A Level results: Funding reform

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It’s difficult not to feel sorry for those students receiving their A Level results this Thursday. Last year 3500 applicants who achieved three A grades were denied places while it is estimated that as many as 200,000 applicants may be turned down this year. If we wish to see more of our young people studying at university, we must acknowledge the need to fund a greater number of university places.

However, given the scale of Britain’s budget deficit, few people would be comfortable diverting more public funds to universities. This leaves private funding. While philanthropy is helpful, the size of the problem necessitates that students themselves must pay for any expansion of higher education. Fee increases seem the obvious source of funding. Unlike a graduate tax, fees are collected upfront. The shortage of places is an immediate problem. As such, it requires an immediate solution. An increase in fees can allow the expansion of university places to begin right away.

Furthermore, a fee increase would channel existing resources to those degrees that yield higher graduate premiums (i.e. those that are most valuable). Were fees to double, a three-year degree would cost the student about £21,000 (excluding the other private costs associated with university, such as accommodation). If the expected premium of a degree were less than this, it wouldn’t be worth applying for. Such degrees would thus be decreasingly taken up. Public funding for these degrees would be set free and could instead be spent increasing the number of places on degree courses that offer better returns to the student. Degree programmes that allow higher incomes to be commanded would be made more widely available whilst ‘Mickey Mouse degrees’, which do little good for those studying them, would be scaled back.

Increased tuition fees could do more than close the gap between applications and university places. They could do so in a way that doubly expands the availability of the most worthwhile degrees.

Education 'apartheid'

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Mr. Balls and those who support his "progressive" policies think of themselves as opponents of apartheid and the other kinds of political thuggery they condemn as fascism. They are mistaken. They have let the racist details of some historical fascist regimes distract them from the coercive substance of fascism.

Jamie Whyte 'Ed Balls and Education 'Apartheid' WSJ

Welsh university closures

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The closure of several small Welsh universities sparked different reactions from within government, after the Education Minister Leighton Andrews announced the plans in June. Whilst some ministers have seen the move as a step forward – a smaller number means a stronger few, and there would be no decrease in student numbers – fears have been sparked over whether the move denotes centralization, rather than democratization.

However, the fundamental point here is that there should be a free market, not a state-sponsored monopoly, in higher educational establishments. The comment of the vice-chancellor of Swansea University, “Merger is a no-brainer if as a result you get better delivery for students.” hits on the right end, but not on the right means. There should be no restrictions on mergers, but neither should there be any barriers to new entrants. It should not be for the state, by central planning, to decide on it; it should be for the market.

Universities, Willetts and Oakeshott

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News just in. The UK may not have enough clothes to meet the growing demand among the populace. According to the department for jumble sales, there won’t be enough clothes available for those unable to match up people with suitable attire. This comes on the back of the news that shops are going to cut the number of clothes in their stores despite the growing demand.

Could this happen? Only if the government regulated clothes as it currently regulates universities. Given the inherent problems that a central agency faces in trying to coordinate any industry, the fact that we don’t have enough university places to meet demand should be of little surprise. That universities are actively cutting places in the face of rising demand shows how far the price mechanism has been perverted.

But the problems in higher education run deeper than the government’s subversion of the price and information. In his lifetime, Michael Oakeshott was concerned – although never overly pessimistic – about the decline of the institution of the university. If he were alive today I suspect he would be even more troubled by the last twenty years. Independence has been undermined to the point where universities have become – in Oakeshott’s terms – ‘enterprise associations' rather than ‘civil associations’. In other words, universities have been usurped by the state to bring about specific political ends. The fact that power to control universities still resides in BIS is instructive. Theyare seen as a government agency for delivering skills to businesses, social mobility and economic growth.

Our universities are in a serious mess. David Willetts – who gave the LSE 2008 Michael Oakeshott memorial lecture – surely knows what needs to be done. Now it is time he did it.

Against a graduate tax

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On Sunday, David Willetts, the universities minister, claimed that a graduate tax is “by far the best option to go for in tough times” when looking to ensure university teaching and research funding is maintained.

Presently, non-medical undergraduate students from middle-income backgrounds pay between 15 and 30% of the costs of their degrees. Taxpayers and university endowments pay the rest and subsidise interest on student loans. This means that undergraduates pay far less than the full cost of their university education. When people can buy something for much less than it actually costs, they tend to buy too much of it. Since 1980 the proportion of people going to university has more than doubled. Many students have gone to university but gained degrees which will not increase their future income; at the same time they have spent three years out of the job market losing a small fortune in forgone wages. A ‘double-cost’ for the students and taxpayers.

