Analysis: Decision time for UUK lobby

Vice-chancellors hope to present a united front on university funding to the next government. Alison Goddard looks at their options in the Taylor report.

Sir William Taylor's review of the funding options for higher education, published today, assesses the strengths and weaknesses of four funding models.

The report, New Directions for Higher Education , sets out the requirement for more money for teaching and learning, and identifies four options for raising further funds.

Universities UK, the umbrella body for vice-chancellors, will attempt to identify which -if any -of the four options has the support of the majority of vice-chancellors with a view to influencing an incoming parliament, following a general election.

The four options have been selected principally for their capacity to generate additional cash. They ignore recent work on student support, which is the subject of a study commissioned by UUK. The review assesses the strengths and weaknesses of the four options against eight criteria, the first three of which are lent more weight. The criteria are:

• Additional funding for teaching and learning
• Quality of the student experience
• Social inclusion
• The implications for employers n Institutional flexibility and innovation
• Political feasibility
• Transparency
• Administrative implications.

INCREASED PUBLIC FUNDING

Under this option, general taxation would pay for an increase in the block grant for teaching. Tuition fees would remain at their present level and would be means-tested. Means-tested student loans would be maintained. There would also be scope for extending the grants or bursaries available for students from the poorest backgrounds.

Strengths

• Has precedent in present system
• Any extra cash going into the system is readily identifiable and the government can take the credit

Weaknesses

• Adds to demands for scrutiny and accountability
• Tuition fees are a disincentive to mature students and those from the poorest backgrounds because of the widespread misconception that everyone pays fees
• Replacement of maintenance grants by loans discourages mature students from full-time higher education and may discourage those from the poorest backgrounds
• Parental contributions to tuition fees are not always paid
• Increased administrative cost of collecting fees and chasing debts

MARKET FEES

Under this option, universities and colleges could charge differential fees that would be paid directly to them. Tuition fees could be set in three ways: differentiated by subject, on the basis of the cost of provision; differentiated by demand or assumed private return, as in Australia; differentiated by subject and institution on the basis of market forces.

Students or their parents would typically have to find an extra £700 a year under this proposal, before taking into account the need to fund scholarships for the poorest students.

The block teaching grant to institutions would remain at its present level. Institutions could use the income generated by differential fees to provide scholarships for students from the poorest backgrounds.

Knowing how to strike the balance between high tuition fees and the provision of scholarships is tricky, however.

Better-off students could apply for means-tested loans and, if the government wanted, the interest on these loans could be set above inflation.

Strengths

• Fees would more closely reflect the costs of teaching
• An alumni contribution scheme could be used to widen the range of students whose fees could be subsidised
• Encourage institutions to provide greater choice to students and increase pressure on them to meet parents' and students' expectations about levels of support, feedback from staff and the quality of resources
• Means-tested loans to pay market fees would ease the burden on middle-class families who would otherwise have to pay higher tuition fees
• Interest rates on loans could be set higher than inflation, minimising the cost to government

Weaknesses

• No evidence that government would be willing to use public funds to support means-tested loans to pay differential fees
• Hits intermediate-income families who would have to find the difference between the public contribution and the differential fees
• Unlikely that fee-paying students would bear the cost of establishing scholarships for those from poorest backgrounds
• Exacerbates problems faced by students whose parents fail to make contributions to the tuition fee
• Institutions that excel at attracting students from the poorest backgrounds would be least well placed to charge substantially higher fees and would find it even more difficult to provide scholarships for these students
• Could result in a substantial shift towards part-time study, increasing the time taken for students to qualify
• Under European Union law, loans would have to be offered to non-UK EU students, who would have a greater opportunity to default on repayments
• Little or no political support

INCOME-CONTINGENT GRADUATE CONTRIBUTIONS

No up-front tuition fees would be charged under this option. Instead, graduates would pay back the cost of their tuition once their income had reached a certain level.

The main drawback is that increased public funding would be needed to tide them over until well after the first graduates had started paying back their tuition costs.

But graduates could be charged a realistic rate of interest, which would minimise the money needed from the public purse.

Publicly funded means-tested loans would be provided for students to meet the costs of repayment or they could repay the money directly. Means-tested loans would also be provided to help students meet the costs of living.

Strengths

• Abolition of up-front fees would minimise disincentives to participate in higher education, particularly for those from the poorest families
• Graduate contributions could be paid into an endowment fund for the whole of higher education, generating £600 million a year
• This fund could be used to reward institutions that widen participation by under-represented groups
• The maintenance loans repayment and the graduate loan repayment could be collected together through the tax system, minimising the administrative load
• The approach could encourage employers to offer "golden hellos" in shortage areas

Weaknesses

• As money flows from endowment funds, future public funding could be reduced so this source of money would cease to be additional
• Increased level of debt may still deter students from the poorest backgrounds
• More public funding would be needed to tide over institutions until well after the first graduates had started paying back their tuition costs
• Graduates would be less likely to donate to alumni contribution schemes
• No incentive for students to put pressure on their institutions to provide value for money - although such pressure might come from graduates

ENDOWMENT

Under this option, institutions would receive a one-off endowment from public funds to replace their teaching block grant. This proposal is being investigated by the Conservative Party.

An endowment could give universities and colleges more institutional autonomy in the investment and spending of funds. Endowments could be combined with the introduction of market fees or a means-tested graduate contribution. However, the Conservative Party has indicated that it does not support fee deregulation, thus removing many of the potential benefits of this proposal.

Strengths

• If the right terms are agreed, endowments could give universities increased autonomy and independence of action
• It would enable the most competitive and popular institutions to exploit fully their comparative advantage and facilitate the further development of world class institutions
• Foster the culture of giving that exists in the United States

Weaknesses

• Given the sums involved, it would be many years before the whole sector could be endowed
• Return to an explicit dividing line between institutions
• Unclear as to whether government would give universities the degree of freedom that this option entails on a theoretical level; could have a negative impact on widening participation.

The review banishes consideration of four further ideas to an annex. These are: increased maximum fee contribution with income-contingent loans; the Cubie/Scottish Parliament scheme; full-cost fees and scholarships; and individual learning accounts.