In many respects, our universities are a huge success. At the end of the Second World War, there were 21 of them catering for 2% of the population. There are now 142, attended by almost 50% of school leavers and in the international rankings, only the United States with a population five times larger, has a greater number in the top 25. The UK currently receives up to £1.5 billion a year in EU research grants and hosts some 440,000 overseas students, who contribute £16 billion a year to the economy in fees and living expenses. And the Heads of State of 58 countries went to university here, compared with 57 in the US and 33 in France. 

But in judging their success, it is necessary to look beyond income and reputation and ask what are they for, and how well do they serve the interests of young people, the economy and the country as a whole? First, a university education can benefit students’ development – and can be justified on that basis alone. Second, it marks an important staging post on the road to adulthood and autonomy as they leave home and build new networks of friends and acquaintances. Third, it helps them decide on their future careers and promotes the rational organisation of the workforce by providing a certificate of knowledge, application and ability. And fourth, it plays an important part in developing skills and knowledge that the country needs.

The first and second of these objectives appear to be largely achieved, with surveys indicating that most graduates are pleased they went to university. However, it is equally clear that the third and fourth objectives are not being properly met, with a mismatch between the skills and knowledge being taught, the jobs available and what the country needs. At the same time, many students will never recover the cost of fees paid, the accumulated interest on their loans, and earnings foregone through the extra years of study.

Skills shortages

Reflecting this, the UK now ranks 16^th out of 20 OECD countries in terms of the proportion of the population with technical qualifications, with a grave shortage of graduates in science, technology, engineering and medicine. Indeed, Engineering UK estimates that, with a shortfall of over 20,000 graduates a year, British universities are currently producing only half the number the country needs. At the same time, there is a serious mismatch between some areas of study and the realities of the labour market with, for example, 2,500 students a year graduating in sports journalism, more than 50 times the number of jobs becoming available. This problem has been exacerbated by the impact of rising tuition fees on part-time study, further education and training (where the Government remains responsible for funding tuition), which have faced severe cuts since 2010 despite being vital for our future prosperity.

At 49%, Britain is not exceptional in terms of the proportion of young people going on to higher education, with fast growing South Korea and China educating over 70% to university level. And planning also needs to take account of the fact that school leavers today can expect to be still working in fifty years’ time – and in a far more knowledge-intensive world.

The issue, therefore, is not to discourage young people from staying on in education but to ensure that courses are of high quality and address emerging opportunities and that all school leavers have the support they need to make hard-headed choices about the options open to them. In Germany, only 27% of school leavers go to university, with many opting for vocational training in prestigious technical high schools, which underlines the need to improve the quality and range of vocational training to make it a more attractive option.

Radical Reform Proposes:

• An Integrated Approach to Post-18 Education
• Helping Applicants Make Informed Choices
• A Fair Funding System
• Resolving Ethical Conflicts
• Achieving Wider Access

An Integrated Approach to Post-18 Education

The existing division between post-18 education and training consolidates inequality and distorts the labour market, impeding the development of a dynamic, knowledge-based economy. Along with tackling the failings of pre-18 schooling and strengthening careers guidance, this demands a new approach to funding and a reassessment of the often artificial, distinction between academic and vocational education, which plays so large a part in shaping the future of school leavers today.

This division reflects a false distinction between young people whose minds deserve to be trained and enriched and those who, supposedly, only need practical skills. It results from an outdated dichotomy between the “professions” and “trade”, and is the legacy of a long-gone labour market where most people worked with their hands. Universities have always been happy to train doctors, dentists and architects, while many formerly manual occupations now require knowledge with a substantial intellectual content. We, therefore, call for a comprehensive review of the whole system with a view to closing the gulf between the opportunities open to school leavers who go on to university and those who do not, including the issue of how best to address the grave shortfall in high quality vocational education.

Helping Applicants Make Informed Choices

Decisions about where and what to study that young people take while still in their teens shape the rest of their lives. Anyone buying a two-week holiday or a small annuity or taking out insurance on a mortgage is protected by tight controls on mis-selling and strong rights of redress. At the same time, 18-year-olds are pressed to take on debts, which now average £50,000 for a three-year course, without any such protection.

Much greater efforts are needed to ensure that potential applicants receive comprehensive, impartial and comparable information about the universities and courses they are considering. As part of this, a code of practice should be introduced to ban marketing which glamorises university life and to ensure potential applicants have a full and honest picture of student satisfaction, the intellectual dimension of their studies, drop-out rates and career outcomes.

