A market in universities: one import the UK could do without?

Why the US funding model will cause British institutions more harm than good.

It is no surprise that the new Secretary of State for Business has led the charge to reduce the numbers of people going to university. To the chagrin of many Liberal Democrats at the time, this is precisely what Vince Cable said in opposition.

The cut in additional student numbers will do little for the social mobility which is allegedly a linchpin of the coalition government's higher education agreement. Universities now have to manage a £1bn reduction in funding, with David Willetts implying that student support is a burden on the taxpayer. Are these good enough reasons to transport the US model for the funding of higher education to England, as David Blanchflower suggests ("The case for higher university fees")?

The answer is almost certainly no. Unlike their US counterparts, the UK universities which are arguing for higher fees do not want to become private institutions. Rather, they want to have their cake and eat it: taxpayer funding for teaching, research, fee loans and student support, with the university then given the right to charge additional fees either upfront or through additional fee loans financed by bonds and commercial providers.

It is no surprise that the universities which want to compete on price and quality on the back of state funding are the ones that have the most socially exclusive profiles. By "quality", they mean not standards, but quality of the "student experience", based on small campuses where students study away from home and full-time. This is very far removed from the experience of most of the UK's two million students, over 40 per cent of whom study part-time, many of whom have to work to pay their way, and some of whom live at home to save money.

A quasi-US-style system would be certain to deliver inequity for most of the UK's higher education students. Like US health care, it would have outcomes that would be neither as equitable nor as productive as the UK's current system. In particular, a market based on state funding with higher tuition fees backed by private finance will have the inevitable outcome of delivering less resource to the universities that contribute most to social mobility. This is not a policy that the left would advocate for schools. Why should it be an acceptable outcome for UK universities and students?

The Westminster government could easily create a fairer funding system. By introducing a small (1-2 per cent) real rate of interest on student loans, similar to that applied in countries such as Norway, Denmark and Sweden, and by extending the period when graduates in England repay a contribution to the costs of their higher education, the Exchequer would benefit by £1bn per year.

This would be enough to fund many more students, avoid the cuts in higher education imposed by the deficit hawks and even extend fee and maintenance loans to part-time students who at the moment still have to pay their fees upfront. Fairer funding for all is on the table if the government (and the opposition) want to pursue it.

Pam Tatlow is chief executive of the university think tank million+

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In your 30s? You missed out on £26,000 and you're not even protesting

The 1980s kids seem resigned to their fate - for now. 

Imagine you’re in your thirties, and you’re renting in a shared house, on roughly the same pay you earned five years ago. Now imagine you have a friend, also in their thirties. This friend owns their own home, gets pay rises every year and has a more generous pension to beat. In fact, they are twice as rich as you. 

When you try to talk about how worried you are about your financial situation, the friend shrugs and says: “I was in that situation too.”

Un-friend, right? But this is, in fact, reality. A study from the Institute for Fiscal Studies found that Brits in their early thirties have a median wealth of £27,000. But ten years ago, a thirty something had £53,000. In other words, that unbearable friend is just someone exactly the same as you, who is now in their forties. 

Not only do Brits born in the early 1980s have half the wealth they would have had if they were born in the 1970s, but they are the first generation to be in this position since World War II.  According to the IFS study, each cohort has got progressively richer. But then, just as the 1980s kids were reaching adulthood, a couple of things happened at once.

House prices raced ahead of wages. Employers made pensions less generous. And, at the crucial point that the 1980s kids were finding their feet in the jobs market, the recession struck. The 1980s kids didn’t manage to buy homes in time to take advantage of low mortgage rates. Instead, they are stuck paying increasing amounts of rent. 

If the wealth distribution between someone in their 30s and someone in their 40s is stark, this is only the starting point in intergenerational inequality. The IFS expects pensioners’ incomes to race ahead of workers in the coming decade. 

So why, given this unprecedented reversal in fortunes, are Brits in their early thirties not marching in the streets? Why are they not burning tyres outside the Treasury while shouting: “Give us out £26k back?” 

The obvious fact that no one is going to be protesting their granny’s good fortune aside, it seems one reason for the 1980s kids’ resignation is they are still in denial. One thirty something wrote to The Staggers that the idea of being able to buy a house had become too abstract to worry about. Instead:

“You just try and get through this month and then worry about next month, which is probably self-defeating, but I think it's quite tough to get in the mindset that you're going to put something by so maybe in 10 years you can buy a shoebox a two-hour train ride from where you actually want to be.”

Another reflected that “people keep saying ‘something will turn up’”.

The Staggers turned to our resident thirty something, Yo Zushi, for his thoughts. He agreed with the IFS analysis that the recession mattered:

"We were spoiled by an artificially inflated balloon of cheap credit and growing up was something you did… later. Then the crash came in 2007-2008, and it became something we couldn’t afford to do. 

I would have got round to becoming comfortably off, I tell myself, had I been given another ten years of amoral capitalist boom to do so. Many of those who were born in the early 1970s drifted along, took a nap and woke up in possession of a house, all mod cons and a decent-paying job. But we slightly younger Gen X-ers followed in their slipstream and somehow fell off the edge. Oh well. "

Will the inertia of the1980s kids last? Perhaps – but Zushi sees in the support for Jeremy Corbyn, a swell of feeling at last. “Our lack of access to the life we were promised in our teens has woken many of us up to why things suck. That’s a good thing. 

“And now we have Corbyn to help sort it all out. That’s not meant sarcastically – I really think he’ll do it.”