Class of 2009_2

9 Jun 09
With the graduate job market in deep recession, students can ill-afford another rise in top-up fees. But cash-strapped universities say it’s the only way to maintain world-class standards. Can the higher education review square the circle

By Stephen Court

By 29th May 2009

With the graduate job market in deep recession, students can ill-afford another rise in top-up fees. But cash-strapped universities say it’s the only way to maintain world-class standards. Can the higher education review square the circle?

As a third of a million students prepare to graduate from UK universities this summer in the middle of a recession, they face tough competition in a shrinking labour market. And universities, gearing up for this year’s review of top-up fees, can look forward to an uncertain future as the government orders further funding cuts for the higher education sector.

Despite the gloom among final-year students about their job prospects, demand for university places is still strong. Higher education tends to do well in a recession, as people seek to improve their chances of employment. The number of full-time undergraduate applicants is 8.8% higher than this time last year. Applications from international students from outside the European Union, who pay high tuition fees, are holding up well, particularly from South and East Asia.

But this good news is overshadowed by the government’s decision to limit growth in English universities to 10,000 places next year because of overspending on student support, and its policy of stopping funding for people studying for an equivalent or lower qualification than one they already have. High numbers of applications, particularly among older potential students, means domestic demand for higher education is likely to outstrip supply.

The government’s 1999 target was that 50% of people aged 18–30 should participate in higher education by 2010. In England, the participation rate in 2007/08 was 43%, but this was only three percentage points higher than in 2001/02. Although participation rates are higher elsewhere in the UK, it is unlikely they will hit the 50% mark.

And now universities in England are having £180m lopped off their funding by 2011. This includes a £65m cut in teaching funding in the coming academic year.

In fact, Innovation, Universities and Skills Secretary John Denham is cutting £120m more from his department’s 2010/11 spending than the £400m Chancellor Alistair Darling asked for. This is largely to provide extra funds to support students whose family finances have been hit by the recession.

The sector is concerned these reductions are just a taste of what is to come. Over the past decade, higher education has become used to spending increases well above inflation. But now, after Darling’s warnings in the Budget on future levels of public spending, expectations are low.

Since the funding allocations for 2009/10 were announced earlier this year, universities have already proposed job cuts. So far, almost 2,000 posts are set to go, for a variety of reasons. A number of universities are facing real-terms and cash cuts in next year’s grant. Some are reducing staff – particularly in high-cost language departments – following the impact of the research assessment exercise, which plays a key part in setting the amount of research funding each institution receives. Others are citing big increases in operating expenditure, chiefly due to rising pay and pension costs.

This conflicting picture of healthy demand and financial pressures forms the backdrop to the review of top-up tuition fees due to start by the end of this year. In addition, Denham will this summer provide his conclusions to a debate on the future shape of higher education organised by Dius. So far this has highlighted the need to increase the participation in HE of part-time and mature students, to counter the falling numbers of 18 to 20-year-olds over the coming decade and to boost the sector’s links with employers.

In 2006, amid concerns about under-investment in higher education, the government introduced variable top-up tuition fees for full-time undergraduates in England and Northern Ireland, bringing the annual student contribution to higher education to a maximum of £3,000. Top-up fees were introduced a year later in Wales (Scottish students pay no fees in Scotland).

In 2006/07, English higher education institutions received £451m in additional income through top-up fees. In the following year, this rose to £878m, increasing to an estimated £1,267m in 2008/09, when three years’ worth of undergraduates were paying top-ups. In return for this extra income, universities have to provide bursaries where the full top-up fee is charged, and pay for outreach work and fee administration.

A reformed system of student support was introduced alongside top-up fees, including a means-tested grant, loans for fees and maintenance and bursaries provided by universities. Loans, which are currently offered by the government at a subsidised non-commercial rate, do not have to start being repaid until the graduate is earning at least £15,000. Top-up fees have increased student debt. Graduates leaving university in 2006 had an average debt of £13,252, according to a survey by the NatWest bank. The forecast for those starting degrees in 2008 is for debts of more than £20,000.

Part of the political deal brokered when top-up fees were introduced was that variable fees should be reviewed in 2009. Overall student numbers, after a blip when the new fee regime was introduced, have continued rising – though this could be set back by the government recently capping growth in fully funded places.

