Britain's Answer to 'Who Pays?'

October 14, 2010

Glance around the world and in nearly every corner of the globe, you'll find countries searching for a way to expand higher education capacity with insufficient public resources. From Australia and New Zealand to the United States, the challenges sound very much the same.

Consider this language from the introduction to the highly anticipated report released Tuesday by a British panel studying the sustainability of the country's higher education system (see related article):

"England has an internationally respected system of higher education. There are now a record number of people enrolled, studying an increasingly varied range of subjects at a diverse set of higher education institutions (‘HEIs’). Graduates go on to higher paid jobs and add to the nation’s strength in the global knowledge based economy.... However, our competitive edge is being challenged by advances made elsewhere. Other countries are increasing investment in their HEIs and educating more people to higher standards.... The current system puts a limit on the level of investment for higher education. As a consequence we are at risk of falling behind rival countries."

That is likely to sound familiar to anyone who's been listening to the higher education policy discussion in the United States and other countries, many of which are dealing with the issue of "how to pay for a growing system of higher education when public resources can't keep up," as Arthur M. Hauptman, a public policy consultant specializing in higher education finance issues. described it in an interview.

Countries around the world have dealt with this issue in different ways, with some (notably many Scandinavian countries) reinforcing their longstanding preference of government funding over student-paid tuition, and the United States largely letting students and families pick up the tab (through ever-rising tuitions) as states have constrained their financial support for institutions (though the federal government has sharply increased Pell Grant funding in the last three years -- increases that cannot be sustained as the federal budget tightens). Student debt has soared in the United States as a result.

Australia has taken a third approach, Hauptman said, with the government funding most tuition costs upfront, largely replenished by students as they repay loans over time.

Like many European countries, England had long erred on the side of striving to keep student fees low. In 2006, as economic conditions began to worsen and the unsustainability of the country's financing model became clearer, the central government approved a controversial plan to nearly triple the ceiling on what universities could charge students, from £1,175 to £3,000 a year (roughly $5,500 at the time, given the exchange rate then). Perhaps predictably, virtually every institution charged that much, essentially turning the figure from a cap into the floor.

Britain's financial condition has only worsened since then, and with it becoming increasingly clear that the country's current model for financing higher education was not sustainable, the government appointed a panel of civic leaders to propose a way forward. The sweeping report written by Lord Browne -- a summary and analysis of which can be found here, provided by Times Higher Education -- is highly controversial, and because it was commissioned by a different administration from the divided government that is now running the country, its fate is highly uncertain.

But given the comparability of the issues (at the macro level) facing the higher education systems in most developed countries, how a thoughtful panel of British leaders has suggested confronting those challenges is worth exploring for American higher education leaders -- even if its ideas get undercut politically.

The report's basic themes are these: Higher education is hugely important, for individuals and for society, and more money will be necessary to expand the number of Britons who benefit from it (by about 10 percent over time). But in an era of constrained resources, government cannot meet that need. "The current funding and finance systems for higher education are unsustainable and need urgent reform," the report says. "In our proposals, the system is put on a more sustainable footing by seeking higher contributions from those who can afford to make them, and removing the blanket subsidy for all courses -- without losing vital public investment in priority courses."

What that means in practice, under the panel's proposal, is that the government would severely cut back on its upfront payments to universities to support instruction (what in the United States would be roughly equivalent to the operating support that states give to public universities) in all disciplines except science and technology and high-need fields such as teaching. The "almost total annihilation" (as one university administrator described it to the BBC) of instructional subsidies for virtually all humanities and social science fields would save the government about £3.5 billion a year. (Research support would be unaffected.)

In turn, institutions would be allowed to raise their tuitions sharply, based on what they thought students would be willing to pay; the government would cover students' upfront costs up to £6,000 a year, and a university that charged more than that will receive only a portion of that amount from the government.

Britain would continue to provide grants to needy students, but the bulk of the money to replace the diminished government support for instruction would come from significantly larger loans that students would take and repay as graduates. Estimates suggest that the average graduate would owe about £30,000, or nearly $48,000, though there are big caveats to that because Britain's student loan repayment system ensures much greater protections for the needy and for those who earn little (more on that later).

The proposed shift would move the British system of financing higher education "more toward an American system" of differentiated tuition, with students picking up more of the costs, said Donald E. Heller, director of the Center for the Study of Higher Education at Pennsylvania State University.

But in many ways, these changes would catapult Britain past the U.S. in terms of shifting the burden of financing higher education from the state to students, said Hauptman. "One way to view it is that England would leapfrog the U.S. and become more private sector oriented than the U.S. is," he said. Under the current setup, students pay about 25 to 30 percent of the cost of their higher education, Hauptman said, while in the U.S., students pick up between 35 and 40 percent of the tab (with the government and the institutions paying the rest). Under the proposal, the student share of costs could rise well above half and as high as 65 or 70 percent, depending on how high an institution raises its tuition costs.

And by lifting the cap on tuition, and reimbursing institutions for any tuition as high as £6,000, which could well become the new floor, the Browne proposal "is really increasing the price of English higher education above the average price of four-year public colleges in the U.S," though below the typical four-year independent institution, said Claire Callender, a professor of higher education policy at the University of London's Birkbeck College. "This would very substantially put more of the costs [of higher education] onto students and their parents."

Protections Against Loan Debt

Given the extent to which student loan debt has become a major public policy concern and even a political issue in the United States in recent months, many observers in America might be surprised -- if not a little troubled -- to see another higher education power appear to head down the road of much higher tuitions and heavier loan debt that has led the U.S. to the place it's in.

But this is where Britain's approach to student loans (one shared by many countries other than the U.S.) would probably prevent it from careering down a path to a student-debt-laden populace a generation or two from now, several financial aid experts said.

The new financing proposal would keep intact (and even expand, by making upfront payments available to part-time students for the first time) Britain's commitment to ensuring higher education access for lower-income students. Unlike in the United States, all students -- regardless of income -- would continue to have their upfront costs of higher education paid.

Graduates with loans would make no payments until they are earning at least £21,000 per year (up from the current £15,000), and payments -- at 9 percent of income above that threshold -- would drop if earnings do or stop entirely if a borrower stops working. (The United States has some loan repayment options that are contingent on borrowers' income, but they are not nearly as widespread or as entrenched as in Britain and some other countries.)

"We estimate that only the top 40 percent of earners on average will pay back all the charges paid on their behalf by the Government upfront; and the 20 percent of lowest earners will pay less than today," the Browne report stated. "For all students, studying for a degree will be a risk free activity. The return to graduates for studying will be on average around 400 percent."

"They would still have some of the key components of the welfare society" that are in the current financing system, said Heller of Penn State. "So yes, they'd become more student loan dependent, but these are very good loans. It will work in their favor in ensuring that even as fees go up, access for low-income students will be protected."

The political battling over the British proposal is just beginning, and its fate remains uncertain. But the proposal's aggressive nature, and its embrace of the idea that the current system is unsustainable, could prove a model for the U.S. and other countries with higher education systems that are growing (or need to) beyond the means of their governments, several analysts agreed.

"This is an example of something that has probably got to happen in more and more places," said Sandy Baum, professor of economics at Skidmore College and senior policy analyst at the College Board. "To the extent that government can't or won't pay as high a proportion of the cost as when higher education was for a smaller proportion of the population, who is going to pay?"

While Britain has put forward one proposal, Baum said, it suggests that "they don't have the answer any more than we do."

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