University Finance Sorted

Lord Browne's report on university finance cuts straight through to the key issues. His recommendations manage to combine proper funding for the unis, with affordability, with competitive pressure, with... well, to coin a phrase, fairness for all (especially taxpayers). So hurrah.

We've blogged the shambolic state of the higher education sector many times (see all previous blogs gathered here). In summary:

• Taxpayers now spend £12bn pa on higher education, up around 50% in real terms since 1997; the students themselves spend a whole lot more.


• There are 2.3m students, or 4% of the entire population (including 27,000 doing that old favourite, the degree in media studies).


• Labour's 50% participation target was never more than "aspirational" - ie entirely arbitrary (admitted to the Public Accounts Committee by the Chief Executive of the Higher Education Funding Council for England - see this blog).


• The average HE participation rate across the OECD is 35%: ours is already 40% and heading for 50%


• Courses have been dumbed down and grading standards slashed - the proportion gaining first class degrees nearly doubled under Labour ( see this blog)


• Thousands of graduates now do non-graduate jobs, and that number is growing rapidly - their  low-value degrees have simply not equipped them to do anything else (according to HESA, 75% - yes, 75% - of 2002-3 graduates were still in non-traditional graduate jobs four years after graduation; what's more, 26% weren't in full-time jobs of any kind; and see this blog)


• The average financial return to a degree is plummeting - according to PWC, the gross return to an Arts degree is now only about £30,000, and that takes no account of the costs of study and the earnings foregone - net net an average Arts degree almost certainly reduces lifetime wealth.

Now, it's on that last point - the financial return to a degree - that Labour misled us most egregiously. Back in 2008 we attended a meeting of the Public Accounts Committee (under its previous esteemed chairman), where Blair's claim that a degree was worth an average £400,000 was brutally exposed for the fabrication it was. And the Browne Report now gives us some chapter and verse on just how the number was cooked up (see Report footnote 11).

Apparently, the £400,000 referred not to the value of a degree per se, but to the value of a degree plus all other education beyond the average, which would certainly include A Levels. That is a gross deception, especially when you remember that all reputable research in this area has always and correctly calculated the value of a degree as being the difference between what you earn with A Levels alone and what you earn with a degree (and your correspondent does actually know about this, having researched the area for the old Department of Education back in the 70s).

Browne wisely takes his estimate of a degree's value not from HMG or the unis but from the OECD. And they reckon that the lifetime value to a male graduate in the UK is currently running at just over $200,000, or about £120,000 (note that the OECD's calcs are published in purchasing power parity dolllars). Here's Browne's summary chart (click on image to enlarge):

So there is a financial return overall, which is not to be sniffed at (although note that the return for female grads is estimated by the OECD to be 25% lower). However, there are some very important points to note here:

1. These estimates are based on the lifetime earnings of previous graduates, the ones who got their degrees long before the explosion in graduate numbers and dumbed down degrees. The average return looking forward is almost certainly going to be lower.


2. Brown quotes only the returns to the grads themselves. As taxpayers, what we need to know about are the returns to us. What do we get out of the muti-billion subsidy we currently provide?

And even though the report doesn't spell it out, that second point lies at the heart of the Browne reforms. In future, our unis will be funded much more by the fees they can earn from their students, and those fees will be financed not by taxpayers but by the students themseleves, via higher student loans.

Which is exactly as it should be. Because not only are the students the principal beneficiaries of their degrees, but by forcing students to think seriously about the value of a degree, we will force the suppliers to deliver that value far more effectively than any number of quango funding councils.

Poor students being put off? Well, at the margin you might worry about that. But as Browne was pointing out all yesterday, a university education will still be free at the point of use. And there will be no credit check on first time students applying for a loan. What's more, graduates who earn less than £21 grand pa (indexed against average earnings), will not have to pay back anything.

Education is about more than cold hard cash? Well, yes, it is. And we are big fans of the so-called "non-pecuniary benefits". But by the time we get to degree level (ie assuming we've already taught everyone at least the 3Rs and a bit of shared science and culture), most of those wider benefits again accrue to the individual.

So we think the Browne reforms are a major step in the right direction. Congratulations to him and his team. And congratulations to Mr Cable for having the sense to accept reality.