Inadequate careers guidance and the mismatch between the courses on offer and the realities of the jobs market have led to up to a third of graduates ending up in non-graduate jobs. There are now some 26 higher education institutions whose male graduates earn on average less than non-graduates. Overall, it appears that women graduates fare relatively better as compared to women without degrees, especially in elite areas of study such as mathematics, medicine and law, but the picture is complicated by the fact that those who finish their studies at 18 tend to have children at an earlier age and are less likely to work full-time.

Poor careers guidance impacts negatively on the labour market, with job seekers with degrees displacing those without, even though the latter may be a better long-term choice. In this sense, a system which should rationalise recruitment has ended up by distorting it. It prevents many graduates buying their own homes, while creating a powerful incentive for graduates to find ways to minimise repayments by taking their skills abroad or keeping their earnings below the £25,000 repayment threshold.

Universities should be required to take account of the realities of the labour market in determining what courses to put on and to do more to ensure that applicants fully understand the implications of pursuing different options. Investment in careers guidance in schools should be increased and the university funding formula revised to remove the disincentive to expand provision in subjects which involve laboratory work and expensive equipment and materials.

A Fair Funding System 

The handling of university finance by successive governments since 1998 echoes the mortgage securitisation scandal, which led to the financial crisis of 2008. The longstanding failure by the authorities to face up to the issue has enabled them to behave as if student debt would simply disappear after thirty years. And in 2017, the Government sold a further tranche of the loan book (with a face value at that point of £3.5 billion) off to private investors at a heavy discount – and claimed credit for having reduced public debt by the £1.7 billion it eventually received!

Thus, successive governments have contrived, through creative accounting, to oversee a significant rise in the number of students entering university, while simultaneously (in the short term) cutting public spending on higher education. Meanwhile, despite the escalation in tuition-fees, public funding still accounted for some 45% of university income in 2016-17, according to the Secretary of State for Education.

The increasing importance of income from tuition fees has encouraged universities to lay on courses that are popular and cheap to deliver, with places on arts and social studies courses costing about £2,000 a year to run, compared with £12,000 for courses in engineering and £18,000 in medicine. While having the right to determine the fees they charge (within a cap), almost all charge the maximum fee. This has created total student debt of a staggering £118 billion, according to the Office of Budget Responsibility (OBR). While most students in elite universities and those from better-off households can expect a financial return on their investment over their lifetimes, many, especially from among those from poorer households, will lose out.

It is also clear that the assumption that a high proportion of graduates will actually pay off their loans was wholly unrealistic, with the OBR now warning that only 31% of debt taken on by students matriculating in 2017-18 will be paid back – leaving £28 billion unaccounted for in the public accounts. The fact that authoritative sources envisage a problem of this scale is a clear sign that the present system needs to be replaced as soon as possible.

The need for reform

While protecting the resources for higher education, the funding of tuition should be fundamentally reformed to end the situation where fees in England are the highest for public universities anywhere in the world and young people are entering the world of work with heavy, long-term debts. We do not believe it would be fair, or a proper use of resources, for taxpayers to pay the full cost of university education for all students, poor or rich. This would cost some £9 billion a year, money which would be better spent improving secondary schools and training for the 50% of school leavers, mainly from poorer households, who go straight into the world of work.

It is clear that loan-based tuition fees, which were launched by Labour in 1998 at a level of £1,000 a year and raised progressively to the current maximum of £9,500, have been a disaster. The system is opaque, ill-thought out and bureaucratic. It was imported from America with the unstated aim of morphing our universities into a two-tier private/public system, as already exists in secondary education in the UK and in higher education in the US, and to massage the public sector borrowing requirement.

But the assumption that successive cuts in public funding would lead to a market in university places based on price proved to be incorrect. Fearing a revolt by young voters, successive governments maintained a ceiling on fees and introduced so many loopholes in the conditions for repayment that most 18-year-olds have proved happy to take on enormous debts, which most will only need to repay, if at all, in the distant future.

The rise in the number of school leavers going on to post-18 education has also made university funding an important issue for the economy. The system has become opaque to the point that it took until 2018 for the National Statistical Office to admit that unpaid student loans would not simply evaporate but will have to be accounted for as a liability against future government borrowing – leading to an immediate £12 billion increase in the national debt, rising to £26 billion by the 2030s.

Tuition fees should be treated as a contribution to the cost of teaching, with research being funded by the Government (alongside grants and contracts for research work). This would address the injustice of graduates being required to cover both the cost of their own education and part of the cost of research, a long-term endeavour of benefit to the whole of society. And it would end the anomaly of putting universities which are primarily involved in teaching on the same footing as those which undertake large amounts of expensive scientific work.

