which then make a profit, because in those cases the surplus goes up the chain to the charitable body, the university, at the top, whereas with NCH the money moves from the charitable institution up the chain to the profit-distributing company. At present the prospect of an actual profit seems some way off; in McGettigan’s view, NCH ‘is unviable but for the deep pockets of its private equity backers’, principally a Swiss family who run a venture-capital company based in Lucerne. Again, McGettigan’s analysis demonstrates why it is important to analyse the corporate group structure, rather than simply accepting that, if the teaching institution itself is described as a not-for-profit charity, there can be no question of profits for private investors further along the line.
A crucial step for any new provider is to get its courses ‘designated’ so that its students are eligible for government-backed loans. There are now such courses at more than 150 private institutions – that’s more than the total number of UK universities – and McGettigan reports that ‘approval was recently given to 98 Edexcel courses at London College UCK [‘K’ for Kensington] within four days of their application being received.’ I admit that I hadn’t heard of this institution, which is based in Notting Hill and offers several degree-level courses as well as many lower qualifications. Its website announces that it is ‘an Approved Partner of the University of Derby’, though it is not clear whether Derby actually validates any of the degree courses (and at present London College UCK does not figure among the list of Approved Partner institutions on Derby’s website). I am not suggesting there is anything improper about these arrangements, merely indicating that there has grown up, mainly in the last two or three years, an extensive network of private provision in this country, the exact character and standing of which is not always immediately apparent. Its appeal to private investment firms is, however, all too apparent. It isn’t surprising that one market consultancy group has described the higher education sector as ‘treasure island’.
But why, it may be asked, go on so much about private providers when they are still such a minor presence in higher education in the UK (though not as minor as many seem to think)? Surely the changes in funding since 2010 haven’t really altered the character of mainstream universities? Surely our children and grandchildren will still have the same chance of a good education at a good public university?
Anyone who thinks the change in 2010 was merely a rise in fees, and that things have settled down and will now carry on much as usual, simply hasn’t been paying attention. This government’s whole strategy for higher education is, in the cliché it so loves to use, to create a level playing field that will enable private providers to compete on equal terms with public universities. The crucial step was taken in the autumn of 2010 with the unprecedented (and till then unannounced) decision to abolish the block grant made to universities to support the costs of teaching – abolish it entirely for Band C and Band D subjects (roughly, arts, humanities and social sciences) and in substantial part for Band A and B subjects (roughly, medicine and the natural sciences). From the point of view of private providers, that change removed a subsidy to established universities which had hitherto rendered private undergraduate fees uncompetitive in the home market. Now that every type of institution offering these subjects is largely dependent on student fees, the way is open to rig the market to drive down the price. In McGettigan’s view, deliberate steps have been taken to ‘destabilise’ the majority of institutions ‘prior to the entrance and expansion of the alternative providers, who in contrast will be nurtured into the new terrain’. On this matter at least, David Willetts, the minister responsible for higher education, has been clear: ‘The biggest lesson I have learned is that the most powerful driver of reform is to let new providers into the system.’
Note that word ‘reform’: the implication is that there is something wrong with the present arrangements that these changes will put right. And the logic of such reform is to reclassify people as consumers, thereby reducing them to economic agents in a market. The cunning of government propaganda, in higher education as elsewhere, is to pose as the champion of the consumer in order to force through the financialisation and marketisation of more and more areas of life. Who do the student-consumers need assistance against? Who is preventing them from getting what they want and therefore should have? Universities, it seems. The assumption behind the 2010 Browne Report and all subsequent government rhetoric is that giving financial clout to consumer demand through the fee system will force universities to change. No one has shown that they were failing previously or that these changes will enable them better to fulfil their purposes: the rhetorical pressure has been uniformly directed at insinuating that universities obstruct student wishes, obstruct the legitimate demands of employers, obstruct efficient management of the sector and generally just, well, obstruct. But being forced to swallow a good dose of private equity, it is claimed, will soon unblock the system. The metaphor all too accurately indicates what will thereby be produced.