The leaders of UK universities have looked at the potential impact in England of raising top-ups to £5,000 or even £7,000, along with different financial support regimes, including charging a real interest rate. Under the most expensive scenario, average total debt for a graduate would rise from £16,478 in 2011 to £32,557 by 2016. Last week Sir Martin Harris, director of higher education’s Office for Fair Access, drew student anger by appearing to pre-empt the fees review when he said: ‘I don't think there's a faintest chance of [the fee] going beyond £7,000 in a recession. I would have thought £5,000 is more likely.’

It is perhaps puzzling that a rise in the level of top-up fees should be a possible outcome of the review. Top-up fees have already brought significant additional funds into the sector. There have been consistent real-terms increases in public spending on higher education in the Noughties. The unit of teaching resource per student has been maintained at the level of inflation, reversing years of real-terms cuts and protecting the quality of provision. Billions of pounds have been pumped into higher education infrastructure to build new teaching blocks, laboratories, student accommodation and leisure facilities.

But university leaders argue that further investment in infrastructure is needed if UK universities are to remain internationally competitive in teaching and research. HEIs are increasingly dependent on the high tuition fees paid by international students, and the government is keen that UK research maintains its strong worldwide standing.

An official report published in December 2008 on learning and teaching in English higher education said an increase in public investment ‘would do much to improve the sustainability of the sector. And if such an investment is not made, we risk lowering the world-class contribution that our higher education teaching makes to the economy and society’.

Some of the UK’s most prestigious universities say that despite rises in public spending and income from top-up fees, they are making a big loss on teaching – around £6,000 to £7,000 a year per student at Oxford and Cambridge, for example. Nevertheless Oxford vice-chancellor Dr John Hood has said: ‘This does not equate to my saying that we want to plug the gap entirely through fee increases.’

He was careful to point out the benefits of widening participation by students that would arise from an increase in fees. ‘Any increase in fees at all, however modest, would be desirable only provided we can have cast-iron, needs-blind admission assistance through loan schemes, bursaries and hardship funds.’

And universities that don’t offer such a labour-intensive tutorial method of teaching as Oxford or Cambridge also argue their need for greater investment. The University of Warwick says: ‘University research and teaching remains one of the jewels in the UK’s crown. However, if they are to remain so, it is clear to everyone that all universities… clearly need more funding from somewhere.’ One of the UK’s leading science-based universities, Imperial College, says a raising of the current fee cap would ‘enable universities to offer increased scholarships to less well-off students and to invest further in their infrastructure and facilities’.

Universities’ biggest outlay is on staff costs. Salaries have been growing ahead of inflation in recent years, after two decades of little real improvement and falling behind average salaries across the economy. The boost to university finances through growth in public expenditure and the introduction of top-up fees has meant that the level of expenditure on staff up to and including 2007/08 has remained constant, at around 58% of total expenditure.

But recent pay rises – including 5% last October – and overall improvements in university pay and grading structures, have put university budgets under pressure. Although income from gifts and endowments has increased over the past few years, this is a small proportion of total income. Furthermore, income from investments has been hit hard by the fall in value of the stock markets.

So how much extra income do universities want, and what is the prospect of their getting it? The recent report by university leaders on the likely impact of increasing variable fees (currently capped at a little above £3,000) to £5,000 or £7,000 concluded that ‘an increase in the fee of up to £5,000 a year is effectively maintenance of the status quo… Increasing fees above the £5,000 level would lead more and more universities to review their policy of setting fees below the cap’ (currently all but a tiny number of universities charge the full variable fee). The report also said: ‘The introduction of a real rate of interest would not immediately have an impact on the number of students enrolled’.

The chance of a modest increase is made more likely by the political context of the fees review, which is expected to straddle next year’s general election. Charging and then increasing fees has been deeply unpopular in recent years, and a further rise is likely to be met with antipathy in middle-income voters. But a change of policy by the National Union of Students has made life a little easier for those arguing for a rise.

After bitterly opposing the introduction of fees, last year the NUS ditched its campaign for their abolition. NUS president Wes Streeting says: ‘Yes, we are prepared to accept the notion of a graduate contribution to the costs of higher education – but we remain absolutely opposed to the present system. We want the forthcoming review to be about funding an alternative to top-up fees that is fairer for students, but still generates the kind of income the sector so badly needs.’

Another factor making a rise in the fee cap more likely is the state of public finances, with the chancellor saying that from 2011 overall increases in recurrent public spending would be only 0.7% in real terms – much lower than higher education has been used to in this decade.

The reopening later this year of the political debate about tuition fees for higher education – in the context of the recession and a general election – will be highly charged. But for the current crop of undergraduates, securing a job is likely to be uppermost in their minds.

Stephen Court is senior research officer at the University and College Union


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