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12 October 2010

The best and worst of the Browne review

Browne's plan will hurt students and hit middle-earners the hardest - but the money has to come from

By Duncan Robinson

Lord Browne’s long-awaited review of higher education funding arrived today, published amid a cacophony of debate. Despite what the NUS says, there are some good bits – but there are a lot of problems with what Browne suggests.

The Good

Reassuringly, universities are still free at the point of use. No one has to pay up-front fees before they can start their undergraduate degree. Another positive is that students will not be paying back any debts until they are earning at least £21,000. The current system has those earning just £15,000 paying back their debt, so – in some respects – this is more progressive.

On top of this, Browne’s plans would make the grant system far more coherent. At the moment, the system is a mess, in dire need of simplification; Browne’s review provides this, ending means-tested loans and instead introducing a comprehensive grant system for families from low incomes. Another positive suggestion is the increase in the number of places, which — after the previous government’s Catch 22 of aiming to get 50 per cent of students into higher education while fining universities who let in too many students — is to be welcomed.

The fundamental point of the review, however, is that universities need more money. Cuts of up to 75 per cent are predicted for higher education. If England’s universities are to continue to provide a decent education, then they need to find the money from somewhere. Browne’s review provides a thorough, coherent suggestion of how this funding gap could be plugged — relatively fairly — by students.

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Those are the positives. Now for the negatives.

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The Bad

Browne wants to get rid of the current cap on fees and let universities charge what they like. In effect, the university sector would become an open market, leaving students with a horrid choice: pay more and get a better education, or pay less for a substandard one. The only limit would be a “tapering”, whereby when fees go over £6,000, the government takes an increasingly large percentage of the figure, in the form of a levy. Thus, if a university decided to charge £12,000 per year, the government would take 27 per cent — £3,240 — leaving the university with a mere £2,760 per year extra, while the student is £6,000 worse off.

It is Browne’s misplaced faith in a higher education market that has driven this compromise. Browne argues that this “will encourage institutions to function efficiently so that they are able to keep fee levels down and not lose an increasing proportion of the fee to the levy.” This approach, however, is a fallacy. Top universities, who will charge the highest fees, have no incentive to keep costs down since they don’t bear the cost of the fee increases, students do.

Charging a student £6,000 extra will still result in £2,760 extra for the university, which — from the university’s point of view — is all that matters. That high fees will deter some students from applying to expensive, highly-regarded universities is irrelevant from their point of view. LSE, for example, have 20 applicants per place; even if three quarters baulk at paying £12,000, they still have five applicants per place, and could thus maintain a high standard of entry.

What will prove most financially damaging to students, however, is Browne’s suggested changes to the amount of interest charged. Browne wants to increase the rate of interest paid by graduates on their loans — and increase the amount of time they spend paying them back from 25 to 30 years. The interest rates will hit middle-earning graduates especially hard, according to Ian Cowie.

For example, anyone who borrows £10,000 at a typical mortgage rate of 3.5 per cent will repay a total of very nearly £15,000 over the standard 25-year term. But Lord Browne’s review of university costs proposes that most graduates will pay a much higher rate than that; 2.2 per cent above the rate of inflation.

At current levels, that would produce annual costs of 5.3 per cent if the Consumer Prices Index (CPI) is chosen as the benchmark – or 6.8 per cent if the Retail Prices Index (RPI) is used. Compounding would double the size of a graduate’s debts in 13.5 years if no interest was paid at the CPI basis of calculation – or, even more eye-stretchingly, in just over 10.5 years if RPI was used.

Unless you pay off your debt quickly, you will be saddled with expensive repayments for the next 30 years. In effect, student debt will become a high-interest mortgage for everyone except those earning under £21,000 and those on very high salaries, who can pay it off quickly. Everyone caught in the middle will get squeezed.

Debt is already a major issue for students applying to university. According to a Sutton Trust report, “a majority of students (59%) who had decided not to pursue study in higher education reported that avoiding debt had affected their decision ‘much’ or ‘very much’.” Doubling tuition fees will only exacerbate these worries.

Cuts of 80 per cent can be expected in subjects not deemed a “priority” — such as arts and humanities — meaning that degrees in these subjects will become even more expensive, despite being the cheapest to teach. Careers that stem from these degrees — in the media, law and politics — are already dominated by those from prosperous backgrounds, and will thus be put further out of the reach of those from poorer families, as a result.

The Ugly

If adopted, Browne’s review will mark a fundamental shift in the way England funds its universities. The burden will shift from the state to the student. The government, if it adopts Browne’s suggestions, will essentially be washing its hands of higher education. The results of this could be far-reaching.

With increasingly few benefits, there is little incentive for some English universities to remain under the aegis of the state. Oxford for example receives just eight per cent of its £863m budget directly from the state, in the form of a teaching grant. Some have predicted that this grant will be cut by up to 75 per cent. If this happens, and Browne’s “tapering” fee system is introduced, Oxford will be handing back between £35m and £40m per year* in levies, and receive just £17.5m back in the form of a teaching grant. If Oxford remained eligible for government research grants as a private institution, there would be little financial incentive for it to remain connected (however loosely) to the state.

This is just one hypothetical possibility of the Browne review. In the short term, if it is adopted, students will have to pay a lot more to gain a degree. While the NUS scream condemnation at the review, one simple fact needs to be stated: English universities need more money and Browne has suggested a coherent way to go about it. It hits middle earning graduates hard, but it does protect the less well-off, even if it gives the high-earning graduates an easy ride. Government cuts to higher education are nigh-on inevitable and English universities need to replace the money somehow. The state won’t provide, so the student will have to.

*This is an estimate based on Oxford current undergrad population of 11,766 paying £12,000 each (£141,192,000); according to the Browne review, Oxford would hold on to 73% of the total, paying back the rest in the form of a levy amounting to £38,121,840. (73% of £141,192,000 = £103,070,160). I raised this issue during a discussion on the Browne review on the Times‘ School Gate blog. One panel member pointed out that Oxford would need to remain “public” for its students to gain the benefit of the government student loan system. This, however, isn’t necessarily the case: Oxford would need to find 3,000 students each year willing and able to pay £12,000 up front, something that would be quite feasible when you consider the number of students currently in private education, already paying similar fees. It wouldn’t be fair. It wouldn’t be pretty. But it would be possible.

Read the whole report, below, and make your own mind up below.

The Browne Report – Securing a Sustainable Future for Higher Education