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HE Commission report on the financial sustainability of English HE

November 27, 2014

The lastest report from the HE Commission focused on the financial sustainability of the HE system in England. It was officially launched at an event in the House of Commons on Monday.

Here, I will just pull out a couple of quotes:

The current funding system represents the worst of both worlds. The government is funding HE by writing off student debt, as opposed to directly investing in teaching grants. This has created a system where the government is investing, but not getting any credit for it, damaging the perception of the public value associated with higher education. Students feel like they are paying substantially more for their higher education, but are set to have a large proportion of their debt written off by the government. Universities are perceived to be ‘rolling in money’ in the eyes of students, as their income from tuition fees has tripled, yet the cuts to the teaching grant are not well understood by students and a fixed fee cap means an annual erosion of real terms income. We have created a system where everybody feels like they are getting a bad deal. This is not sustainable. (page 10)

Respondents to the report at the event suggested that sustainability could be addressed by having graduates pay back more, but that seems to miss the philosophical point here that if a funding scheme is generally poorly understood and lacking in transparency, then it will struggle to be sustain public support and that may be more important than the level of repayment generated. It was also concerning that many present did not seem to see the promise to uprate the loan repayment threshold in line with earnings as something that needed to be honoured for current borrowers in 2017. Again, misjudging how much goodwill towards HE was squandered in 2010. In 2013, when we covered the idea that interest rates might be changed retrospectively for borrowers, hundreds of thousands of people viewed the Guardian’s site in 24 hours.

Secondly, the Commission came down firmly against funding an expansion of undergraduate places through the sale of student loans:

Witnesses to this inquiry have convinced us that a sale would be undesirable. … It will be poor value for money for the taxpayer, and this is not a sustainable method for funding higher education. The amount of student debt is set to rise dramatically over the next 10 years and continually selling off tranches of debt to fund higher education is going to be very difficult. There are few organisations that can buy this amount of debt, the market will begin to saturate, and more extreme financial engineering will be needed to sell off the debt.

Several witnesses reflected on this argument, noting the similarities to events in the run up to the financial crisis. The Commission has heard almost unanimously that the sale of the student loan book to fund HE is not a good idea. The government will find it hard to get value for money and the loan book is a valuable income stream. Holding onto it will protect students and provide future opportunities for the Government.

In the Summer, Vince Cable also reached that conclusion. This coming Wednesday, George Osborne will produce this year’s Autumn Statement where the sale of student loans may make a re-appearance. Perhaps he’ll get his sums right this time and find a way to replace the £10-12bn gap left by Cable’s volte face.

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