Report to the University on Funding and Access

Funding and Access

During the last year the debate over the future of higher education funding has been intense. The Independent Cubie Report in Scotland has resulted in the abolition of up-front tuition fees (replaced by a graduate endowment scheme) and a return to targeted grants. The Northern Ireland Assembly's higher and further education committee has backed both the abolition of Tuition Fees, restoration of grants and a £25,000 threshold for any repayments (endowment or loan). The Universities UK (formerly the CVCP) Review Group set out in September five options for future discussion: building on existing policies, increased up-front fees, deferred payment through Graduate Tax, differentiated full cost fees and institutional opt-out following endowment. It seems likely that the government will announce the results of its HE funding review shortly after the next election.

Much of the outline of the debate is now clear. There is a widespread belief among the sector that additional resources are needed. Politically it is disputed as to whether this can and will be provided by general taxation. There is quite extensive and consistent evidence, both from abroad and here, over the deterrent effects of high student debt levels and the problems associated with significant up-front fees. The relative burden of financial contribution between the main beneficiaries of higher education - student, society, business - is heavily disputed, as is the structure of any system of student contributions.

Within Cambridge the issue is hugely important to students, best demonstrated by the fact that more people from this university went on the national demonstration against top-up fees than from any other institution.

It seems likely that there will be a general election this year. It is crucial over this period that students and university work together and support each other both in arguing for additional resources, and to rebut any attempts nationally to make political capital through attacking us. A statement on funding from university council would help demonstrate to students that we share the same concerns, and that the target for lobbying and protest should be national politicians.

The wording below is designed to allow not only for the position supported by most students - a progressive tax funded sector - but also for the option of increased student financial contribution (which some see as the only way to bring in additional resources) that does not severely compromise access (the biggest and most fundamental of the student concerns). From an access point of view it is not student contribution per se that is problematic, but differentiated up-front fees and accompanying debt (an observation sadly lost on NUS).

This is in many ways a holding statement, and at some point in the future it would be desirable for us to take a position on which specific funding structure is most attractive and realistic.

Statement on Higher Education Funding.

The UK Higher Education sector is currently under-funded, resulting in low morale and difficulty in retaining staff, lack of academic teaching resources, and endangerment of our international competitiveness. The University seeks to attract the best students regardless of background. Differential Fees would damage our ability to do so, greatly increase student debt levels and would represent a retrograde step in Higher Education provision. Any change to the funding system should not compromise our long standing aim to widen participation, whilst also ensuring additional funding per student. An increase in student debt levels would damage improvements already made in broadening participation, and would disproportionately deter applicants from lower socio-economic groups. High debt levels have deleterious consequences for graduate admissions, jeopardising research and the ability to recruit teaching staff in the future.

Any system of funding should respect the principles of additionality of resources and of widening participation.

HE Funding and the need for Additional Resources

It is widely assumed that there is a general shortfall in the funding of Higher Education within the UK, risking quality and standards of teaching and research and potentially damaging international competitiveness. Current levels of UK Higher Education funding currently stand at £12.1 billion;^[1] Universities UK has argued for an additional funding requirement of £1.4bn by 2005 rising to £1.65bn by 2009-2010 for core teaching services alone.^[2] This is however an upper limit. In 1997 the Dearing Report identified an immediate £375 million shortfall in the funding of Higher Education^[3] and proposed that this should be met by an increase in government spending and a contribution from graduates. Since then the introduction of means-tested tuition fees from undergraduates has resulted in a £350 million contribution from students and their families.^[4]

In large part the continuation of the perceived funding gap is due to the failure to observe what Universities UK has named the additionality principle: all extra sources of funding should complement those already existing and especially those from the public sector. Although tuition fees result in a considerable student contribution this has not been matched by a comparable increase in unit funding. Indeed, although this year has seen the first increase across the sector, unit funding by the state has decreased. This can be seen clearly on figure 1. It is evident that increased student contribution has been used as an excuse by the Treasury to claw back its own HE expenditure and to substitute a student contribution for government spending. Increasing the HE sector's reliance on a student contribution does not therefore necessarily result in additional resources.

Given the current political climate and the treasury's behaviour to date there is no evidence that increasing the student contribution to HE Funding would produce different results. Yet Dearing's recommendation that "public spending on higher education should increase with the growth in Gross Domestic Product"^[5] was made on the assumption that Higher Education should continue to be a spending priority of the public sector. Both Dearing and Cubie were clear on the benefits and arguments for public sector funding of Higher Education and yet it seems apparent that an increased student contribution will probably be used to decrease the proportion of funding by the Treasury and the Funding Councils.

