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Eight category mistakes in the debate around the funding review

The debate over universities has been raging in the media over the last few days as the government announces a new review. What would the much-missed David Watson think about it all?

Mark is founder and Editor in Chief of Wonkhe

A major review of post-18 education and funding is bound to prompt an avalanche of public commentary and speculation about higher education. Public debate is necessary if we are to generate fresh ideas, original analysis and novel perspectives on the issues. But poorly-informed interlocutors, logical fallacy and category error are the enemies of high-quality debate.

At times like these, the sector has even greater cause to regret the loss of David Watson who, among his many talents, had a particular knack for cutting through muddled and woolly thinking, most memorably in his seminal piece for HEPI on category mistakes in higher education policymaking.

We hope he would appreciate our efforts to raise the quality of public discourse with our own list of eight category mistakes in the higher education debate around the government’s new review of post-18 education and funding.

1. Public subsidy through the RAB charge – feature or bug?

In one breath, commentators claim that the level of student debt on graduation is simultaneously profoundly unfair to the individual student and unsustainable for the public finances. Students, we are told, are “saddled” with “burdensome” debt that they will never be able to pay off.

As we know, the graduate repayment remains the same – 9% of earnings over a defined income threshold – whatever the size of the total debt, with the remainder written off after a fixed number of years. To change the system, you can either make the student pay more (by reducing the repayment threshold, extending the years for repayment or raising the percentage payment), or the public pay more (by doing the opposite).

Defenders of the current system point out that the hefty public subsidy in the form of student loans that are written off and never repaid are a fair and reasonable representation of the public value gained from the higher education system, in the form of doctors, social workers, artists and all the other graduate professions. While the student repayment represents a reasonable contribution to the costs of a higher education that, on balance, tends to bring increased salary and personal benefits less likely to accrue to non-graduates.

It is fine to think that the student should pay more, or that the public should pay more, and it is fine to think that a loan system is not the best way to manage the balance of payments. But you can’t claim the system is broken because it is unfair to both students and the public finances.

2. Student choice by upfront cost or by notional prediction of salary return?

Education Secretary Damian Hinds has floated a system in an interview with The Sunday Times in which the cost of degrees could be determined by three things: the cost to deliver, the return to the student and the economic value to the country. Sounds sensible in theory.

But in practice, student choice drives the higher education market. So Hinds and his colleagues need to think about the basis on which they hope that students will make those choices, as well as the practical likelihood of students actually behaving as the economic model predicts they should.

If students are price-sensitive, then the outcome of reducing fees for some courses will be that more students will seek a place on those courses. If your starting premise is that those students will gain little value from those courses, why should you want more students – potentially those most socially disadvantaged – to study them? Especially if the reduced fee means that they will experience larger class sizes, lower staff-student ratios, no student bursaries and worse access to university-wide services?

If students should be making more sophisticated economic choices by predicted salary return, then student demand for these “low-value” courses will drop, and in most cases become economically unviable for universities to offer. In which case you end up with no fee differentiation and less student choice of courses.

3. Free market or state-directed subject supply?

A corollary of trying to shape student choice away from subjects or modes of study that the state has deemed to be lower in value is that you abandon the principle of “students at the heart of the system”. Currently, universities are free to offer courses if they believe there is a market of prospective students sufficient to make that course viable, and students are free to use their student loan as a voucher to access the course of their choice.

Having discovered that the invisible hand of the market does not deliver price differentiation, recent government policy has focused first on shaping the market through informing consumers and subsequently (albeit briefly) on forcing price differentiation through quality judgements associated with TEF.

You may argue that students are not good at picking the sorts of subjects that employers want graduates to be qualified in. You may argue that more students should study closer to home, or should be demanding accelerated degrees, or should be taking up programmes that include work placements. Unfortunately, the sorts of courses the government might wish to incentivise students to choose are unlikely to be the same courses that can be easily targetted for fee reductions.