Just as the replacement of public funding by fees is the vehicle for remaking universities in the image of consumer-oriented retailers, so it is also the Trojan horse which allows private capital to make a profit out of higher education. The pressure on universities to pursue commercial opportunities is not, in itself, new. For some time now, the major money-spinner has been the fees paid by students from outside the EU. In the last decade alone, the number of full-time overseas students at UK universities has increased from 175,000 to nearly 300,000. As a result, one in six of the students at UK universities now comes from outside the EU, the largest number (67,000) from China. Higher education is currently classified as the UK’s seventh largest export industry. After 2009 the UK Border Agency started to take a different view of matters, seeing universities and colleges as an easy target in its efforts to cut immigration. In August 2012 UKBA revoked London Metropolitan University’s status as a ‘highly trusted sponsor’ of student visas, potentially threatening the right of several thousand students to stay in the UK and a loss to the university of some £30 million a year. In April this year an agreement was reached, and LMU is again being allowed to recruit overseas students, but conflicting messages are coming from two government departments on this issue, with BIS urging more recruitment as part of its export drive and the Home Office tightening the rules as part of its clampdown on immigration.
But if the immigration authorities are an obstacle to bringing in yet more overseas students, why not simply take the university to where the overseas students are? Campuses of British universities in other countries have mushroomed in recent years, some in partnership with local institutions, some free-standing. They are not always in the largest or most obvious countries. The University of Central Lancashire, for instance, has a campus in Cyprus and plans for others in Sri Lanka and Thailand. UCLan Cyprus markets itself to UK as well as overseas students (‘Get a UK degree at a UK university – in Cyprus’): it charges fees of £9000, though home students who choose to go there do not (at present) have access to the UK student loan scheme. Cyprus seems to be a favoured location for these ventures. In June 2012 the University of East London in Cyprus promised to offer ‘high quality British degree programmes in one of Europe’s most popular study destinations’ at a ‘stunning new campus’, but in April 2013 it was announced that after recruiting just 17 students UEL Cyprus would be closed. A spokesman for the university, the Times Higher Education reported, ‘would not disclose how much money the university will lose’.
Many of the financial problems faced by UK higher education date back to the shocking underfunding of university expansion in the 1980s and early 1990s. The Dearing Report found that ‘public funding per student for higher education had declined from a value of 100 in 1976 and 79 in 1989 to 60 in 1994.’ That is, it nearly halved in just 18 years. The damage has never been fully repaired: between 1979 and 2011 student numbers increased by 320 per cent while public expenditure on higher education rose by only 165 per cent. Roger Brown, scarcely given to rabble-rousing, concludes: ‘In effect, market-based policies have partly compensated for – and even been a (deliberate?) distraction from – a failure to consistently invest an appropriate proportion of national wealth in higher education.’
Even in its own terms, the coalition is struggling with a contradiction between two of its priorities: it wants to introduce an efficient market in higher education and it wants to control government spending. If market forces are to do the work they’re supposed to do in driving down prices (while, of course, ‘driving up quality’), then there has to be real competition at the bottom: institutions that are undercut by cheaper providers will need to lower their prices or go bust. (As the 2011 White Paper put it, ‘The government does not guarantee to underwrite universities and colleges. They are independent, and it is not government’s role to protect an unviable institution.’) For that to happen, however, not only must the cheaper providers have access to student loans on pretty much the same terms as their more expensive rivals, but the demand for such places must not significantly outstrip the supply, since otherwise ‘market discipline’ won’t operate. In order to get its revolutionary changes accepted by waverers (such as the Lib Dems), the government agreed to provide the capital necessary for a massive system of student loans, which for the time being at least involves an element of public subsidy. But this means that the Treasury, at least as powerful a driver of policy in this government as in any of its predecessors, has a keen interest in the cost of the new system. Once the terms are set, the main determinant of cost is student numbers. The Treasury therefore insists that numbers be capped. (They have in fact been reduced, first by the removal of a temporary increase of ten thousand places introduced by the previous government, then by a further five thousand places.) This alone is enough to prevent the creation of a genuine ‘market’, since all parties know in advance that demand for university places is bound to considerably exceed supply. The entry of yet more low-cost private providers offering additional places at the bottom end of the system could remedy this, but for them to have a chance of success they would need to be guaranteed access to student loans for the extra students they recruit, which would send the costs of the system through the roof in the short and medium term. So a way has to be found simultaneously to lower prices and restrict numbers.
