Pulling out of Browne?

Andrew McGettigan covers the bizarre government financial regulations that underline the issues caused by the new funding method over on Critical Education. Suffice it to say that although the scale of the non-repayment of loans will not become apparent for 20+ years, the anticipated shortfall that this creates needs to be managed from within the current budget.

The RAB rises are caused primarily by poor overall economic performance – not by any particular issue with the sector. And, as the costs of student loans increase the value of CPI inflation, the increase in other costs amplifies the effect.

This is a failure of policy design – and one which was expected by every serious UK HE policy wonk.

• Firstly – an overall increase in recruitment, spurred by economic uncertainty and high quality marketing by traditional institutions, the government themselves and (especially) new institutions has increased the initial loan outlay.
• Secondly – poor economic performance raises the likelihood that loans will be paid back late, incomplete or not at all. These are the rises to the RAB charge (RAB being “Resource Accounting and Budgeting”) – the percentage of money loaned that is not expected to be returned – which started at 30% in 2010 and now sit around 38-39% for the system overall and an estimated 47% at private (“alternative”) providers of HE.
• Thirdly, private institutions are maximising their benefits from the new system of loans by changing the shape of pre-existing courses to fit funding requirements – this, after all, is what private institutions do.

In 2010, HEPI estimated that at a RAB charge of 47% the new loan system would cost the government more money than it saved. It is now arguable that at least the private part of this system is already at this stage – and of course loans to private HE students represent a new cost over and above the late and increasingly lamented old system.

David Willetts has long argued for RAB rates to be available at institutional level to shape investment priorities, here we have a RAB rate for a group of institutions that argues for complete disinvestment. This won’t, of course, actually happen – Willetts tied his ideological flag to the mast of private HE a long time ago.

Meanwhile in the joss-stick waving hippie paradise of the public sector the Vice-Chancellor of Oxford University is arguing for a rise in student fees – which translates of course into a rise in initial government funding, year on year. Which he can whistle for, quite frankly, as BIS struggle to get a £1.4bn funding hole (caused, in part, by a real-terms increase in year-on-year government funding for HE since 2010) under control.

To cover such a hole, BIS needs direct control over its spending, something which does not happen when students are at the heart of the system. Instead, discretionary funding – such as grants to under-represented groups and research funding – where the government does have direct control over spending, are targeted.

So – what to do…

• The new funding model is currently a very expensive hole in the ground into which money is being fed. Net beneficiaries are institutions of HE, particularly those who have seen recruitment increases under the MarginCore nonsense, and private providers who have maximised their possible income and will continue to do so because, y’know, profits are good.
• The government is costing itself more money because it is being charged according to a best guess of the eventual depth of the hole, which keeps rising due to poor economic performance to which the level of student loan repayments is a contributing factor.

The government will have to change the policies, or change the measures by which shortfall is calculated – and to do the latter would expose the polices as being the naked budgetary gaming that we’ve been saying we are all along.

Lowering student fees to – say – £6,000 would also help, but would annoy institutions who suddenly would have much less money than they expected… there would have to be a corresponding rise in public funding which doesn’t currently look like happening.

Remember when ministers used to argue that higher fees would help “clean up Labour’s mess” and lower the deficit? This turned out to be an enormous lie and someone needs to be taken to task on it.

I’m intrigued by the notion of rethinking the way in which government financial processes work. Counting loans without the certainty of repayment as having a matched income stream is a risky gamble – but counting the full cost of loans within current expenditure would make for far more sustainable policies. It’s not difficult to imagine someone as interventionist as, say, Ed Milliband, making this argument and pointing to the way such an arrangement would make for more sustainable government spending…

… all of which, would mean less money sloshing around the HE sector. Which, whichever way policy moves, is something we will have to get used to in the next couple of years. Especially if we work in private institutions.