Cutting tuition fees will turn universities into vassals of the state | Simon Jenkins

Lowering the cost of degrees will devastate university budgets. The state will bail them out – in exchange for more control

Meanwhile, back at the ranch – or in this case the campus – the mice are running riot. Ignored by Brexit, Britain’s universities are facing financial meltdown. I predict that within a decade they will become institutions wholly owned by the state, their academic autonomy unrecognisable.

A few weeks ago, three universities were reported to be on the brink of bankruptcy. University debt has soared by £12bn in the past decade. Cardiff has borrowed £300m over 40 years, with experts suggesting it would take 2,000 years to repay if its current surplus does not improve. The backing for these loans is supposedly the ballooning scale of student fees, which David Cameron almost tripled to £9,000 in 2012 in England, and the removal of the cap on student numbers. Fees, rather than grants, now comprise the vast bulk of all university income for teaching undergraduates.

The fee rise was an open cheque. Universities slammed on the accelerator and drove fees for virtually all courses up to the £9,000 cap. They made unconditional offers and hurled money at providing lifestyle value. The chief draw to students was the smart residences now towering over cities, notably across the north of England, many financed from overseas tax havens. Dubiously productive masters degrees were heavily marketed, and applicants were admitted from abroad with few questions asked. More than four in 10 postgraduate students in Britain are now from outside the European Union. Many universities are little more than global finishing schools.

Universities have been able to borrow to finance this capital expansion against the income they get from fees. But since the government pays these fees upfront, and barely half of student loans are expected to be repaid, the guarantor is effectively the Treasury. This resulting student debt has reached a staggering £100bn, and is predicted to rise by 2042 to £200bn, and on some estimates to as much as £1tn.

The government has tried desperately to treat this student debt mountain as an asset with a future income stream. But when it tried recently to sell a loans parcel in the money market, it got just half their face value. The Office for National Statistics changed the way student loans are treated in the government’s books last month, slamming an annual £12bn on to public expenditure and wiping out Philip Hammond’s budgetary “improvement” overnight.

Cameron’s former universities minister, Lord Willetts, must rank with Charles Ponzi among the wizards of debt. There is, of course, a difference. Ponzi made snake-oil promises to dumb investors, who took the eventual hit. The university snake oil – higher education for half the nation – was sold to dumb ministers for political glory, in the knowledge they dared not refuse. The Ponzi pyramid was built on the assumption that ever-growing numbers of students would take out – and repay – ever more loans.

That pyramid is collapsing. The number of students at UK universities has fallen since 2012. EU research funds will likely vanish with Brexit, which could also do more damage to student numbers. An imminent review of university finance by Philip Augar is rumoured to advise a fee cut to £6,500. This will be despite the Russell Group of the most selective universities wanting the cap on fees to be raised or abolished, so they can go on digging for state gold.

Why now?

It has been on the cards since the Conservatives promised a major review of funding across tertiary education in their election manifesto. With graduate debt running at £50,000 upwards, there has been growing concern about the cost of going to university and whether it represents value for money. Fees in the UK are among the highest in the world, and some doubt there will be a return on such a huge investment in terms of graduate earnings.

What will the review look at?

The government is promising a wide-ranging review of the whole of post-18 education and funding, including the divide between vocational and academic qualifications and the decline in lifelong and part-time study. Most of the interest will be in undergraduate tuition fees, which stand at a hefty £9,250 a year at all but a handful of universities.

What are the options?

The government will not seek to match Labour’s promise to axe tuition fees altogether, which the Conservatives regard as unaffordable and regressive. The review could recommend cutting or freezing fees. One of the most controversial options is the introduction of variable fees for different courses, depending on the cost of putting a course on, potential graduate earnings and the economic value to the country. So some universities might for example cut their fees for social science and humanities courses, which generally attract lower graduate earnings than engineering or maths.

Will that make the system fairer?

Many fear it will result in the most disadvantaged students applying for cheaper courses with the poorest graduate outcomes, hindering rather than boosting social mobility. Senior Tories would prefer to see alternative measures including a cut in interest rates on student repayments, which currently stand at 6.1%, and increased financial support for disadvantaged students. There is widespread support for the return of maintenance grants for poorer students, which were scrapped in favour of loans by the Tories, making it even more expensive for those students to go to university.

How quickly are things likely to change?

Not very. With the review set to run for a year, reporting in early 2019, the government has been accused of kicking the issue into the long grass. If you are applying to start university this September, nothing will have substantially changed.

Such a reduction would be an admission that Cameron’s fee rise was not a money-saving, but a money-spending device. Cutting fees would save the taxpayer billions in unrepaid loans, but it would devastate universities. Dozens may go bankrupt, others would be forced to merge, and student numbers would plummet. The higher education bubble would burst.

Except, we know this will not happen. Universities will plead that they are “too good to fail”. The indefinable mystique of three years of academic immersion must remain beyond challenge or accountability. Last year the then universities minister, Sam Gyimah, burbled about it “not being the government’s job to bail out universities when they make reckless decisions”. (He had the cheek to call them reckless.) Sir Michael Barber, head of the Office for Students, may even say his job is “to protect students, not universities”. But pull the other one. The universities will reasonably retort that they were seduced into moral hazard for ministers’ political gain.

The commons education committee last month highlighted a growing scepticism among young people about the value of universities. Only half of recent graduates were found to be in graduate-grade jobs. Its chair, Robert Halfon, described it as a “blunt reality … that too many universities were not providing value for money”. Not only was higher education mis-sold, it was done at the expense of industry pleas for more further and technical education, where budgets have been butchered. Tony Blair pushing half the age group into pukka universities must be the most extravagant mistake in the history of domestic policy.

Since governments never admit mistakes, there can be only one outcome to this. Oxford and Cambridge, with endowments far and beyond those of all other 135 universities, should and will go private – and free themselves from Whitehall diversity bores. Loans will become grants, or at least be switched to a graduate tax. The government will finance universities directly, and bail out failing institutions by some means or other.

There will be a price. Autonomous academic institutions will be told how many students to take, for how long and on what courses. They will be told how much they may research. They will be vassals of the state. They will go from being the fat cats of nationalised education to being its paupers.

• Simon Jenkins is a Guardian columnist


Simon Jenkins

The GuardianTramp

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