Sir David Davis writes in The Telegraph on the need for a revolution in university finance


As published in The Telegraph:

The Government’s latest report on post-18 education fundingis a very good piece of work. Dr Philip Augar and his panel make some important recommendations, and they could not come soon enough. The current system of student fees and loans is broken. It has led to grotesque increases in vice-chancellors’ salaries at the weakest universities, a proliferation of courses delivering poor graduate salaries, and students left with enormous unpayable loans. It also imposes a hidden burden on the taxpayer big enough to bend the national accounts out of shape.

In the last seven years, vice-chancellors’ salaries have increased by almost £50,000. Now 124 earn more than £150,000 as a basic salary. Annual extra payments, such as awards and pension contributions, can reach an additional £350,000. Frankly, I do not object to them being paid more than the PM… providing they do the job properly. But high pay does not deliver high performance. Graduates from institutions awarding vice-chancellors the biggest pay rises have earnings more than £4,000 less than students from more fiscally responsible universities. This is madness.

Worse is the behaviour of some of the weaker universities. As it stands, tuition fees for most are £9,250 per annum. Some courses cost much more than that to deliver, notably medicine, engineering and natural sciences. On the other hand, courses such as creative arts or social media studies can be cheaply provided with as little as four hours contact time a week. Since students still pay £9,250, they are very profitable for the universities.

But such courses do not generally lead to high income careers. Median earnings for men who graduated in medicine in 1999 had reached almost £60,000 by 2012-13 but in creative arts and similar only about £20,000. Young students are led to believe that going to university is the gateway to a well-paid career. Plainly in many cases it is not.

It gets even worse. Some universities make offers that do not require any A-level results at all, but seek to lock the student into making an early choice and to then rest on their laurels. These “lock-in” unconditional offers are designed to attract paying students to uncompetitive universities. In 2013, there were no such offers. In 2018, there were over 66,000. The Education Secretary will undoubtedly put a stop to this, but we should recognise that this has been incentivised by a bad policy in the first place.

Then there is the money. Currently, a student starting a degree in London could end up with debt of £63,000, and the depressing effect of a loan hanging over them. Graduates with a poor salary will not pay back the entire amount. Eventually the loan is written off, with the taxpayer footing the bill. Public estimates of this hidden cost have been around £10 billion a year: £15 billion a year would be more realistic. This matters because the Treasury likes to talk about policies being tax-neutral, missing the point that any policy that costs less than £15 billion a year would be better than this one.

What of Augar’s recommendations? Renaming loans as a “student contribution system” would go some way to addressing the psychological aspect of student debt. However, it is clear that Augar has been constrained by the Treasury and has been unable to make the radical recommendations needed to overhaul the system.

The fact remains that, even under his proposals, a student could graduate with £57,516, plus interest, hanging over them for 40 years. That is plain wrong. There is a case for writing off the loans as soon as it is apparent that they are not going to be fully repaid – probably 10 years after graduation. This would be more financially honest for both the taxpayer and the graduate.

Augar’s recommendation for a uniform reduction in the amount universities can charge, while broadly right, is too simplistic. If higher education were a true marketplace, courses at universities that could show good graduate outcomes would be able to charge more and courses that are cheap to run and result in lower graduate salaries would charge less.

This might encourage students to look more carefully at both the cost and benefits of their course before they enrol in their undergraduate degree. Such a policy, with caps on maximum fees set at different levels, would also reduce the incentive for universities to maximise profit from cheap to run courses with little contact time.

In short, students must not be lured into taking courses that deliver rotten value for money, imposing large loans on graduates with very limited career prospects. If the effect is to close courses, we must protect the students who are taking them, so the mistakes of the university administrations are not allowed to further burden the lives of young men and women.

So a good start, but Augar’s review should be just the beginning of a wide-ranging debate on higher education.