The wheeze the government came up with in 2011 was the ‘core and margin’ system for allocating university places.Roughly speaking, the number of student places allocated to each university – the ‘core’ – is reduced. The remaining places are then put into two pots that may be competed for. The first is a pot of applicants with high A-level scores (AAB or better in the first year, thereafter ABB), from which universities are allowed to recruit as many students as they wish. The second is a pot of twenty thousand places – the ‘margin’ – for which universities charging less than £7,500 can compete, though they will be in competition with a lot of other providers, principally further education colleges. The core and margin device is intended to widen the gap between the few universities at the top that can attract AAB+ applicants in any quantity and the considerable number of universities nearer the bottom that are forced to lower their fees to keep their admission totals up.
As a chorus of commentators immediately pointed out, this arrangement is almost bound to have socially regressive effects. Brown quotes Peter Scott, the former vice-chancellor of Kingston University: ‘To rely on A-level grades alone is, in effect, further to privilege the already privileged, to give disproportionate rewards to those whose way in life has been smooth. The correlation between school performance and social advantage is too plain to deny. For years universities have attempted, feebly perhaps, to level the playing field by making differential offers. Now, on the fiat of David Willetts, they are no longer free to do so.’ The injustice is exacerbated in that the universities in a position to recruit more of the children of the already privileged are thereby better financed than the institutions that end up taking even more of the children of the less privileged. The introduction of this mechanism makes a mockery of the government’s frequent lectures to universities about their failure to widen access.
The core and margin scheme was introduced hastily by the government when it belatedly realised that the Office for Fair Access did not have the power to order universities to set lower fees. Many universities that had already announced their fees suddenly found the ground had shifted. Twenty-four universities, having already published their admission materials, were forced to announce a reduction of their fees in order to be eligible to bid for places in the margin that had been taken away from their core allocation. Even the pin-striped language of the Higher Education Funding Council (Hefce) report on the impact of the reforms couldn’t disguise the shambles that ensued: ‘The core and margin policy led to the redistribution of 20,000 student places in 2012: 9643 of these places were allocated to 35 higher education institutions, while 155 further education colleges took 10,354. At present, it appears that 35 per cent of these margin places (around seven thousand) remain unfilled.’ In other words, one effect of the new politics in 2012-13 seems to have been a further reduction of seven thousand in the number of places actually taken up by applicants – places which had presumably been filled quite satisfactorily in previous years.
A further potential snag shows how these policies can come to bite their authors. Hefce currently controls the total number of university places (and hence the likely total demand for loans) by setting quotas for each university. But if, as we are constantly being told by ministers, universities are autonomous institutions, how is this unelected quango in a position to enforce the quotas? In the past, Hefce could impose penalties, in the form of a hefty reduction of the block grant, when institutions exceeded their targets. But under the new regime some institutions may receive practically no funding from Hefce (if, say, they don’t teach medicine or the expensive laboratory subjects and don’t do well in the research assessment exercises): their teaching costs are supposed to be financed by student fees. In that case, an institution would have no reason to abide by any notional cap on numbers prescribed by Hefce, as long as their applicants remain eligible for loans. Hefce is forced to acknowledge this uncomfortable truth in its own small print: ‘Our current ultimate sanction is withdrawal of funding, which may not in the future be an effective mechanism.’ That’s bureaucratese for ‘Yikes, what do we do now?’ In all probability, the Treasury will have insisted that accepting a cap on numbers is the quid pro quo for an institution’s students being eligible for loans, and Willetts recently confirmed that such a cap will be applied in most cases from 2014-15. The result, therefore, is that private providers which previously were entirely independent will now be subject to central planning – one of the sweet ironies of enforced marketisation.
The core and margin system is not only a clumsy way for the government to try to restrict numbers and to redistribute places from less selective to more selective universities. As McGettigan notes, it also makes it possible for the government to claim that it is not to blame – though in fact it is – when there is a significant fluctuation in the number of applicants getting places at English universities. Instead, universities can be blamed for somehow mismanaging their admissions. This is consistent with many other aspects of the coalition’s higher education policy: new hoops are rigged up for universities to jump through, and then universities are blamed for choosing to jump through them – which, as ‘autonomous’ institutions, they are ‘absolutely free’ not to do. Of course, just as the homeless person is equally free to sleep under Westminster Bridge or at the Savoy.
