‘English Universities in Crisis’

Many Americans are watching the chaos in Britain as the country searches for a path forward consistent with the vote to leave the European Union. But for years now -- well before the Brexit vote -- English universities have seen turmoil as a result of a shift in government policy on higher education, imposing tuition and competition in ways that would seem familiar to many Americans. English Universities in Crisis: Markets Without Competition (Bristol University Press) explores the radical changes and debate within higher education in the country.

The authors are Jefferson Frank, founding head of the economics department at Royal Holloway, University of London; Norman Gowar, professor emeritus of mathematics at the University of London; and Michael Naef, a reader in economics at Royal Holloway. They responded via email to questions about their book.

Q: What do you think were the prime motivations for the Conservative government to impose tuition?

A: The strong preponderance of universities in Britain, including [the Universities of] Oxford and Cambridge, are state funded and subject to arm's-length government regulation. This includes the level of fees chargeable to British students. Fees had gone up slowly over time and were at 3,000 pounds ($3,978) per year (for the British three-year honors degree), the same amount at each university. Lord Browne, the former chief executive of BP, was commissioned by the government to review higher education funding. His 2010 report, "Securing a Sustainable Future for Higher Education," recommended lifting the cap on fees to about £6,000 ($7,900), the perceived per student cost. Higher fees could be set by a university, but they would face a significant levy to be paid back into the system. The coalition government in 2012 allowed fees to go up to £9,000 ($11,900) for English universities. An income-contingent loan scheme would be available to students for fees and living expenses. Outstanding debts would be written off after 30 years. Under devolution of powers, Scotland, Wales and Northern Ireland have independent governments/executives and make their own decisions on fees and funding. Scotland maintained "free fees" for eligible Scottish students attending Scottish universities.

Lord Willetts, then minister of state for universities and science, has explained the reasons in his book, A University Education. The government was motivated by a genuine desire to expand student numbers and particularly to widen participation of students from less advantaged backgrounds. It wanted to do this while providing sustainable funding for universities. It was the implementation, rather than the motivation, that proved problematic, although many now question the arbitrary notion that 50 percent of post-18-year-olds should go to university rather than other forms of advanced training or education.

Q: The government has claimed that the reliance on tuition would force universities to compete for students and improve the quality of education. You reject that argument. Why?

A: The Browne report envisaged a sectorwide cap on total student numbers. In that environment, universities would have to compete with each other for the fixed number of students. The government instead introduced the market for students in two steps. First it allowed fees to be set by individual universities at their chosen levels, up to £9,000. No one was surprised that virtually all chose the maximum level, since a lower fee would be taken as a signal of lower quality. It was only after £9,000 became nearly universal across universities that student numbers were uncapped. While universities could in principle have competed by lowering their fees, or by tightening the rigor and academic content of their programs, they found it expedient instead to compete on grounds of the "student experience," with grade inflation and unconditional offers of places that did not depend upon achieving particular results in the entrance examinations (A-levels), and with massive quick building programs. Simply put, the profit margin on expanding student numbers was such that universities wanted to expand capacity at speed, by any means possible.

In part, the lowering of standards came about because of a continued weakening of the external examiner system for maintaining national standards in degree examinations. The arm's-length regulator adopted a "light-touch" approach to the regulation of established universities and focused instead upon possibilities for encouraging and accrediting for-profit institutions. British universities do not have some of the forces for good governance that apply in the U.S. U.S. universities rely heavily upon the goodwill and donations of alumni and other contributors. Alumni don’t want to see the value of their own degree go down with grade inflation. British degrees are labeled first class, upper second, lower second and so on. Alumni who worked hard to achieve an upper second degree will not be pleased to see that firsts are now readily available without the same effort. But, since U.K. universities rely on public funds and not donations, they don’t have to take account of this stakeholder.

Q: The government has also argued that financial aid (including loans) makes universities affordable. What do you see as the flaws in this statement?

A: The income-contingent loan system is offered to students who don’t even meet the traditional expectations for entry. It is extremely forgiving in that -- in its current version -- students do not start repaying if their income is less than £25,000 ($33,000) (the median full-time income in the U.K. is under £30,000) and the entire remaining loan is forgiven in 30 years. It is expected that 50 percent of the loan amounts will not be repaid. Loans cover fees and living expenses, and none of this is "means-tested" on the basis of the student’s family income.

Given the intention to increase participation by those from working class or other nonprivileged backgrounds, the funding could be better targeted by making it dependent upon the student’s background. Instead, the subsidies go to those who do badly on their degrees or who choose inappropriate or poorly designed and executed degrees. It is a system that rewards "failure" rather than effort.

As in the U.S., the growth of student loans has a major impact on the life decisions of students. In Britain, this is part of "generation rent" that will not be able to afford to buy a house, given their student loan and other financial commitments. From the government’s point of view, student loans rather than up-front subsidies to less well-off students were attractive in that the funding did not enter into the government’s current accounts. However, a recent ruling from the Office of National Statistics has determined that the expected defaults must enter into the accounts. It is partially for this reason that the government is contemplating lowering fees and loans.

Q: Some Americans, used to the high sticker price of higher education in the U.S., seem less than sympathetic to the shifts in Britain. What should Americans understand about why this matters?

A: Economists in the U.S. have too long avoided the hard questions of why university education and, for similar reasons, health care are so expensive. The economist often just says, "They are high-labor and -human capital sectors" and will rise as a proportion of GDP, particularly as we seek to expand higher education to less-traditional students and the population ages. However, expansion of both services without efficient structures is leading to uncontrollable and unaffordable costs. The U.S. position is ironic from a European perspective in the sense that the taxpayer ends up carrying the burden, but any effective regulation is viewed as "socialism."

Britain has benefited from efficient institutional structures for providing higher education and health care. All the major parties in Britain, for example, view the National Health Service (despite being free at the point of service to all citizens, whether or not they are in employment and paying National Insurance) with an almost religious zeal. Universities and the NHS have been given "just enough" funding, which encourages efficiency in provision. Further, professors and doctors make a significant contribution in the sense that the monopsony government purchase of their services keeps these professional salaries down, with even the most distinguished practitioners in these fields making a fraction of the salary levels of their American counterparts. In return -- and leading scholars can vote with their feet if they don’t value the offer -- the best universities in Britain have given a strong voice in decision making to their academics. This is now being lost as universities devalue scholarship and challenging teaching in favor of less experienced adjunct and casual teachers.

The U.S. is learning that its current approach to higher education and medical care is simply unaffordable and inefficient. We feel that the U.S. could learn from the approaches adopted by Britain in the postwar period. Indeed, the U.S. in higher education followed something of the same positive path with the GI Bill and increased government funding of important technological and other research.

Q: Will Brexit make things worse?

A: The facile answer is that Brexit, if it occurs, will make everything worse. The high fees have already cut the numbers of European students in England, since they can generally attend free or low-cost programs in other European countries (and in Scotland). English students can similarly at the moment attend those free or low-cost programs in other European countries (where they have, under the rules, to be treated equally to nationals), but must pay full English fees in Scotland, even though Scottish and European students pay no fees. The complexity of the current situation is just one example of the many issues that will ultimately have to be worked out between Europe and the U.K., if Brexit occurs.

The bigger issues for English universities are the multinational nature of research; the high proportion of European staff (who may or may not feel welcome or even be allowed post-Brexit); the derivative effect on overseas students, particularly from China, who might see a lesser value to a British degree if we are not part of Europe; and the general state of the economy, if there is a post-Brexit recession.