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Why tuition fees could bankrupt universities

A new report warns that more institutions will be at a "high risk of failing".

One of the strongest arguments against the coalition's higher education reforms is that they will put more universities at risk of bankruptcy. The decision to cut the teaching budget by 80 per cent - including the entire budget for arts and humanities - and introduce a system in which money follows the student, means that universities will be left to sink or swim according to the whims of the market.

This point was well made in a recent letter by 681 Oxbridge academics (and you thought 365 economists was a lot) to the Independent. They wrote: "[W]e fear that the proposed new model by which "the money follows the student" will produce random effects in the HE sector, depriving some courses of income streams, and decimating the funding for teaching in some institutions, without any coherent and publicly announced policy in regard to which of these institutions and courses the Government believes should be left to fail. As has been publicly announced, this is to be left to the market to decide."

Today's report by the National Audit Office rightly argues that students need to be told more about those universities at risk. Last year, seven universities were placed on an "at high risk" register but this could increase to 23 by the end of the first year of the new fees being introduced. A previous report by the University College Union put 49 of England's 130 higher education institutions at 'very high', 'high', or 'high-medium' risk of serious impact from cuts to the teaching budget.

The Higher Education Funding Council currently waits for three years before it publishes a list of universities at high risk of financial failure and, even then, the list is not made publicly available. However, those "at risk" are known to include Thames Valley University and London Met. The NAO rightly argues that this arrangement should be reviewed. It notes:

As a greater proportion of funding begins to follow the student, the funding council should consider whether the current arrangements strike the right balance between protecting institutions and their students, on the one hand, and enabling prospective students to take more informed decisions on where to study, on the other.

With fees due to rise from £3,290 to a minimum of £6,000, the pressure for transparency will grow - and rightly so.