This can be verified by international comparison. In Australia, the student contribution towards fees has also been used to subsidise the existing public expenditure. Since the 1988 introduction of the Higher Education Contribution Scheme, the amount provided by students has continuously increased; for instance the student contribution rose from about 23% of tuition costs in 1996 to 37% in 1997.^[6] Meanwhile the proportion of funding provided by the Commonwealth Government fell; 53.8% in 1997 to 50.8% in 1998.^[7] This has resulted in a fall in public sector funding per FTE student; between 1998 and 1999 this fell from A$13,542 to A$13,517.^[8]

Further problems arise with the funding of bursaries designed to mitigate problems of access that are associated with differential increased fees. Currently fee payments are means-tested and 44% of students pay no tuition fees whatsoever.^[9] The Russell Group's commissioned report, (Greenaway and Haynes)^[10] proposes to address the problems of access via institutional based bursary, modelled around the current US system. Again the effectiveness of such a scheme and the affordability to British Universities appears dubious; the UK Higher Education Sector does not have the tradition of alumni donations or the endowment resources of the US institutions. Thus in order for the UK Higher Education system to match US institutions expenditure on "financial aid" considerable extra resources will need to be found. Furthermore Greenaway and Haynes' argument as to the attractiveness of the US system is highly misleading. The variation in US institutions is if anything larger than that of the UK and Greenaway's concentration on the top 20 funded institutions places bias towards levels of student support. This is an unfair comparison; even the richer of the UK institutions, including Cambridge, can not afford the $1,000,000,000 endowment to be on the list.^[11]

The required immediate financial injection to HE would thus take second place to the build up of extra endowments for bursaries. This is especially true in the current political climate where Government talk of higher funding goes hand in hand with the aim of widened participation; "old" universities in particular will have to prove especial attention to the issue of access. Although Cambridge may appear to be in a better position to build up such endowments than many other UK institutions, higher differentiated fees will result in larger bursary requirements. A move in this direction will, in Greenaway and Haynes own words "take time to accumulate the levels of resource" required.^[12]

The supposed 'moral' case for Top-Up Fees.

Several commentators have suggested a moral imperative for charging top-up fees based on the idea that they are similar to progressive taxation. This claims that as graduates on average go on to earn more than non graduates, they should rightly pay for the education that gives them this future financial benefit and, crucially, that Top-Up Fees represent the socially just way to ensure this.

The argument has chiefly come under attack from empirical perspectives examining how secure and evident the future earnings assertion really is. However, there is also a fundamental problem with the idea that an aggregated future financial benefit is best justified by a large up front individual charge. Whilst it is (probably) the case that graduates on average do earn more than non graduates in part due to their university education, the principle of 'earn more pay more' would counsel a graduate tax or endowment, not top-up fees. A student who left university and took a relatively low paid job such as in the charity sector would still be massively in debt, even though not reaping the supposed financial benefit of university. Greenway seems to assume that individuals view debt with detached equanimity, and that the prospect and reality of being heavily indebted is not something anyone would be even slightly concerned about. Whilst graduates on average may earn more this covers a mass spectrum of individuals, many of whom will not go onto high paid city jobs yet will get the negative aspects of going to a leading university (high debt).

The poverty of the 'average benefit therefore individual high fee' principle is best demonstrated by consideration of groups within higher education. Male graduates go on to earn significantly more, on average, than female graduates a fact that would thus apparently counsel charging men a higher fee than women. To an individual male student this would not seem to be a practice founded on a particularly socially just principle. Likewise, to a graduate heavily in debt and not earning large enough sums to pay it off in the foreseeable future the fact that graduates on average earn more than non graduates will be scant comfort.

Out of all the various options for an element of student contribution to Higher Education, Top-Up Fees represent arguably the most 'unjust' system. They rely on the idea that no one minds being in debt, and that it has no negative consequences - something that bears little resemblance to the experience of most people.

Greenway and access.

The Greenway report argues that large up-front fees for top institutions will not be an access problem because of the possibility of scholarships and because the decision to go to a more expensive university is a rational one due to the large future earnings that will accrue on average.

The Top-Up Fee model makes a series of assumptions about potential applicants:

They are primarily concerned in university choice by lifetime income maximisation.

