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Funding UK Higher Education: From Elitism to Mass Market
What is the fuss all about?
The system for funding HE seems to be fatally flawed. It is attacked from all sides of the debate: on the one hand, student groups argue that it leaves them impoverished and facing long-term debt problems; on the other, it is expensive, hard to understand, as well as being an administrative nightmare.
The issue of student funding has been around for a number of years - students demonstrating against the proposal of a system of loans to replace grants in 1989.
Title: Students March. Copyright: Getty Images, available from Education Image Gallery (http://edina.ac.uk/eig)
The system as it stands:
As we have seen, there is a system of student loans at present, to fund living costs and tuition fees; this system has been in place since 1998. There are four major flaws in the current way higher education is financed:
- It is based on a rigid form of central planning.
- It is too complex.
- The size of the student loan is too small.
- Student loans attract an interest subsidy.
Let's look at each of these flaws in turn:
- Central planning
In the U.K. higher education market, the government sets both the price and the quantity supplied.
- Price is controlled through centrally-set tuition fees.
- Quantity is controlled, as evidenced by successful universities being penalised for exceeding their target.
- A bulky bureaucracy used to regulate the market.
- Complexity
The system is too complex:
- Very few people understand it.
- This makes it difficult to administer.
- Its complexity leads to access being restricted.
- Student loans are too small
Students have low incomes, rely on their parents and have to work long hours to earn a reasonable income. As a result, they seek credit, which is often expensive. This hinders access to those from low income backgrounds.
- Loans don't cover living costs.
- Not all students receive the full loan.
- Fees aren't covered by the loan, which means that there are currently upfront charges for higher education.
- Student loans attract an interest subsidy
The interest rate charged on student loans is equivalent to the rate of inflation. These loans, therefore, are charged at a zero real rate of interest.
- They are, therefore, a very expensive subsidy, costing £800 million per year.
- They are bad for access. Because of the expense of the subsidy, the loans are rationed in supply. As a result, they are too small in size.
- They are deeply regressive, as those who gain most are successful professionals usually in mid-career.
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