The reality is that universities, though they possess certain forms of legal autonomy, have in effect been public institutions for at least two or three generations now. Many were founded entirely with public money, and all of them have long been financed largely by public money. There are bound to be tensions in such an arrangement, but it worked well enough as long as governments abided by the ‘arm’s length’ policy of leaving universities free to determine their own academic policies and intellectual activities. The state does not, for example, tell universities, unlike schools, what and how to teach. But since the early 1990s, as Brown puts it, ‘the main threat to academic control of research has come from a series of state initiatives since the early 1990s to promote what successive governments of all parties have deemed to be in the national economic interest.’ These ‘initiatives’ are now being extended to the fine detail of the undergraduate admission process, as with the AAB+ applicants: never before, I believe, has a government department (working through Hefce) specified the exact (outstanding) A-level grades a university must require of its applicants in order to accept them. But universities, we shall be told, are free to ignore this requirement, provided they are ready to pay the penalty; in other words, they may choose to sleep under Westminster Bridge.
Despite these short-term fudges, the central logic of the coalition’s policy is clear enough, and it is emphasised in the data universities are now required to provide for applicants, the Key Information Set. The value of a university education is the income it enables you to earn minus the cost of acquiring that education. Applicants should therefore compare the salaries of graduates from different institutions, deduct the fees charged by those institutions, then make their choice on the basis of value for money. A great deal of attention, within universities but especially in politics and the media, is focused on the precise level of fee that should be charged. Universities are told to ‘compete on price’, and are therefore supposed to make decisions about what the ‘market will bear’: the merits of £8,250 as opposed to £8,750 are keenly debated.
This, as many have pointed out, is impracticable because the ‘good’ on offer is not one about which consumers can make such fine discriminations of quality. The Browne review announced, with the same breathtaking confidence with which it announced so many things, that price is the single best indicator of quality.In fact, price in this case is a feeble proxy for judgments of quality. For one thing, a university education is what some analysts call a ‘post-experience good’: a full understanding of its benefits cannot be had in advance. In so far as it can be assimilated to economists’ standard categories, it has to be regarded more as a ‘positional good’ than a ‘consumer good’. A place at a particular university is not (at least at present) available to anyone with the desire and the finances to purchase it, and the ‘value’ of any given place will depend partly on the status of the university in the perceived hierarchy, something that changes with glacial slowness. This, incidentally, is another reason why it is in the interests of the most selective universities not to expand their numbers significantly. Willetts berates them for this – the open season on AAB+ applicants was intended to encourage expansion ‘at the top’ – but sensible institutions resist this pressure, and it is rational for them to do so even in market terms (it is clearly right for them to do so to protect the quality of education they can offer). The Ivy League universities, much lauded not least by coalition spokespersons, understand this very well: undergraduate numbers at Harvard, Yale and Princeton are kept down to five or six thousand, fewer than half the twelve or thirteen thousand at universities such as Oxford, Cambridge and Bristol.
Thus, under the new fees regime, applicants are supposed to take decisions based on information that can only ever be proxies for quality, such as individual universities’ spending per head or league table places. In reality, applicants are making decisions on other grounds, as they have long done: general reputation, the ‘fit’ with the kind of course they think they would like to take, the social amenities offered, location and so on. But what part should price now play in the decision-making of the ‘rational consumer’ (i.e. the 17-year-old sixth-former)? The surprising truth is that, even within the terms of intelligent consumerism, it would be foolish for typical applicants to let price be any significant determinant of their choice. (I’m leaving aside the deeper reasons why this is an undesirable way to run a higher education system.) Let’s assume that an applicant is hesitating between making University A or University B her first choice (the majority of UK applicants are female). The courses and amenities at the two universities are very similar, as are their performances according to the various criteria in the Key Information set, but University A, which is somewhat older, has traditionally had a slightly higher reputation than University B. However, while University A has set the fee for its course at £9,000, University B, attempting to situate itself in the market in the approved way, has set its fee at £8,000. So, given that they seem to be pretty much identical in every other way, this whopping difference in sticker price must be decisive, mustn’t it? And indeed, there is anecdotal evidence that some applicants under the new fee regime are responsive to precisely this consideration.
