Emma Revell: Universities must be made to take a stake in the success – and failure – of their students

Emma Revell is External Affairs Director at the Centre for Policy Studies.

Britain’s politicians are awfully fond of the adjective “world-leading”. And nowhere do they throw the label around more than when talking about our universities.

But like so many other things in our country, the higher education sector is hardly living up to that label.

For one thing, England’s universities are in an awful financial state. Some 40 per cent are expected to run a budget deficit this year, with the Office for Students warning that a significant number are facing “a material risk of closure”.

Universities are coming under increasing pressure over a failure to protect free speech, poor graduate outcomes, and their role in the unprecedented net migration figures we have seen in recent years.

The graduate visa route has allowed students to work for up to 20 hours a week during term time and to stay in the UK to look for work for up to two years, with no requirement or salary threshold to ensure that work is at graduate level. According to a report last year from my colleagues at the Centre for Policy Studies, 15 per cent of non-EU students switched to a skilled worker or graduate visa within one year of arriving in the UK.

Only a quarter, however, were actually doing graduate-level work: the majority were working in the care sector, leading many critics to argue that universities were being used as a back door for mass migration.

Meanwhile, it’s fair to say that universities’ pleas to keep the numbers high haven’t exactly been warmly welcomed by politicians desperate to assuage voters’ fears about mass migration.

You’d think Labour would have an answer to at least some of these problems, having had all that time in Opposition to prepare. But you’d be wrong.

The Government’s latest plan, according to media reports earlier this week, is to name and shame institutions which pay their vice-chancellors enormous sums but which the data shows offer poor value for money to students.

Examples highlighted by the Times include University College Birmingham, where less than half of graduates got graduate-level jobs or went on to further study, but which paid its vice-chancellor and principal £310,000 last year. Or Bath Spa University, where only 62.7 per cent of graduates have positive outcomes but the VC is paid £294,000.

(Russell Group universities all have positive graduate outcomes above 70 per cent, yet several have vice-chancellors who are paid less than their less successful counterparts.) There are also promises of more transparency.

But why does the Department for Education need to spend time or money publishing more league tables, given media coverage of the rumoured announcement includes some perfectly good ones? The Times even made some handy interactive graphics to compare the worst offenders to their Russell Group colleagues.

It also doesn’t take an enormous intellectual leap to argue that in some cases, vice-chancellors ought to be paid more for taking on under-performing institutions if there are big challenges to turning them around.

Even more alarming, though, is the idea that this – along with a measly £200 increase in tuition fees for domestic students and reheating some announcements made by the last government on potentially shutting down underperforming courses – is the sum total of the Education Secretary’s plans to save the sector.

It’s certainly true that many institutions are offering qualifications of very little value that simply saddle young people with significant amounts of debt, with no actual increase in their employability after several years of study.

Last year’s Longitudinal Education Outcomes (LEO) survey, published by the DfE, showed that even a decade after receiving their degree, more than ten per cent of graduates had median earnings of less than £27,295. In other words, they still won’t have met the earnings threshold to start repaying their loans.

That’s a big reason why there have been widespread suggestions that England has too many universities, and that a potential solution to the system’s financial woes is to allow those low-performing and financially mismanaged institutions to fail.

I’ll leave it to others to make that case. Instead, I want to put forward a more fundamental reform first proposed by the Centre for Policy Studies in a 2021 paper The Value of University: a complete reformulation of the tuition fees system to make universities more accountable for their students’ financial future.

At the heart of the university system’s problem is a mismatch of incentives. Once the applicant is offered a place, and takes out a student loan to fund it – as more than 94 per cent of eligible British undergraduates have done over the last decade – universities have near-certainty that they will get paid. Whether the student goes on to receive an education which in any way increases their earning potential is, for the university, financially irrelevant.

If what universities are selling (an education, a career, a future) never materialises, the students have no recourse. They are left paying back the taxpayer. Or, in many cases, not paying back the taxpayer: some 35 per centt of undergraduates starting courses in 2023/24 are predicted to never pay back their loans in full.

Under this system, students and taxpayers often lose out, but universities never can. In fact, they are incentivised to increase student numbers in order to get more money in their coffers.

Our suggestion was to shift the burden of repayment, either in whole or in part, towards the university, incentivising them to provide courses which deliver the best outcomes for students.

Instead of the government loaning money to students, the government would make loans to the universities, who would then lend to students. Graduates would repay their alma maters directly, who would reimburse the taxpayer.

Universities would naturally therefore scale back, or drop, courses which deliver sub-par returns for students, encouraging students towards high-productivity courses which deliver the best outcomes for themselves and the country.

Our calculations, based on the latest data available when the report was published, found that this change could result in £7bn of savings. Given that the government forecasts that total student loan outlay will increase by 20 per cent between financial year 2023-24 and 2028-29 to £24.6bn, these savings would likely be even higher today.

We recommended the cash be reinvested in technical education – supporting students who want to undertake a productive alternative to university – and for bursaries for socially and economically valuable university courses like Engineering and Medicine.

Of course, higher education isn’t all about a financial outcome. But most students go to university expecting to put themselves in a better position to have higher-paid work in adulthood. For too many, that is not the case.

Another league table won’t deliver the fundamental change we need. Universities wanting to defend the quality of their courses should push for a system which puts more power and responsibility in their hands. The Education Secretary should open her mind to bolder reforms that work in everyone’s interests.

And the Tories should seize on this – an area where their voters are increasingly convinced that the explosion of university courses has been a great deal for the universities, but has done precious little for too many of the students concerned.