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Peter Ainsworth is the Managing Director of EM Applications and is the author of Universities challenged: funding higher education through a free-market ‘graduate tax’.

Clashing with the big stories of Rutnam’s resignation and Boris’s baby, the Department of Education’s release on Saturday 29th February of its latest “research”, got little coverage. This new paper purported to “help students make more informed choices about higher education” and demonstrate “the strength and value of the UK’s world-class universities”. It should be important information, but in reality, it does neither and its significance is in showing that Michelle Donelan, Universities Minister as of 13 February, needs to find her inner Priti Patel and rein in the DofE blob that is stifling reform of the Higher Education Sector.

The problems in the Higher Education sector are well known. The ONS has increased the deficit by £12 billion to take account of the fact that about half of what is paid out in student loans will never be repaid. Nearly two in every five graduates – five years post-graduation – are not in jobs that make use of their education, up from one in three in 2012. Companies report growing skills shortages – and students with their “cancel culture” and “no-platforming” appear ever less tolerant of differing views, an essential component of a mind open to learning.

But the DofE paper addresses none of these issues. Instead, it tries to prove that going to University is a “good financial deal” for students with the headline: “Graduates enjoy £100,000 earnings bonus over lifetime.” Even if that headline were accurate, one would have to wonder why that is such a positive. Given each student “spends” about £50,000 in tuition fees and maintenance, plus another £50,000 in lost earnings over the three years of study, that is a return of £1 per £1 over a c40 year career – adjusted for risk and duration that is a very unattractive rate of return.

Given the Government’s agenda of levelling-up, one would also be inclined to wonder why so much is spent to achieve such a poor rate of return when graduates are in any case the more privileged element in society. Would it not be fairer to share out the student loan subsidies across all 18-year-olds and let them choose the education that suits them?

The “£100,000 earnings bonus” is in any case misleading. The paper admits that, for 20 per cent of students, attending university is a money-losing proposition, so that £100,000 is not a guarantee. And the calculation relies on some questionable assumptions. For example, a big driver of the gain to higher education arises from the fact that a higher proportion of graduates participate in the workforce. But rather than recognise that some people, mainly women, choose, for cultural or personal reasons, never to work outside the home, the study assumes that that decision is a consequence of the fact that they did not attend university rather than the reason that they did not attend university.

A better way to establish whether UK Universities really do exhibit “strength and value” would be to test if universities actually teach something useful. This would be easy to do as progressive firms such as PWC with its “Head Start” scheme offer a route into the professions without the need for a degree. A comparison of earnings outcomes versus time and educational cost between an accountant who took a degree and one who did not, would clearly establish whether the former had gained anything from their additional years of study.

Further, the report accepts that a large part of the financial return to the average student arises out of the loss the government makes on student loans and it notes that medical students have the highest average returns while teachers and nurses have very reliable returns – without considering that all of these are government policy decisions. The Government could raise average returns by making loan repayment terms easier (as Theresa May did) or reduce them by demanding more is repaid. They could raise returns by paying NHS doctors more or reduce returns by paying them less. None of this tells us anything about the value add of university nor about how certain future returns might be.

Allowing the blob to design studies to generate attractive headlines and not address the real issues will not end well. In the US, our main competitor in higher education, there is a revolution underway. Senator Marco Rubio and others have put forward a bill that will encourage American universities to share in the risk their students face by accepting payment through income share agreements. By aligning interests this approach encourages improvements in courses, in course delivery, and in career support.

Purdue University pioneered this approach and now offers courses in 150 majors – proof that any subject can be economic to teach this way. Google-funded Lambda School, paid entirely through income share agreements, has just raised a further $100 million to expand its offerings. You don’t need to be a super-forecaster to see where this is going. If Michelle Donelan wants to save our HE sector from being Netflix’d she needs to get a grip on her department, stop wasting money on self-justification and instruct her team to focus on risk-sharing to remain competitive.

67 comments for: Peter Ainsworth: The truth is that universities do not offer value for money

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