Counterintuitively, the market is arguably both freer and more effective without price differentiation. Especially given that the alternative route is trying to steer students into courses whether or not those courses are what they want to study, on the basis of patchy evidence about the putative long-term returns.

4. Low cost or low value?

When we talk about the cost of delivering a degree course, it is all too easy to think solely in terms of classrooms versus labs or to adopt the dinner-party fallacy of fee divided by contact hours in each subject.

What is typically lost in the debate is the cost of providing a university education – a library, a students’ union, student services and academic support. Also poorly understood is the de facto ‘access tax’ levied on every student, so that universities can fund bursaries, outreach and additional support for those students who are under-represented in higher education. Universities are free in principle to decide how much to levy per student, but OFFA guidance suggests about 30% of fee income over £6,000.

To some extent this is a peripheral argument – you can reasonably factor these additional costs into the overall figure for the cost of delivery.

So the next job is to look for courses that are both relatively cheap to teach and that do not deliver a great return in graduate salaries. A quick glance at LEO data reveals that most subject areas in most universities deliver median subject earnings five years after graduation that are higher than the national average for 24-29-year-olds.

But there are some subjects which suffer from a long tail – where graduates in some universities in those subjects have not historically made it over the median after five years in employment.

Agriculture is one, creative arts is another, and mass communications and documentation a third. And here is where we hit a snag. Because these are not courses that are cheap to teach – far from it. Agriculture and related subjects require labs, land, placements, and other difficult and expensive things. Creative arts requires tools, materials, specialist space and regular shows and exhibitions. Mass communications (aka broadcast media, publishing, journalism), require, for example, specialist radio and broadcasting equipment.

You could come gunning for English studies, languages, history and philosophy – classic classroom-based subjects, also with a long-ish tail of graduates earning below the median after five years, albeit still in a minority of universities. But there is no serious public consensus that these humanities subjects are of poor social value – and a strong argument to contend with that they are part of the lifeblood of a developed, culturally sophisticated society.

5. National or local benchmarks for returns to higher education?

The above analysis allows the premise that the returns to a degree can legitimately be calculated in relation to national median earnings for people of a similar age. But that in itself is something of a category mistake.

It is true that historically graduates in some subjects in some universities have not achieved graduate earnings equivalent to the national median. This assumes that the national median is a reasonable benchmark.

For example, a student studying agriculture or a related subject at a particular university might like to be aware that an average graduate in 2009/10 earned, say, £15,800 five years after graduation – £6,200 below the national median for 24-29-year-olds.

We can reasonably assume that one of the reasons why the salary returns are low is that a good proportion of agriculture graduates remain local to their university after graduation. So an equally reasonable benchmark for that graduate for the value of their degree is the median salary of other 24-29-year-olds working in that region. In fact, having that information would better support that graduate to choose – because they would be able to weigh up the relative value of mobility and salary for their individual circumstances.

This would, of course, require us to discount the fact that the average salary of people who graduated nearly ten years ago might not be the best predictor of earnings five years from now, and/or the possibility that our student might be an agricultural whizz kid destined to beat all the stats.

6. Social mobility for the poor or tax cuts for the well-off?

In a system as elegantly designed (or, if you prefer, as convoluted) as ours, it can be easy to lose track of who the system is designed to benefit.

Currently about half of people under 30 benefit from higher education. As we know, the better-off you are, the more likely you are to attend university. But expansion has meant that it has become more likely that young people from worse-off backgrounds can access university – although the claim that this amounts to “record numbers” is wildly overstated.

At the front end, when it comes to access to university, everyone can agree that disadvantaged students having equal opportunities to access higher education is desirable.

At the back end, once a student has graduated, the repayment system ensures that the highest-earning graduates pay back the largest proportion of their student loan. Also, in principle, desirable.

