So it appears that I can’t take a week’s summer holiday without someone coming up with a stupid Higher Education funding idea that won’t work. On this occasion, as on many others, it is David Willetts – member of Parliament for Havant and erstwhile Higher Education minister, and public cheerleader for the writings of your humble scribe.
Letting it all hang out on the FT Op-Ed page (and now, due to a paywall, Pastebin), Willetts, argues that institutions should be buying the government’s HE loan debt, effectively loaning fees to their own undergraduates for repayment on graduation. This, goes the argument, would maybe incentivise institutions into producing graduates that would earn more money.
A few issues there.
1. The coalition loan book smells funny. It has never shown any sign of producing the returns that the government once suggested it would. Even if you could offer a collateralised debt obligation to the university in question, eventually said institution would have to swallow a loss of anything up to a half of the face value. Banks won’t eat it, and, as the events of 2008 taught us, banks will eat almost anything.
2. Other products are available. If you are an English VC sitting on a spare few million, and fancy (for whatever reason) owning your own slice of medium term public debt, why not buy Gilts? The rate of return is both effectively guaranteed and half-way decent, unlike the student loan book. Even the government has been buying their own gilts via quantitative easing.
3. Most English universities do not have that kind of ready money, except for maybe two of them (go on, guess…). To get a piece of this oh-so-exciting loan action, your common-or-garden university would have to head for the bond markets to raise the required capital. Famed Shirley Bassey impersonator1 Dominic Shellard, (also VC of De Montfort University) raised £120m via this route. However, on 15th April 2014, Moody’s changed DMU’s outlook from “stable” to “negative”, noting “a reduction of support for higher education in government policy as well as a reduction in the oversight exercised by HEFCE would hurt the sector’s credit profile.” Basically, DMU can get good bond prices because the assumption is that the English HE sector is financially healthy and robustly regulated. Which it was until about 2010, though it now flounders without statutory regulation and a RAB charge that is heading ever skywards.
4. Of course, the pachyderm in the parlour is that this isn’t the first time Willetts has punted this rubbish idea. Oh no. Way back in the early years of this decade myself and a certain Dr McGettigan spotted Two Brains’ keenness to apportion individual RAB charges to institutions for similar reasons – broadly to grow provision in subjects and institutions where graduates were deemed more likely to be able to repay loans.
It appears he was stalled in these ambitions at stage four of Sir Humphrey Appleby’s five-stage formula for stalling cabinet ministers:
“Stalling Cabinet Ministers: the 5-stage formula
1. The administration is in its early months and there’s an awful lot to do at once.
2. Something ought to be done but is this the right way to achieve it?
3. The idea is good but the time is not ripe.
4. The proposal has run into technical, logistic and legal difficulties which are being sorted out.
5. Never refer to the matter or reply to the Minister’s notes. By the time he taxes you with it face to face you should be able to say it looks unlikely if anything can be done until after the election.”
Happily, with a new – although as yet untried – minister in post it would appear that this idea, along with others of Willetts’ wizard wheezes, will be kicked into the long grass as Greg Clarke (who he?) gets on with the single item on his to-do list: organising a proper cross-party review of HE funding before the election.
1. This *actually happened*, although entertainingly the YouTube version of the video is now private. Incidentally, DMU just happened to be one of the first UK institutions to enter the bond market, and I used to study there.
Leave a Reply