But should they be? What are the financial consequences of each decision? Here is where it is crucial to understand that the student loan system is not at all like credit-card debt or even a mortgage. It is more like a tax, paid at a fixed rate until the notional capital of the loan is paid off. Let’s assume that the circumstances of our applicant and her family are such that she will borrow the maximum for maintenance costs, making the tuition fees the only variable. So, if she goes to University A, let’s say she takes out loans totalling £42,000, and if she goes to B, loans totalling £39,000. Let’s further assume that whichever of the universities she goes to, she subsequently gets a job paying the same salary. (In reality it is more likely that having attended the university with the slightly higher reputation, she will get a slightly higher starting salary, but we’ll disregard that. We can also leave aside the unrealism of the assumption that the graduate will get a job at all after graduating, though the fact that so many won’t is another serious problem with the scheme.) Then, once her salary exceeds £21,000, 9 per cent of the amount by which it exceeds that threshold will be taken away through the payroll tax system. This is a flat-rate tax: it won’t vary according to the size of the loan taken out. (Interest will have been charged on all loans while she was still a student and then at a sliding scale in relation to subsequent income.)
Now let’s assume, in order to make the sums easy, that our graduate earns £30,000 a year averaged over the first ten years after graduation, £40,000 a year averaged over the next ten, and £50,000 a year over the next ten (all at today’s prices). Let’s also assume – though this may be the most unrealistic assumption of all – that the terms on which she took out the loan are honoured and not changed with retrospective effect. This means that the ‘repayment’ accelerates as she gets older: 9 per cent of £9,000 (the amount by which her £30,000 salary exceeds £21,000) reduces the debt by a lot less per year than 9 per cent of £29,000 will do (remember too that the notional capital will increase a little in the early stages because of the interest charges). The fact, then, is that our graduate would pay exactly the same amount each year for, let’s say, 25 years after graduation whichever level of loan she had taken out. The only difference will be that in her late forties the student who chose University A rather than University B will carry on paying the 9 per cent tax for a little longer, in order to pay off the notional capital-plus-interest on an initial loan of £42,000 rather than £39,000. Any applicant serious about getting a good university education would be foolish to let that distant and relatively minor extra period of additional tax determine their choice of university at the age of 17.
None of this is to say that the principle of variable fees is a good one or without damaging side-effects. It is not. Nor should it be forgotten what a large proportion of applicants are not ‘typical’, or what damaging effects the scheme is likely to have on the class composition of the student body at the most highly regarded universities. But it is to say that there is no genuine market here; that many, perhaps most, applicants would be right to recognise that price should not be a major determinant of their choice; and that universities should not be seduced by market rhetoric into thinking it will necessarily be to their long-term advantage to charge slightly lower fees.
One way, economists will tell us, that the sticker price may quite rationally enter into the applicant’s calculations is that University A will have a higher income per student than University B, and so what it spends on education and amenities is likely to be correspondingly greater (at least until Britain’s universities are run by for-profit companies, when the higher fees may merely enrich the bonuses of top executives and the cash piles of the private equity partners). This would make it ‘rational’ to choose the university with the higher fee. Beyond this, and especially towards the top of the reputational range, the higher price may, as with various luxury goods, become a positive incentive to opt for what is, after all, partly a positional good. Overall, therefore, the price differential is a phantom factor that says more about a university’s confidence than it does either about the value for money of particular courses or (to any great extent) the future financial burdens of the graduate.
This being so, the government will presumably do whatever it takes to try to ensure the system operates on the basis of ‘properly’ rational market choices, for institution and individual alike. In all probability, the terms of both the loan scheme and the allocation of places will at some point be changed. It would certainly be naive to believe that the terms on which student loans are offered won’t before long be altered for the worse. The government’s official guide for students explicitly makes room for this possibility: ‘You must agree to repay your loan in line with the regulations that apply at the time the repayments are due and as they’re amended. The regulations may be replaced by later regulations.’ In other words, you cannot know what your repayment terms will be; they will be whatever the government of the day decides. This clause will be of considerable interest to any private financial firm considering buying a chunk of the loan-book. Note, too, that the clause doesn’t refer only to new loans: the terms of existing loans can be varied once they have been taken out. Such changes would not require fresh legislation: the government is already entitled to vary the terms, as long as the interest rates charged do not exceed ‘commercial rates’.