Cutting the burden of fees

The funding of post-18 education and the burden faced by the students who will face heavy indebtedness because of fees and interest charges imposed since 2010 are complex and involve a variety of stakeholders. The first step should be to ensure that all loans due are actually repaid by reducing the ceiling, closing loopholes and fundamentally changing the payment system. As part of this, the 30-year time limit on the requirement to repay student loans should be removed. This would reduce the incentive to keep earnings down to escape the obligation to repay and end the situation where advisers openly recommend parents not to help pay off their children’s fees.

The principle that post-18 education is of benefit both to the individual and to society should be reflected in a reduction in the maximum fee from £9,500 back to £3,000 a year, the level which applied until 2010, with the shortfall being made up from general taxation. At the same time, the public contribution should be raised for universities which increase the number of study places in subjects that are expensive to run and where there is a shortage of qualified graduates coming into the market.

A two thirds discount on loan repayments made within a given period should be offered to former students who incurred fees after 2010, when the rate was tripled from £3,000 to £9,000, on condition that the whole of the remaining debt is paid off – a measure which in large part will pay for itself through improved compliance. Provision should also be made to ensure that fee income is used to cover current expenditure and not to create future income streams, for example, by investing large sums in income generating off-campus student housing. And universities should be encouraged to reduce the cost of courses by collaborating further in the web-based delivery of core and common elements.

A better alternative

At present, with the student loan fund privatised, graduates pay interest on their outstanding loans at up to 6.3% (when Bank Rate stands at 0.75% and mortgage interest can be obtained at under 2.0%), in part because of the costs of bureaucracy and enforcement and the Student Loan Company’s profit margin.

In keeping with the principle of solidarity between generations, parents with income above a given threshold be required to help their children meet their tuition fees directly, or through a loan. In the latter case, once the child’s earnings had reached an agreed threshold, he or she would repay the loan plus interest at a modest rate, through a surcharge on income tax. As with the scheme which applied before 1998, the system would need to cushion the burden for families with earnings just above the threshold, or with more than one child in post-18 education.

To support this approach, a new savings vehicle should be introduced to provide a tax incentive for parents (or grandparents) to save towards the cost of their child or grandchild’s fees and, ultimately, to enhance their own income in retirement; with the loan being paid back by the graduate into the savings account via HMRC. In the case of parents whose income is below the earnings threshold, the Government would pay the loan with the student, once earning above the threshold, repaying it to the public purse via PAYE. Non-reimbursable maintenance grants (which were phased out in 2016) should be reintroduced for students from lower income homes and subsidies provided to cover the cost of tuition in areas of skills shortage and modest earnings, such as nursing.

Resolving Ethical Conflicts

Germany provides some of the best university education in the world free, while the Scottish Government supports the cost for residents. The situation in England (and to a lesser extent in Wales and Northern Ireland, where the cap is lower) results directly from the neo-conservative concept that universities are fundamentally no different from private businesses, which balance their accounts by competing to sell education.

This has had damaging effects on the standing of universities as the pre-1998 ethical consensus has been eroded. One example of this is grade inflation, with the University of Wolverhampton raising the proportion of students getting first class degrees by up to 500% since 2008, and Surrey awarding over 40% of students first class degrees in recent years. The result of this is that employers are increasingly considering where an applicant studied rather than the grade he or she earned, denying employers up to date information and undermining one of the main reasons students have to take their studies seriously.  We consider that the Government should put aside the toxic fantasy that universities are no different from private businesses and open discussions with the sector to address the problem of grade inflation before further damage is done to the credibility of British degrees.

Scandals have also erupted over the escalation in the salaries paid to senior administrators. According to the Office for Students, five universities paid their most senior executive over £500,000 in 2017-18, while Exeter University announced that its Vice Chancellor could receive a package of up to £830,000 in his final year – three times what the head of the Home Civil Service receives and four times the head of the Ministry of Defence. Meanwhile, many postgraduates are expected to lecture and mark unpaid, or for minimal return, as a condition for progressing with their careers.  Here too, the Government should play an active part in accelerating progress towards a solution by working with the sector to elaborate a code of good practice for remuneration in all publicly-funded, not-for-profit institutions.

Achieving Wider Access

Learning from Germany, the Government should expand funding for a wide range of vocational courses targeted at skills shortage areas to give people for whom a conventional university course is not the best pathway to well paid, secure employment. As part of this, the range of vocational degree courses involving collaboration between industry and particular universities should be enlarged.