Then things get complicated. Because reducing fees – which you might think would result in benefits for the less advantaged – actually results in a windfall for the better-off, as they pay off their loans earlier, while any public subsidy increase to make up the funding deficit falls on graduates and non-graduates alike.

At the other end of the system, adopting no real rate of interest for student loans removes the opportunity for those same high-earning graduates to chip in a bit extra to offset the non-repayment of lower-earning graduates.

So, a cut to fees and a cut to loan interest rates would not make much difference to the most disadvantaged – unless they parlay their university education into a well-paid job, at which point they stop being disadvantaged and join the ranks of the better-off. But both these measures would potentially increase the general public subsidy of higher education, and the cost to the taxpayer.

You can reduce fees wholesale and refuse to make up the difference from the public purse – which would be a great way of ensuring that the general quality of the student experience was diminished for both wealthier and poorer students. But the burden would fall disproportionately on poorer students because those students would not have access to family resources to make up the deficit in social capital that a reduction in course quality would produce.

Additionally, less advantaged students are more likely to study in universities that are not as well-endowed to begin with, so would face a proportionately greater reduction in quality.

7. Academic vs. technical qualifications, universities vs. further education colleges

The review is likely to pick up arguments spearheaded by Alison Wolf and enthusiastically endorsed by a number of Conservative politicians including, most recently, Robert Halfon MP that academic degrees have expanded at the expense of sub-degree technical education. Indeed we now know that Wolf herself will serve on the review panel.

The basic argument is worth debating, but it should start from a sensible place.

What should not happen is the simple elision of the category of ‘academic’ with the category of ‘university’ when universities demonstrably deliver a vast range of technical and professional education.

Cash-starved further education colleges and apprenticeship training providers smell an opportunity in this debate to elbow universities out of the picture and seize any prospective technical education funding windfalls for themselves. But at a local level, many colleges depend on partnerships with universities to validate their higher-level skills offer and create progression routes for those students who want to pursue their education further.  

As David Willetts has pointed out, there are no obvious means of taking funding away from universities and handing it over to colleges and training providers when funding is channelled through student loans.

The starting point in this debate should not be whether universities have benefitted at the expense of everyone else, but how we can best provide high-quality technical opportunities that students will want to take up and that address local skills needs. The answer will almost certainly be variable in different regions but involve colleges, universities, the promised new institutes of technology and potentially an innovative funding model.

While engineering a fight to the death between colleges and universities makes great copy, it makes bad policy.

8. Targeting universities will win the youth vote

Perhaps the wobbliest argument in all this is the notion that by holding a review of education funding the government can put itself on the side of young people.

The most obvious point to make is that the Conservative Party cannot hope to out-Corbyn Corbyn on the issue of tuition fees, after JC’s pledge to abolish them altogether and examine whether all historic student loan debt can be written off.

But it is also questionable whether tuition fees are genuinely a major issue among younger voters, who appear more likely to cite the EU or the NHS as their key concerns, according to a poll conducted by Youthsight for HEPI ahead of the 2017 general election.

Moreover, the “youthquake” at the last general election in which young people were supposed to have supported Labour in great numbers, has turned out to be overstated, according to the British Election Study.

So even if the eventual outcome of the review finds favour with young voters in principle, it may make little difference at the ballot box.

Meaning that if the review results in the compromising of the long-term financial sustainability of the higher education sector, and the quality and choice available to young people, in order to achieve a quick political fix that ultimately never materialises, the government should feel very silly indeed.

12 responses to “Eight category mistakes in the debate around the funding review

  1. “Defenders of the current system point out that the hefty public subsidy in the form of student loans that are written off and never repaid are a fair and reasonable representation of the public value gained from the higher education system. ”

    The thing is, that subsidy isn’t universally applied, is it?
    It goes overwhelmingly to those areas valued least to society; as measured by pay scales, the best proxy we have.
    Those areas which are valued, either from complexity of function or rarity, are not subsidised as they attract higher wages which pay off more debt.