Anyone who doubts that that this or any future government would actually enact such changes is in denial. The government has already been forced to reveal its exploratory plans to change the terms of pre-2012 loans retrospectively in order to make the loan-book more attractive to private financial institutions. And at the end of June, the Guardian quoted a government source referring to discussions between the Treasury and BIS leading up to the Spending Review:
There was a paper circulating from the Treasury that wanted all [further education] provision put onto a loan basis. Even people with little more than GCSEs would be put onto student loans. It would have been massive cuts in the FE budget. They were wanting, in some places, to get rid of student grants and convert them all into loans. Reopening the question of the student loans scheme – dropping the threshold to £18,000 – was one of the proposals.
As with every aspect of these revolutionary changes ‘safeguards’ are incorporated in the first form of the new measures as a way of winning support from well-meaning but credulous groups (some Lib Dem MPs, for instance). But once the system is in operation, these safeguards are summarily removed since they function as obstacles to the pursuit of profit by private sector corporations and finance houses, which the government wants to become more and more involved in the enterprise, and to which it would like ultimately to hand over the running of the system. Presumably it is wholly consonant with the crazed market vision driving these changes to expect that anyone taking out a student loan under the new scheme will in future also take out an insurance policy against the day when the repayment terms are retrospectively altered for the worse. They would, in economists’ terms, be rational to do so. In fact, since there may anyway soon grow up a flourishing secondary market in lecturers taking out malpractice insurance along the lines familiar to doctors and others in the US, the indirect boost to the stock market prospects of the big insurance companies should shortly figure as part of the economic ‘impact’ of higher education.
The economics of the loan scheme in its present form must cast doubt on any claim that these fundamental changes have been made in order to reduce public expenditure. Of course, the accounting convention whereby loans count as an asset means that the new system can be presented as reducing the deficit in the present, but in practice the outlay is going to be enormous, and will increase at alarming speed. McGettigan has a particularly good discussion of the medium and long-term effect of this on the public debt. The Office of Budget Responsibility calculates the additional outlay between 2012-13 (the first year of the loans) and 2017-18 as £25 billion. That figure will go on increasing until repayments begin to match outlay, which, according to official calculations, won’t be until the mid-2030s. Some graduates will never reach the income threshold that triggers repayments; others will never pay off the entire sum. A proportion of the total amount loaned will have to be written off. Independent analysts thought the government was optimistic in suggesting it could be kept down to 32 per cent; Willetts has recently admitted it could be 35 per cent or higher; others have suggested it could be 40 per cent. Unpaid loans are written off after thirty years. At that point, the government’s liability/asset will start to be reduced both by repayments and by write-offs. BIS itself calculates that by 2046, thirty years after the earliest cohort will have begun to make its first repayments, the outstanding debt will be around £191 billion.
This is by any standards a colossal outlay, but since it also represents, in accounting terms, a considerable asset, it is another reason for thinking that this or future governments will be tempted to ‘sweat the asset’, for example by raising repayment rates. So there is no cause yet to lie awake at night worrying that the government might be bankrupting the country: there is a lot that this or future administrations can do to reduce the problem. Everyday administrative fiats, such as freezing the repayment threshold at £21,000, or even reducing it (instead of, as promised, raising it in line with inflation), will bring in quite a bit more money. But even so, how long can it be before a Daily Mail-responsive government decides that ‘loan-spongers’ should be flushed out? Why should they get away with not repaying anything just because their earnings don’t exceed £21,000? Why should the outstanding balance be written off after thirty years? It won’t be difficult to change those terms either.
It will be no surprise if, after a while, there are statistics for graduate repayment rates not just from different universities but from different courses. If a particular course shows a very low repayment rate, why not harness ‘anti-scrounger’ sentiment and cease to treat it as eligible for publicly backed loans? The joke is that a fee system is justified, in coalition rhetoric, as making universities more independent. The reality is that it may provide an alternative lever by which to force ‘market’ judgments on universities in deciding which courses to offer. This, as McGettigan spells out, will ‘achieve what direct government control could not … and it will appear that universities are doing it to themselves. The pull of access to the loan scheme may be so strong that institutional autonomy becomes a chimera.’
The international evidence of improvement of standards as a result of increased marketisation is, to say the least, mixed. As Brown notes, it ‘may also damage quality by commodifying knowledge, creating or reinforcing student “instrumentality”, and lowering standards through grade inflation, and the acceptance of plagiarism and other forms of cheating. It may also lead to a diversion of resources away from learning and teaching to activities like marketing, enrolment, student aid and administration (and in the US, athletics).’ But the UK experiment is being conducted in a hurry, with no time to consider such evidence; as Brown notes, the average of the fees introduced in 2012 is already ‘higher than that of nearly every “public” university in nearly every comparable system’.