Replacing student fees and loans with a graduate tax goes too far in the opposite direction. If the tax is implemented as simply as possible, an individual will pay an additional flat rate (say 3 to 5%) on top of their income tax if they go to university. A tax like this would distort the higher education market by encouraging people not to go to university and so avoid the tax altogether. This could impact especially badly on school leavers from poorer backgrounds.

When university-leavers go into graduate jobs the tax would encourage them to work less hard so they pay less in tax. UCU estimates that a graduate tax of 5% would leave the average secondary school teacher about £46,000 worse-off over 25 years. People could end up paying much more than the value of their university education in graduate taxes over their lifetime, discouraging them from going to university. This would mean too few people go to university, decreasing their future earnings and holding back economic growth.

Additionally, people may go to university, enter high-paying jobs and then emigrate to avoid paying the tax. The Student Loans Company has had a tough time getting loan-repayments from emigres so enforcing a graduate tax internationally will be difficult at best. The result would be a state which pays for most of the university education of high-earning emigres, but which cannot recoup the money and whose policies (by causing the emigration of high-earners) decrease future economic growth.

A more complex graduate tax could be implemented, one where different percentages of income are paid according to university attended, degree taken and income earned. This might lead to a better- targeted tax but it would have much higher administrative costs and would cause even more distortion in the higher-education and job markets.

In fact, the idea of a graduate tax needs to be scrapped and instead Willetts should enact James Stanfield's proposals set out in The Broken University.

Professor for life?

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Earlier this year, the “horrific” idea that professorships should not be granted for a lifetime raised more than a few eyebrows in Denmark. The proposal, raised a few months ago by a Danish politician, suggests that after an initial ten-year contract, individual professors should successfully complete an evaluation process every five years in order to maintain their position as a professor. The proposition was designed to ensure that only the most qualified professors would assume the leadership of an academic institute. Unfortunately, I have not heard much of the proposal since it was first introduced, but the idea is nevertheless appealing in many ways.

Making a professor subject to such an evaluation would empower students as well as taxpayers, who are the primary source of funding of a professor’s salary, and would ensure that professors who once excelled at their work when first hired but no longer contribute to their subject do not prevent brighter and more energetic candidates from rising through the ranks of the academy. Such evaluations would allow professors who neglect their duties to be kindly removed from public budget.

I find the idea of an evaluation to be an excellent one, though I would argue that there exists an even more transparent and efficient way of handling the issue than an administrative appraisal. Though the proposal did not specify how such an evaluation process would proceed, I believe that taking both the professor’s research and student evaluations into account would be the fairest way of appraising a professor’s performance. Instead of proceeding with a conventional regulatory structure to supervise professors, which inevitably leads to more people in the public sector, student evaluations could be published on university websites. As most academics are quite keen on advertising their academic performance, the publication of student evaluations would not only fill a missing gap in this information, but would also provide prospective students with better information on where they can obtain an education best suited for their needs and goals. Instead of further regulation, the dissemination of information about “customer satisfaction” would aid prospective students and educational institutions, and would decrease professors’ insulation from market forces. 

Fair’ salaries

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The Lewisham head teacher, Marks Elms, of Tidemill Primary in Deptford, was paid a total of £204,303 last year (the press has misrepresented this as it does not all relate to a single year). The basic figure is £82,714 and he received a further £102,955, covering two years for his work in City Challenge, a ‘highly targeted drive to crack the cycle of under-achievement among disadvantaged children in primary and secondary schools’.

The uproar over this has been compounded by the self-important comments of the general secretary of the ATL teachers’ union, Mary Bousted, who said that the key issue when it comes to pay is ‘fairness’.

It is not a case of comparisons. What someone’s salary ought to be is a matter of subjective value. What somebody’s salary is can only be determined by negotiation between parties, informed by market forces. As it stands, we have to put up with having ivory tower dwellers spouting how much of taxpayers’ money should go on services providing for them. There is no ‘ought’ about it. The ‘is’ should be determined by supply and demand. Parents interviewed on Elms’s salary seemed to think he deserved what he got – the work he’d done for their children seemed reason enough. To compare his salary with that of investment bankers, graduate teachers and cleaners is meaningless; it serves only to highlight the distorted economic system which fuels comments such as Bousted’s.

