Rewriting the rules of the funding game

While the post-18 review is busy trying to work out the least bad balance of taxpayer funding versus graduate debts in English HE funding, why don’t we take a moment to imagine what the best solution might look like?

There would be no tuition fees. Universities would be adequately funded for uncapped places. Students would graduate from courses that prepared them well for life beyond university, and employers would snap them up, neatly filling their skills gaps. And all this would be achieved at minimal cost to the taxpayer.

This is fantasy funding, right? We may not be as far from it as we think. How we get there is the subject of Fairer funding: the case for a graduate levy – a paper I have written for the Higher Education Policy Institute (HEPI).

The problem is that we treat HE funding as a zero-sum game where someone must lose for others to win, the best outcome we can hope for is that everyone is equally unhappy. Since students have the weakest hand in this game, they’ve lost out time and again, shifting from free education with means-tested support in the 1980s to borrowing an average of over £46,000 today. If fees are reduced to £6,500, maybe the pendulum will have swung back a little way, but at whose cost?

Don’t hate the player hate the game

We need to rewrite the rules of the game so that, when one player wins, everyone wins. My proposal is based on three measures:

1) Rather than students paying any fees, employers would pay a levy for each graduate they employ.

The graduates’ tuition fee debt disappears and the employer pays the same amount instead. For example, a graduate on £27,000 currently pays £180 in student loan repayments and, before tax and other deductions, they get £26,820. With a graduate levy, their salary might only be £26,820, but they have no tuition fee debt and it’s their employer who pays the £180. The graduate takes home the same and it costs the employer the same, but the debt has gone.

Employers could avoid the levy by taking on non-graduates, but they could do that now to avoid paying graduate premium salaries that have, in effect, got student loan repayments built in. As a rule, they don’t. Perhaps because graduates are worth the extra money?

2) Graduate levies are paid to the university where the graduate studied.

This means each university has a stake, a literal investment in the future employability of their students.

Universities would no longer want to offer more places in media studies, say, than the job market will bear. The entry bar for those high-demand careers might rise or the transferable skills taught on those courses might become more widely and demonstrably applicable to other careers. All courses would have a reason to provide a wide and adaptable education to build resilient, well-rounded graduates.

3) A National Access Fund to redistribute money to where it’s actually needed.

Certain students – those from richer backgrounds, males, whites, 18-year olds, etc – have a higher future earning profile than others. To ensure graduate levy funding doesn’t become a race to recruit those who were born lucky, we need a major redistribution of funds from the universities who spend lots on access but fail to deliver it, to those universities for whom access is easier, but retention and success are more of a challenge.

To this end, universities should each have access targets: those that don’t meet them would pay into the National Access Fund, which would pay out grants to those institutions that exceed them.

Policy of the possible

To move from our current system to the graduate levy, rather than giving loans to students to give to universities, the government should lend an equivalent amount directly to HE institutions. This would be phased out as graduate levy income starts to replace it.

There are many implications to this proposal: most are positive, but there are some unintended consequences. Allowances for these would need to be made in the detailed design of the policy. That’s always the case in any policy – especially radical reform. However, the positives outweigh the negatives and the negatives are essentially soluble because, for the first time, this funding system sets stakeholders’ interests in alignment rather than in competition. The game is designed to ensure no one wants anyone else to lose out.

Politically, this proposal is a potential winner for the market-driven impulses of the right and for the social fairness sympathies of the left. However, even if this idea does not take flight, it proves one thing: there are still new ideas to be found in how we fund higher education so Philip Augar and the government should think beyond simply rebalancing the same set of scales.

2 responses to “Rewriting the rules of the funding game

  1. An employer levy only makes sense if part of the gain in productivity resulting from a degree that is not paid in higher salary to the graduate being employed. Otherwise, better to collect a repayment from the graduate via student loan company.

    WONKHE attracts a fair number of bureaucratic proposals that would saddle extra costs on everyone. This is another example.

  2. This does seem to be equivalent to the current situation minus the SLC – i.e. the same amount gets paid into the system as currently happens, but it only makes its way to the university when the graduate earns enough to pay some of it off, rather than at the time of studying via a student loan.

    The main problem I see with this, aside from tying funding to graduate employability, is the very long feedback time. There is no reward for improving “teaching performance” until a very long time after graduation; there is no way to grow at a noticeable rate, as the returns to sustain the growth would only arrive many years later; and there would be a constant temptation to reduce student numbers to get a temporary boost to the unit of resource, knowing that the reduction in income would only come years later.

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