Many national systems of higher education consist, by design, of different types of institution with markedly different functions. In the UK, there is very little explicit differentiation of function: almost all the established universities pursue teaching and research, educate undergraduates and postgraduates, offer a range of subjects, cater to other than local students and so on. What we have instead is a definite, if informal reputational hierarchy – what David Watson, another former vice-chancellor, has called ‘a controlled reputational range’. The ‘mission groups’ into which most universities have now sorted themselves are at least as much to do with status as with function. As Brown points out, this was clearly signalled by the announcement in March 2012 that four members of the 1994 Group of ‘smaller research-intensive universities’(Durham, Exeter, Queen Mary and York) would be joining the Russell Group. They hadn’t changed their function at all: they were, in effect, cashing in on their success as places where large numbers of well-qualified applicants thought it was desirable to go. The existing members of the Russell Group are, on the whole, large institutions with big professional and medical schools and a high turnover, but the financial consequences of the new fees regime, and especially the attempt to rig undergraduate admissions via the AAB+ clause, may mean that undergraduate applications come to matter more in determining what counts as a ‘top’ university. It costs universities £500,000 to join the Russell Group: a spokesman for Exeter said that membership ‘is a brand asset … so it is well worth the cost of joining’. The favoured institutions are thus triply advantaged: they get nearly all the research funding, they get more money per student from fees, and they get the reputational advantage. ‘We need to consider whether the benefits of such preferential treatment outweigh the costs and detriments to the system and the country as a whole,’ Brown writes. The ‘controlled reputational range’ has been one of the huge strengths of the UK system, not least in terms of its standing abroad, but the free-for-all at the bottom end of this range now risks severely damaging that standing. As Brown continues, ‘It is strongly arguable that what we need is not more “world-class” universities but a “world class” higher education system.’ Exactly so.
You might think that any new higher education policy should be assessed not just in terms of its professed purpose, but also in terms of its impact on the practice, culture and ethos of the system as a whole. Current Whitehall in-house assessments may not be particularly good at this because they cast their analyses in a too narrowly economistic form. The classic illustration here is research assessment. The Research Selectivity Exercise introduced in 1986 had an appealingly simple rationale: how should the money available to support research in universities be distributed, given that the funds are limited and the money may not be used to best effect if awarded to all universities (or departments within universities) regardless of the scale and quality of their research activity? This was an issue for the experimental sciences above all, where there can be obvious economies of scale in the distribution of expensive equipment and where large concentrations of researchers can be intellectually beneficial in ways not so true in the humanities.
So a procedure was established whereby the research quality of all university departments was periodically assessed by national panels, and research funding distributed according to the resulting rankings. But what an all-devouring monster was thus created. As a result of successive Research Assessment Exercises, preoccupation with research rankings has come to dominate academic life, from appointments, promotions and choice of research topics through to universities’ financial strategies, marketing and publicity. (It has also become one of the principal mechanisms for further stratifying the system.) On this Brown is uncharacteristically outspoken:
Because of the interrelated nature of teaching, research and scholarship … assessments need to cover the effects on all university activities, and not just on the activity at which the policy is directed. The consistent failure to do this in relation to the RAE – on the frankly sophistical grounds that selectivity was only about improving research performance, and other impacts were irrelevant – is a serious blot on the Funding Council’s stewardship of the sector since 1992.
This is another matter on which ministers like to say that the whole process is in the hands of academics. But it transparently isn’t. It is a bureaucratic process, run by Hefce, which tries to give effect to the wishes of its political masters. Sometimes those wishes are expressed with revealing frankness. The 2008 RAE, for example, was a large-scale exercise, as a result of which funding for research would be allocated (in fixed, diminishing proportions) to departments that came in the top three quality bands. Except that it wasn’t: once the (expensive and labour-intensive) exercise had been completed, the government decided that it would prefer a higher proportion of the funding to go to the top-rated institutions, and altered the ratios accordingly. Indeed, in 2012-13 funding for departments that had succeeded in being placed in the third band was withdrawn. Why? ‘The removal of this stream of funding was in response to direction from the secretary of state in the annual grant letter.’