Tackling obstacles

The higher education sector is now acutely aware of the need to promote equality of access for young people from different backgrounds. However, it continues to be the case that, despite a modest improvement since 1998,  a significantly lower proportion of school leavers from poorer homes and from certain ethnic groups go on to higher education. Moreover, students from privileged backgrounds continue to take a disproportionate share of places in elite universities and in subjects which lead to higher paid occupations. Confirming this, the Sutton Trust has reported that in 2017, students from eight elite (mainly private) schools took as many places at Oxford and Cambridge as the 2,700 state schools that took the fewest Oxbridge places.

OECD data for 2014, indicate that the UK has failed to use higher education effectively to promote equality of opportunity, showing a worse than average performance for England and Wales among the countries and regions surveyed. The self-reinforcing nature of inequality in the UK, and the failure by successive governments to achieve social justice in pre-18 education, pose a huge obstacle. Thus, according to the Education Statistics Authority, 25% of first year medical students in UK universities were from private schools, which account for only 7% of all pupils. At the same time, research by BMC Medicine shows that, on average, students from non-selective schools perform better in medical examinations than those from private or grammar schools.

To increase the range of options for school leavers and improve access, a wider range of one-year starter courses and two-year basic degree courses should be introduced. And consideration should be given to requiring universities to provide formal recognition for successful completion of each year of study through certificates and diplomas acceptable to employers as proof of achievement at a lower level than a full degree.

Reinvigorating part-time study

Increased tuition fees have had a particularly severe impact on enrolment in part-time courses, which have seen a sharp drop in student numbers, with the number taking part-time degree courses in England declining by 51% between 2010 and 2017, according to Universities UK (UUK).  A 2018 survey carried out for UUK and the CBI of 830 individuals who had considered embarking on part time study but had then decided not to, or had dropped out, showed that 59% wanted lower tuition fees, 44% more flexible courses and 37% more support with living costs.

This problem should be addressed as a matter of urgency, as part-time study makes an important contribution to equality of opportunity and to maximising the nation’s human capital. As part of this, consideration should be given to using the resources from the apprenticeship levy paid by employers to expand provision for part-time study. Greater flexibility is needed with more short courses and increased support for people who are studying while continuing to work. And, government should work with further and higher education, employers and trade unions to improve access to training and development opportunities for older people to reflect the growing need for re-skilling and new life opportunities resulting from the abolition of the fixed age of retirement.

SUMMARY OF PROPOSALS

An integrated approach to adult education

• identify ways to break down the exaggerated dichotomy between adult education and training;
• close the gulf between those who go to university and those who don’t and address the shortfall in vocational knowledge and skills;
• put greater emphasis in and outside universities on courses with a strong vocational element targeted at growth areas of the economy;
• explore how existing vocational training can be enriched with cultural and intellectual components currently only accessible through university-based courses.

Ensuring applicants are properly informed

• regulate the marketing of university courses to ensure potential applicants have a full and honest picture of student satisfaction, drop-out rates, intellectual added value and career outcomes; 
• improve and expand counselling to help school leavers make informed choices on what and where to study;
• require universities to give greater consideration to opportunities in the labour market in determining the balance of courses they put on.

 Funding and tuition fees

• reform the tuition fees system to end the situation where young people enter the world of work with heavy debts; 
• provide for the state to fund university activities such as research, while reducing the ceiling for tuition fees from £9,500 to £3,000 a year, with the shortfall being made up from general taxation;
• require better-off parents to finance fees for their under-25-year-old children directly or through a loan, with the child repaying the loan via PAYE once earnings have reached an agreed level through a sliding scale surcharge on income tax;
• in the case of parents with income below the earnings threshold, the Government should finance the loan, with the student repaying it to the public purse.

Resolving ethical conflicts 

• open discussions with the university sector to find a solution to the problem of grade inflation;
• agree with the sector a code of good practice for remuneration in all publicly-funded, not-for-profit institutions. 

Meeting needs and improving access

• reintroduce maintenance grants for students from low-income families;
• promote the introduction of a wider range of one-year starter courses and two-year basic degree courses to improve access;
• encourage universities and colleges to provide formal recognition of successful completion of each year of study in a form recognisable by employers;
• take urgent steps to address the problem of the impact of tuition fees on enrolment in part-time post-18 education;
• promote greater flexibility in part-time study, with a wider range of short-term courses and new sources of funding, and address the special needs of people with families who study part time while continuing to work.