The Browne Review: Myths and reality in university funding

In this think piece, Anton Howes argues that the Browne Review offers the strongest option for reforming universities funding. The article argues that removing the cap on fees combined with a modification of the Review's proposals for repayments would give students more choice and more control over their education, and improve access to higher level education for students from disadvantaged backgrounds.

Bright posters complaining about the Browne review's proposals for higher education assail me every time I enter university. Amid calls to arms, they tell me that lifting the cap on tuition fees will exclude poorer students; that higher fees will be a huge mortgage-style debt, burdening thousands of graduates; that the principle of education for its own sake, available to those most able, rather than those with the fattest cheques, is under attack.

These claims are wrong and baseless, generally stemming from those pasting the posters to the university walls not having actually bothered to read the Browne review. Judging by the reactions from the Labour party, and even from some Liberal Democrats, they haven't read it either. You can read the report here, but to save you the trouble, I will use this article to dispel the myths surrounding the report.

Whilst the Browne review recommends a lifting of the cap on tuition fees, it's worth noting what tuition fees actually are. They aren't up-front costs (which would still be borne by the government), and nor are they mortgage-style debts, even if interest were to be charged for richer graduates. The payment of this "debt" is contingent entirely upon the graduate's income.

That income is not the income of the graduate’s family, but the income that a student earns after they have graduated. Essentially, whilst footing the bill, the student bears no risk whatsoever - given that student debt will be forgiven after 30 years, a graduate could spend those full 30 years unemployed after graduating, and not pay a single penny for their degree. Unfair to students? Come off it.

And that's not it: the repayment of student debts depends entirely on the income of the student from year to year. Not the accumulated interest, nor the size of the debt outstanding. If I were to earn £5,000 per month (£60,000 per annum) one year, I would pay only £293 per month. If I were to then lose my job and earn nothing the next year, I would pay no student debt whatsoever for that year. If only all creditors were so generous.

In fact, the Browne review aims to make the situation for students even more comfortable: for example, part-time students will be pay no up-front fees whatsoever, bringing them in line with their full-time counterparts. At the same time, the minimum loans for living costs will remain non-means-tested, and students with family income below £60,000 will receive an enlarged and simplified grant for living costs on top of this.

As if this weren't already enough, the Browne report’s proposed changes in funding would allow universities to expand according to demand rather than government quota. The scandal of thousands of qualified students failing to gain a place through UCAS each year due to insufficient places would be a thing of the past.

Furthermore, the problem of international students being favoured over the less lucrative domestic students will also end if both are required to pay unlimited fees and there are no restrictions on the number of places. Persistent annual annoyances over the delayed receipt of student loans should also be eliminated with the integration of the loan application process into the UCAS application process.

Free of dependence on government grants, universities will be able to exercise institutional independence once more, answering to students as their patrons rather than to bureaucrats. Instead of competing with each other over a diminishing and limited government subsidy, they will be able to attract as many students and therefore as much funding as they can: the potential benefits of this for the quality of research and study are immense.

Presentation problems: winning the debate on fees

However, there are problems with the review. The first is not a matter of policy, but a matter of presentation. The fault lies not with the review itself, nor with Lord Browne, but with the way it has been represented by its backers in government. These pose further short-term problems with regards to getting the proposals through Parliament.

It should be made obvious that this isn't a rise in up-front costs, that the new loan system is favourable to universities in terms of independence and funding, and that the report students from poorer backgrounds by removing barriers to entry. The benefits to part-time students in particular should be stressed, and the increase in funding towards living costs celebrated.

As a possible strategy, tuition fees ought to be a term that applies only to up-front costs, with something akin to "graduate income repayments" used to describe the Browne review's proposals. This could help bring more Liberal Democrat MPs on board with the changes by highlighting the difference. Winning a debate on graduate income repayments would lend itself to gaining wider public acceptance for the reforms.

The current approach of assuming that a rise in tuition fees will be automatically unpopular, and then attempting to balance the public perception by pointing to the increase in university funding and government contributions to living costs will only be self-fulfilling: tuition fees will remain unpopular, and the other measures will be seen as sops to an aggrieved student body.

A distinction between up-front "tuition fees" and future "graduate income repayments" would strike at the heart of the problem, demonstrating the benefit to full-time and especially part-time students. This is also necessary if poorer students aren't to be put off attending places with high headline fees, at least in the short-term.

Policy problems: unintended consequences

The policy problems are potentially more serious in the long-run. The structure of the proposed student loans system means that government bears all of the risk. Students only pay back depending on their income in a given year, whilst universities receive all of their funding up-front from the government.

The Browne review has come up with an inadequate solution to this problem: it proposes a levy system whereby universities charging above £6,000 per year keep less and less of the fees they charge, up to the point where those charging £12,000 will keep only 73% of the total (i.e. £8,760).

The reasoning behind this is flawed: it assumes that the increasing levy will act as a disincentive to charge more, effectively keeping fees at around £6,000. The truth is that whilst universities and students continue to bear no risk, they have every incentive to raise the fees as high as possible, regardless of the levy, in the knowledge that it will have no effect whatsoever on the size of students' annual repayments.

In fact, the levy would add to the pressure to increase fees by withdrawing the amount kept by the university. Although it would have an effect on graduates' overall repayment over the 30 years, the effect on applicants' decisions is likely to be minimal given how far in the future it is likely to financially affect them (in the long-term, once the myth of high headline up-front fees is dispelled).

Essentially, whilst there may be some form of loose competition on the headline figure of debt, it would not be particularly effective with regards to keeping prices low given that the annual price of the repayment will be identical regardless of the headline fee: it is an illusion to think of this as price competition.