Brown also points out that changes to the RAE which resulted in the creation of the Research Excellence Framework (REF) ‘were the result of business lobbying of the chancellor, Gordon Brown, in the run-up to the 2006 budget statement, about the apparent privileging of “pure” over “applied” research’. The requirement introduced as a result of this intervention – that academics demonstrate the social and economic ‘impact’ of their research – is another metric designed to redirect universities’ research in politically approved directions. One of the strengths of Brown’s book is its familiarity with a very wide range of international evidence. He cites a study based on OECD data which found that ‘when staff are given more autonomy, they do more research and are more productive. Trying to control research at the input stage by resource allocation conditions, as with the RAE and similar exercises, is actually counter-productive.’
Underlying so many aspects of the policies discussed in these two books is the fallacy of uniformly measurable performance. The logic of punitive quantification is to reduce all activity to a common managerial metric. The activities of thinking and understanding are inherently resistant to being adequately characterised in this way. This is part of the explanation for the pervasive sense of malaise, stress and disenchantment within British universities. Some will say that such reactions are merely the consequence of the necessary jolt to the feelings and self-esteem of a hitherto protected elite as they are brought into ‘the real world’. But there is obviously something much deeper at work. It is the alienation from oneself that is experienced by those who are forced to describe their activities in misleading terms. The managers, by contrast, do not feel this, and for good reason. The terms that suit their activities are the terms that have triumphed: scholars now spend a considerable, and increasing, part of their working day accounting for their activities in the managers’ terms. The true use-value of scholarly labour can seem to have been squeezed out; only the exchange-value of the commodities produced, as measured by the metrics, remains.
Various justifications have been offered for current policies, not always with conscious cynicism: ‘the need to reduce public expenditure’; ‘the need to secure a sustainable financial future for our universities’; ‘the need to make student choice effective’; ‘the need to make students bear some of the expense of their education’. However valid any of them may be as goals in their own right, as justifications for what is being done to higher education they are not persuasive. In reality, the overriding aim is to bring the universities to heel: to change their character, to make them conform to market ideology. Universities must be made into businesses, selling a product to customers: if they reduce costs and increase sales, they make a profit; if they don’t, they go bust. Profit is the only indefeasible goal, competition the only effective mechanism.
From their very different starting points, the authors of these two books concur that higher education in England is currently subject to an ‘experiment’, implemented as Brown puts it ‘without any “control” or fallback position … in spite of the copious evidence from America, Australia and now Britain … showing the very clear limitations of markets as a means of providing an effective, efficient and fair higher education system.’ We are left to hope against hope, McGettigan concludes, that we shan’t be left with ‘a handful of selective universities (privatised to all intents and purposes) and a selection of cheap degree shops offering cut-price value for money’. Anyone in those ‘selective’ universities who thinks that outcome might not be too bad should bear in mind the wise words of David Watson, writing in 2007: ‘It is important to recognise that even the most powerful institution can’t really go it alone. At some stage, and for some important purposes, every institution is going to rely on the strength and reputation of the system as a whole.’
Under the cover of a vote to extend the level of a financial cap stipulated in an existing regulation, the coalition has succeeded in launching a revolution in higher education in England whose long-term consequences are not easy to identify. The government was scarred by the scale of the student protests in 2010, and seems to have decided to avoid bringing forward new primary legislation whose progress through Parliament would provide a focus for renewed opposition. Instead, it has been changing things in a piecemeal way through budget decisions and the use of statutory instruments. After almost three years, there has still been no proper parliamentary debate about the new system of higher education that is being implemented.
Future historians, pondering changes in British society from the 1980s onwards, will struggle to account for the following curious fact. Although British business enterprises have an extremely mixed record (frequently posting gigantic losses, mostly failing to match overseas competitors, scarcely benefiting the weaker groups in society), and although such arm’s length public institutions as museums and galleries, the BBC and the universities have by and large a very good record (universally acknowledged creativity, streets ahead of most of their international peers, positive forces for human development and social cohesion), nonetheless over the past three decades politicians have repeatedly attempted to force the second set of institutions to change so that they more closely resemble the first. Some of those historians may even wonder why at the time there was so little concerted protest at this deeply implausible programme. But they will at least record that, alongside its many other achievements, the coalition government took the decisive steps in helping to turn some first-rate universities into third-rate companies. If you still think the time for criticism is over, perhaps you’d better think again.