    That is perverse and is in no way a “fair and reasonable representation of the PUBLIC VALUE gained from the higher education system.”.

  2. I would also like to suggest that the review look into the model in other EU countries and how this works for those countries – is it not possible that we are thinking inside our box of current free market dogma rather than performing an impartial critical review? Indeed some members of this review may be considered in no way unbiased

  3. I think it troublesome to gauge the value of a degree by the pay someone receives. This equates social value with labour market issues. Many history graduates become well-paid high level accountants, and many become low-paid teachers.So this isn’t a simple way forward I’m afraid.

  4. The Government’s approach to this review reminds me of Donald Trump, who campaigned tirelessly against ‘Obamacare’ and who, within a month of assuming office last year announced that healthcare was ‘a lot more complicated than anyone thought’.
    You literally could not make it up. Sad!

  5. When fees were introduced, the belief amongst policy makers (and no-one else) was that the market would somehow lead to

    We now have half of young people attending university, many at poor universities on substandard courses which do nothing to improve anything at all (except, perhaps, to allow them 3 years of socialising etc). Current estimates are that about 3/4 will never fully repay their student loans, and this is only going to get worse.

    So, is it now time to admit that the market in higher education has failed? (As it has done with PFI, the trains, etc etc).

    Surprisingly, I support capitalism and the free market in areas where it makes sense to do so. Education is not one of those areas.

  6. Previous post corrupted.

    Comment system does not allow right-angle and left-angle brackets.

    Sheesh. WONKHE: get your web guys to sort it out!

  7. I would challenge your assumption here – the best paid careers are the ones that provide most social good / benefit to society. There are many, many jobs within education, health and social care that are crucial to society, but are paid lower than jobs in finance and marketing, which are not.

    What we do know is that higher paying jobs benefit the individual more – therefore they have gained more personally from the higher education that they received – and therefore the argument is that they should pay more. Surely that seems fair?

  8. Between a rock and a hard place…. You touch on the effect of the local labour market in point 4. 45% of 2016 grads both studied and became employed in their home town (DLHE). I’m convinced that we need to do more to understand local labour markets if students are going to make good choices about what to study, and where.

    Re humanities grads I would also add that the grad labour market in the Uk is unusual in that 60-70% of vacancies are not discipline specific, which means student subject choice rarely constricts entry to the grad labour market.

    A further thought on the role of the labour market in the economic dynamics of HE: Al Roth’s Nobel winning work on Matching Markets suggests that grads can’t just decide they want to work for Google or their local SME, they also have to be chosen by that employer. If we are relying on salary as a means to judge success (I see the benefits but struggle with this) then excellent student information and focus on employability is more important than ever.

  9. There is a big cross-subsidy to science and technology subjects in the current system. Arts and social sciences are not costly to provide but they are made to overcharge to finance science and technology. This distortion is argued for by a “not enough scientists” rhetoric. But if that is true (doubtful) the market will bid up scientist’s salaries. Why should classics students subsidise science labs?p.a.watt

  10. There’s an even bigger cross subsidy from teaching funding to research in some research intensive universities. Some scrutiny of research income v expenditure would be very helpful in working out where students are not receiving good value for money.
    “If a grant is awarded, Research Councils will provide funding at 80% of the fEC. The organisation must agree to find the balance of fEC for the project from other resources.” – it’s policy for research council grants to have 20% subsidy from tuition fee income.

  11. Agree with you Rebecca. The more this argument gets reduced to salaries the more venal both universities and government look. Education is a public good (and is beneficial even to those who don’t go to university) and should be treated as such.

  12. Assumptions about student motivation may be misplaced. Students do best on courses they are passionate about, and the majority of graduate employment opportunities do not specify a subject. In assessing the perceived value of courses, it will be interesting to see how PPE and similar courses at high status universities will be valued, or whether the status of degrees from different universities will be a factor.

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