Uncle Sam can teach us a thing or two about unfair student finance

Later this year, the Government will undertake a review of the student financing scheme put in place by the Higher Education Act 2004. This review comes at a turbulent time both for the country and for higher education. The national and global economies are experiencing a recession the magnitude of which has not been seen in most of our lifetimes, with concomitant constraints on government revenues. At the same time, the UK is still pursuing the goal of increasing participation in higher education to 50 per cent of the 18- to 30-year-old cohort.

There is little doubt that a major issue to be considered in the review is the tuition fees cap. The 2004 Act allows English universities to charge anything from nil up to a maximum amount of £3,145.

In conjunction with fees, a system of tuition fee loans, maintenance grants and maintenance loans was put in place so that students face little or no upfront costs for their education. They can also get a portion of the costs subsidised by the Government through maintenance grants if they are able to meet means-tested guidelines. The remainder of the cost is covered after graduation through income-based loan repayments.

Also established, although mostly as an afterthought, was a system of bursaries provided by universities, including mandatory, means-tested and discretionary bursaries. The means-tested aid was supposed to ensure that financial barriers did not prevent academically qualified students from attending university.

The US has a similar system of financial aid, featuring government-provided grants and loans and institutional bursaries. The foundation of much of the system dates back to the Higher Education Act 1965, meaning that the US has more than four decades of experience that could help inform the UK's forthcoming review.

Unlike here, tuition rates in the US are largely deregulated. The federal Government has no control over what universities charge, and many of the 50 states have devolved that authority to individual institutions. One impact of this is that the value of the national student grant has eroded over time. In the early 1970s, the maximum Pell Grant (as it is now known) covered 80 per cent of the total cost for a student attending an average-priced public university (tuition fees, living costs, books, etc). Today, it meets only 30 per cent of the cost.

A second significant change in the US is that institutional bursaries, which are the single largest source of grant aid for undergraduate students, have shifted away from being awarded to moderate-income students through means testing and towards higher-income students through merit awards.

This trend has been driven by the desire of universities to improve their league-table rankings, an important component of which are the academic qualifications of the students enrolled.

Fewer bursaries are being awarded to financially needy students, for whom grants are a critical incentive for attending university, and more are going to wealthier students who, research has shown, would attend even without the aid.

Both of these changes occurred partly as a result of the US Government's lack of control over universities' fees and grants policies. This has been an important factor in the country's inability to close the gap in higher education participation and degree attainment between rich and poor, as well as between white and most racial minority groups.

While there are other important differences between the two countries' higher education systems, there is a valuable lesson to be learnt from the American experience. If the UK Government contemplates a large increase in the fees cap - a scenario outlined by the Universities UK fees report issued in March - or perhaps even total deregulation, it should consider doing so only in consort with statutorily linked increases in maintenance grants, as well as fees and maintenance loans.

Similarly, the Government needs to ensure that university bursaries are being used to promote fair-access goals. Research by Claire Callender, professor of higher education policy at Birkbeck, University of London, has shown that many bursaries are already being awarded not through means testing, but rather based on academic merit or other student characteristics, mirroring the trend seen in the US. Providing more control over institutional bursaries would require that the Office for Fair Access be given stronger statutory authority over negotiating and auditing fair-access agreements with universities.

The student financing review should ensure that any changes made are done so with the best interests of financially needy students at heart.