Lord Browne's report on university finance cuts straight through to the key issues. His recommendations manage to combine proper funding for the unis, with affordability, with competitive pressure, with... well, to coin a phrase, fairness for all (especially taxpayers). So hurrah.

We've blogged the shambolic state of the higher education sector many times (see all previous blogs gathered here). In summary:

• Taxpayers now spend £12bn pa on higher education, up around 50% in real terms since 1997; the students themselves spend a whole lot more.


• There are 2.3m students, or 4% of the entire population (including 27,000 doing that old favourite, the degree in media studies).


• Labour's 50% participation target was never more than "aspirational" - ie entirely arbitrary (admitted to the Public Accounts Committee by the Chief Executive of the Higher Education Funding Council for England - see this blog).


• The average HE participation rate across the OECD is 35%: ours is already 40% and heading for 50%


• Courses have been dumbed down and grading standards slashed - the proportion gaining first class degrees nearly doubled under Labour ( see this blog)


• Thousands of graduates now do non-graduate jobs, and that number is growing rapidly - their  low-value degrees have simply not equipped them to do anything else (according to HESA, 75% - yes, 75% - of 2002-3 graduates were still in non-traditional graduate jobs four years after graduation; what's more, 26% weren't in full-time jobs of any kind; and see this blog)


• The average financial return to a degree is plummeting - according to PWC, the gross return to an Arts degree is now only about £30,000, and that takes no account of the costs of study and the earnings foregone - net net an average Arts degree almost certainly reduces lifetime wealth.

Now, it's on that last point - the financial return to a degree - that Labour misled us most egregiously. Back in 2008 we attended a meeting of the Public Accounts Committee (under its previous esteemed chairman), where Blair's claim that a degree was worth an average £400,000 was brutally exposed for the fabrication it was. And the Browne Report now gives us some chapter and verse on just how the number was cooked up (see Report footnote 11).

Apparently, the £400,000 referred not to the value of a degree per se, but to the value of a degree plus all other education beyond the average, which would certainly include A Levels. That is a gross deception, especially when you remember that all reputable research in this area has always and correctly calculated the value of a degree as being the difference between what you earn with A Levels alone and what you earn with a degree (and your correspondent does actually know about this, having researched the area for the old Department of Education back in the 70s).

Browne wisely takes his estimate of a degree's value not from HMG or the unis but from the OECD. And they reckon that the lifetime value to a male graduate in the UK is currently running at just over $200,000, or about £120,000 (note that the OECD's calcs are published in purchasing power parity dolllars). Here's Browne's summary chart (click on image to enlarge):

So there is a financial return overall, which is not to be sniffed at (although note that the return for female grads is estimated by the OECD to be 25% lower). However, there are some very important points to note here:

1. These estimates are based on the lifetime earnings of previous graduates, the ones who got their degrees long before the explosion in graduate numbers and dumbed down degrees. The average return looking forward is almost certainly going to be lower.


2. Brown quotes only the returns to the grads themselves. As taxpayers, what we need to know about are the returns to us. What do we get out of the muti-billion subsidy we currently provide?

And even though the report doesn't spell it out, that second point lies at the heart of the Browne reforms. In future, our unis will be funded much more by the fees they can earn from their students, and those fees will be financed not by taxpayers but by the students themseleves, via higher student loans.

Which is exactly as it should be. Because not only are the students the principal beneficiaries of their degrees, but by forcing students to think seriously about the value of a degree, we will force the suppliers to deliver that value far more effectively than any number of quango funding councils.

Poor students being put off? Well, at the margin you might worry about that. But as Browne was pointing out all yesterday, a university education will still be free at the point of use. And there will be no credit check on first time students applying for a loan. What's more, graduates who earn less than £21 grand pa (indexed against average earnings), will not have to pay back anything.

Education is about more than cold hard cash? Well, yes, it is. And we are big fans of the so-called "non-pecuniary benefits". But by the time we get to degree level (ie assuming we've already taught everyone at least the 3Rs and a bit of shared science and culture), most of those wider benefits again accrue to the individual.

So we think the Browne reforms are a major step in the right direction. Congratulations to him and his team. And congratulations to Mr Cable for having the sense to accept reality.