Why David Willets is right and UCU is wrong

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David Willetts is right to allow more private institutions to become universities. More private universities would widen access and raise standards by increasing experimentation, choice and competition.

University College Union’s (UCU) statement that the reputation and standards at UK universities are at risk is incorrect. In the UK, the case of Buckingham – the first private university set up thirty year ago – is pertinent. Buckingham tops student satisfaction, staff student ratios and career outcomes, while their Business School was recently ranked second in the Guardian’s university guide 2011. More private universities would undoubtedly raise standards.

Also, UCU’s suggestion that private universities threatens academic freedom is preposterous. The opposite is actually the case. As UCU and others have pointed out, restrictive government funding criteria increasingly threatens academic freedom. Private universities take no government money, which allows them greater freedom than universities funded by the state.

Buckingham revisited?

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The pronouncement by David Willetts, the Universities Minister, that the UK should have more private universities is very welcome.

He has also confirmed that BPP, the business and law college, has been granted ‘university college’ status, the first such award for 34 years. Of course, BPP is very different from a conventional redbrick university but it shows that new thinking is afoot in higher education.

Currently, the UK’s only private university is at Buckingham, which first admitted a small student body – less than 70 – in 1976. Ironically, given today’s severe financial constrains, it was also set up during a period of real economic stringency – 1976 was the year of Britain’s infamous loan from the IMF.

Moreover, at that time, there was genuine hostility, especially within the higher education system, towards a new private university.
In the subsequent 34 years, the University of Buckingham has prospered, with a student base almost 1,000 strong, recruited mostly from overseas.

The Buckingham experience provides three crucial lessons for any putative investor in a new public university.

First, Buckingham has specialised in offering the cheaper undergraduate courses – law, economics, politics, history, languages etc. Until relatively recently, there were few courses in the more expensive science-based subjects.

Secondly, the attraction of two-year courses is compelling. Most university courses elsewhere are longer, albeit with extended holidays – hence, a major cost for taxpayers.

Thirdly, the availability of substantial rental accommodation is key to boosting financial returns, since it markedly reduces the marginal cost per student. New universities generally need either expensive on-site accommodation or rely on rental properties in nearby suburbs.

Willetts is hoping interested parties will come forward. But will they?

Graduate tax: bad idea

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Details of Business Secretary Vince Cable’s plans to introduce (or consider introducing) a ‘graduate tax’ to fund higher education remain unclear, but I think we’ve heard enough to conclude that it is a truly bad idea.

Now, there is one way in which a graduate tax would be sort-of OK. If we let universities charge fees at market rates, had the government pay the universities directly, and then taxed the graduates until they had repaid their fees plus interest, then the tax might make sense. Obviously you would also want to let people pay up front themselves for some or all of their fees, if they were willing and able to. That kind of graduate tax would help fund universities more effectively, and also encourage students to think seriously about the costs and benefits of their higher education choices.

But that kind of tax would really be no different from keeping a subsidized loan system like the one we have at the moment, and just lifting the cap on tuition fees. Moreover, it would also cause problems of its own. The predominance of third party payment (i.e. the government pays the fees) would disempower students and increase the State’s power over Britain’s universities. In that sense it would be a hugely retrograde step. Just as importantly, it would probably lead to massive inflation in the higher education sector (just as third-party payment has driven spiraling costs in the US healthcare). In other words, even a ‘good’ graduate tax wouldn’t qualify as good policy.

However, the government doesn’t even seem to be thinking about a ‘good’ graduate tax. Cable’s plan seems to be for all graduates to simply pay an additional, progressive income tax for a certain number of years after they graduate. In other words, the more you earn the more you’ll pay, regardless of the cost of your education. It’s not difficult to see the problem here. Someone who does an inexpensive course at a less prestigious university, but who works extremely hard and goes on to earn lots of money, will ending up paying through the nose. Meanwhile someone who does an expensive course at a fancy university, and spends three years partying before achieving nothing career-wise, will get off lightly. Talk about perverse incentives!

Ultimately, there is no substitute for introducing a genuine free market in higher education, as James Stanfield’s recent ASI book The Broken University argued. A graduate tax would be a big step in precisely the wrong direction.