They have no debt aversion at all.

They are well aware of the relative average financial benefits of having gone to a university, and are happy to offset a negative current and near-future situation (being heavily indebted) by a putative far future benefit (greater income).

They have a sophisticated understanding of their likelihood of getting a scholarship, whether they would qualify and what it would entail, and take a decision based on an detached assessment of the risks and potential benefits.

The image of the institution - whether it is seen as being expensive and geared towards the well off - plays no part in their judgement of where is right for them.

Their university choices, and understanding of these, is not influenced by the traditions, (mis)perceptions and opinions of those around them, nor is their attitude to debt. The cultural context is not relevant, instead they will do what is rational in order to secure future high income.

The assumptions represent a very poor representation of most 16 and 17 year olds (and also many mature potential applicants). For someone from a high income background, who attends a well resourced school and who has very little cultural hostility to somewhere like Cambridge then it is probable that the introduction of differentiated fees would not deter them from applying. However, it is worth considering what the perspective of an average maintained school potential applicant, from a low to middle income background would be. The choice being made would be between applying to Cambridge or to somewhere with significantly lower fees (York perhaps).

Important considerations:

Debt. Leaving Cambridge they will be in much greater debt than post-York. This level may well be more than their parents have experience of, and will probably at 17 seem almost unreal (£18,000 is a the estimate usually cited, although including living expenses this will probably be greater).

University experience. York will look much more like a university geared towards people from average income backgrounds (it is cheaper, and lacks much of the negative cultural baggage that Cambridge currently works hard to counteract.)

Advice. Their school and family will probably harbour some of the stereotypes about Oxbridge, which if anything will be reinforced by its expense.

Parental financial support. Given that parents will normally make a contribution towards the costs of university, the potential student may well come under pressure to go somewhere 'affordable'. Family hostility to Cambridge will be given a potent weapon in the fact that coming here is so much more costly.

For a potential applicant from a very low income background the above will almost certainly be even more persuasive, and are unlikely to be mitigated by a scholarship or bursary scheme because of:

Certainty and risk. The possible student will have complete certainty that he or she will have to pay high top-up fees. There will be the potential of financial help, however this will have an element of risk since he or she may not be eligible.

Information. It is very hard to communicate even simple messages about Cambridge to the mass of potential applicants. A 16 year old in a school and family with very little experience of Cambridge will, if Top-Up Fees were introduced, probably only have a general impression that the university is very expensive to attend. He or she would be very unlikely indeed to know the minutia of a financial assistance package along with its risks and benefits.

If Greenway's assumptions about applicant behaviour were even vaguely correct then it is worth pointing out that Cambridge would not currently have an access problem at all. The decision to study here is, at the moment, a spectacularly sensible one if your main concern is life time income maximisation. If Greenway's understanding of access was accurate then at the moment we would be inundated with applications from all social groups and schools. However, as is spectacularly obvious to anyone who has worked in the real word of access, university choice decisions are intimately influenced by image, cultural understanding, perceptions of 'average students', assumptions about costs and expense, and peer, parent and school advice. The misperceptions that deter those from low and middle income backgrounds from applying at the moment - that the university is geared to the wealthy, not for people like them, that it is more expensive etc. - will all be supported and entrenched by the introduction of differential fees. Greenway's argument that paying much higher fees to come here and getting into much more debt is not a disincentive due to potential for increased future earnings will cut no ice.

Debt Aversion - The Barrier to Access

Differential fees and an increased student contribution to HE Funding pose a direct threat to advances made in widening participation. Increased student debt levels creates problems of debt aversion, especially within underrepresented and lower socio-economic groups. This is a complex problem that cannot be easily mitigated through the use of means testing, bursaries, or scholarships.

Although the Greenaway Report suggests that a system of bursaries and scholarships could be introduced to offset the impact of higher student contributions on lower socio-economics group it ignores the importance of debt aversion to students' higher education choices. This unwillingness of a large portion of the student population to incur debt has significant implications for the effectiveness of loan based systems of student finance. Differential fees will increase the role of loans in the financing of higher education and will thus increase the problems caused by debt aversion.

A report on student finance commissioned from the South Bank University by the Department for Education and Employment highlights the worrying implications of this phenomenon for participation in higher education. It notes that 26% of students did not take out their student loan because of debt aversion. A further 11% of students expressed concern about loan repayments^[13], meaning that in total 37% of students express some degree of debt aversion.