The unintended consequence of this risk-free environment for students and universities, coupled with a levy on increased fees would therefore be to drive fees higher, placing further strain on the government's ability to provide loans up-front, and perhaps prompting future government interference to mitigate this effect.

Fortunately, the accrual of interest gives more incentive for richer students to pay their fees up-front or as quickly as possible, reducing the risk borne by the government. On the other hand, unease voiced by Liberal Democrat politicians in recent weeks suggests that the option to pay up-front is deemed "unfair".

Any movement to ban these payments will impose an unnecessary burden on the government, merely adding to the risk borne in providing student loans, and reducing still further the disincentive for universities to charge ever higher fees: universities would lose the ability to compete on price for richer students who would ordinarily pay up-front. The unintended consequence of banning the up-front payment option would therefore be to increase fees still higher.

A further problem with the risk-free environment for universities and students is that universities still have little incentive to respond to student demands. Whilst they may compete in price terms on the headline fee figure, the fact remains that annual repayments by students will remain the same no matter how much they charge.

The Browne review suggests the drawing up of student charters if a university decides to increase fees, with a trade-off of minimum standards of teaching and support. However, these are likely to be toothless if left to students and universities to negotiate alone: the lack of risk borne by students leaves universities with minimal incentive not to raise fees as high as possible, regardless of student demands.

At the same time, this inexorable rise in fees due to insufficient disincentives to raise them will prompt government to interfere more and more in the drawing up of student charters, given that they will pay these higher up-front fees in the students' stead. This would heavily dilute the institutional independence achieved by shifting from government grants to student funding.

As well as providing little incentive to keep fees low or students happy, the risk-free environment for students will prevent a lifting of the cap on fees from having any effect on graduate inflation and vast increases in the numbers of applicants. As the university system would still essentially be free at the point of use, demand is likely to increase unabated.

Whilst universities will be able to absorb the excess demand by expanding the number of places they can offer, as allowed by the Browne review, they will have still less incentive to increase standards for students: the fees paid by lots of newcomers would more than compensate them for the noticeably vocal dissatisfaction of a few existing students. Only once the vast new intake is absorbed will universities be forced to compete with one another for students' patronage.

By keeping the system free at the point of use, and allowing students to bear no risk on their repayments, the number of graduates will continue to rise, further prompting other students to go to university for sub-standard degrees even when it is not the best option for them, under the perception that a degree is the only viable route to employment as their number increases.

In short, degree inflation will continue undiminished, with the additional prospect of graduates from the worst universities unable to find jobs, and consequently paying back none or very little of their fees. These graduates in particular will pose a further challenge for taxpayers: by having to bear the risk on the up-front costs, unsuccessful and low-earning graduates will essentially represent defaulters in the eyes of the government as lender.

This may then prompt further government interference with the independence of universities to mitigate this effect. Already, the Browne review proposes that the government enforce minimum standards of entry in order for a student to qualify for the loan.

Solutions: avoiding undesirable consequences

Very simple alterations to the Browne review's proposals would prevent many of these problems.

The best option would be the introduction of small, yet easily affordable up-front costs to students, of about 5% of the headline annual figure, instead of the government levy on fees above £6,000. For example, a university charging £3,000 would charge £150 per year in up-front costs, and a university charging £12,000 would charge £600 per year. These sums would be small enough to be affordable or easily covered by bursaries, whilst large enough to deter vast inflation in the headline fee.

These up-front sums would solve the majority of the problems listed. On the presentational front, they could easily be described as real tuition fees, facilitating the necessary distinction between tuition fees and "graduate income repayments" mentioned above.

These small up-front tuition fees would mean that students would bear some of the risk on their loans, reducing the risk borne by the taxpayer in providing full up-front costs. They would be better than the levy at reducing an explosion in the size of headline fees by forcing universities to justify increases in the headline fee directly to students rather than to no-one at all.

This would lend force to the proposed student charters: in the majority of cases, government input would be totally unnecessary, and they would arise on their own. This would maintain the institutional independence of universities achieved by other recommendations in the Browne review, making them answerable to students alone.

The temporary illusion of price competition between universities charging different headline fees would be replaced by the very real up-front price competition for student patronage. If a student sees a university charging something like £300 more in real tuition fees, (a difference in the headline figure of £6,000 and £12,000 for example), they will put that university under enhanced scrutiny and even more pressure to prove its worth or else apply elsewhere, taking their funding with them. Overvalued universities would suffer, and undervalued universities would gain students.

A policy of small real up-front tuition fees would go some way to solving the problem of degree inflation. By making students face even a small proportion of their headline fee up-front, they are more likely to think twice about opting for a sub-standard degree, perhaps exploring other alternatives such as apprenticeships or work. This would call a halt to the rapid rise in the number of university students, allowing students to pursue whatever is best for them in an environment where a degree is no longer the only or best way to a job.

By reducing the demand for sub-standard degrees, the real tuition fee would also mean that the government would not need to interfere ever further in the loan process: the moderate 5% up-front fee would effectively be a form of deposit on the loan.

A proposal that has achieved a lot of coverage and attention is a possible rise in the cap to £9,000 rather than its removal. To do this would be misguided: it would provide a price at which all universities will charge, solving none of the policy problems mentioned above. The upward pressure on prices due to the huge demand for university places and the lack of risk borne by students and universities would simply allow all universities to charge at the increased rate, providing none of the price competition or increased quality envisaged by the Browne review.

The option to pay full up-front fees should remain for students from wealthier backgrounds. This would reduce the risk borne by the government on student loans, whilst adding extra real price competition to universities: the difference between an annual payment of £150 and £600 as suggested above may be enough for most, but the difference between £3,000 and £12,000 would provide an added incentive for universities to keep their headline fees lower, or else force them to justify higher prices with higher quality.