This aversion was not uniformly distributed across socio-economic groups. 48% of students from classes IV and V were worried about indebtedness compared with 34% of students in classes I and II.

Although the financial impact of differential fees on social classes IV and V could perhaps be offset by means tested grants and bursaries this would do nothing to combat their adverse effects on the perception of higher education. A system of differential fees would undoubtedly exacerbate fears of indebtedness and deter people from applying for higher education. As the Cubie Report noted this effect has already been seen with the introduction of tuition fees:

"... in spite of the fact that the means-testing of the fee contribution means that they will not have to make any such contribution, there is no doubt that many from presently socially excluded groups see tuition fees as yet another impediment to access."^[14]

The effects of increased indebtedness and debt aversion would be particularly severe for Cambridge. The deterrent effect of a higher student contribution, and implicitly the increased fears of indebtedness it would entail, would damage access and undermine the University's ability to attract the best candidates. Furthermore increased student indebtedness will increase the pressure on students to work, diminishing their ability to study towards their degrees (and breaking University rules).

The reality of debt aversion means that differential fees would diminish both the quality of applicants and the standard of their work. A system that extended the role of loans and bursaries would serve to bolster the perception that higher education is the preserve of higher socio-economic groups.

Graduate Choices and Academic Recruitment

Another consequence of increases in the burden of debt is the pressures on graduates to enter careers that give greater financial rewards. This limiting of graduate choices has effects on the amount and type of graduate study undertaken and on academic recruitment.

Graduate study represents an additional period of low or no earnings and likely borrowing, which new graduates will compare with the high salaries available in the private sector. At present, many students of sufficient calibre to undertake postgraduate studies enter employment and not further study.

Differential undergraduate fees lead to increased limitation of graduate choices and in addition compound the phenomenon of greater concentration in subject areas at postgraduate level, already seen as subjects such as management expand to fill market demand. The effect of differential fees will be to deter postgraduate study in financially unrewarding areas.

This can be seen by international comparison. In Australia there is evidence to suggest a notable skewing of expansion, with those areas perceived to offer the best prospects growing at a greater rate than other areas. The greatest expansion within the sector is concentrated in business, economics and administration; with an increase of 5% in student numbers between 1998 and 1999. These subjects, with law now make up 26% of the student load. Overall expansion between 1998 and 1999 stood at 2.9%, while disciplines including the arts, humanities and social sciences saw only a 2% growth. There was a decrease of 1.1% in the numbers of students taking Education.

The Bett report, on staff pay and conditions, identified problems in staffing and noted that there was the potential for a crisis in recruitment. Academic staff pay has increased by only 70% of that of the average for non-manual workers. Problems in recruitment may be exacerbated by the high rate of attrition in the academic workforce.

Even if funding arrangements for postgraduate study remain unchanged, the burden of debt on those receiving postgraduate degrees will increase significantly, and, should differential fees be imposed, will be greatest on those whose undergraduate studies were at elite institutions.

Additional resources to higher education are likely to be targeted at reducing the problems of recruitment and retention of academic staff. However, we cannot expect improvements in pay to equal those available in the professional or private sectors. The Bett report recommended improvements totalling only 10.5% of annual staff costs. This represents a considerable increase of £700m pa on staff alone, and it is highly unlikely that further funds will become available under any settlement.

An increase in the debt held by postgraduate students considering entering academia will naturally bias their decisions towards more highly-paid sectors; the welfare costs of repayment are greater at the lower levels of income present in higher education.

Introduction of differential tuition fees is seen by some as a way of salvaging the quality of British universities. However, increased graduate debt may have the opposite effect.

^[1] London Economics, Review of Funding Options for higher education in the UK: A Report for Universities UK, Nov 2000, p25.

^[2] ibid, p4.

^[3] National Committee of Inquiry into Higher Education, "Higher Education in the learning society", Options for Funding higher Education, modelling and policy analysis, (Report.12). 1997. Section 21

^[4] London Economics, p350

^[5] National Committee of Inquiry into Higher Education, "Higher Education in the learning society", Summary Report,,

^[6] Raab, 1999

^[7] Department for Education, Training and Youth Affairs, 1998 -1999 Annual Report.

^[8] ibid.

^[9] rb213

^[10] Greenaway and Haynes

^[11] ibid

^[12] ibid

^[13] Times Higher p6 - December 22/29 2000

^[14] Cubie Report p121