Treating Students Fairly: The Economics of Post-School Education Contents

Summary of conclusions and recommendations

Education and the economy

1.The statistical claims made by the Government about the relationship between higher education and economic growth are oversimplified. Whatever relationship may or may not have existed in the past, the assumption that sending increasing numbers of today’s young people to university to study undergraduate degrees is the best option for individuals and the economy is questionable. (Paragraph 48)

2.The evidence suggests that there is a mismatch between the qualifications and skills provided by the higher education system and the needs of the labour market. A substantial proportion of current graduates may have been better off pursuing other higher education qualifications in areas where there are skills shortages. (Paragraph 49)

Attempts to create a market in higher education

3.The aim of the 2012 reforms to create an effective market amongst universities has not been achieved, as evidenced by the lack of price competition. We have seen little evidence to suggest that the higher education sector is suitable or amenable to market regulation. (Paragraph 85)

4.We are concerned that the replacement of nearly all grant funding by tuition fees, coupled with the removal of the cap on student numbers, has incentivised universities to attract prospective students onto full-time undergraduate degrees. This may also explain the striking increase in grade inflation. Some students may have been better served by pursuing alternative higher education qualifications. (Paragraph 86)

5.The Teaching Excellence Framework will not impose sufficient discipline on the sector to ensure the quality of the ever-increasing provision of undergraduate degrees. The framework is based on metrics which are too general to relay much information about the quality of an institution or course and are too dependent on unreliable surveys. Risk is borne almost entirely by students and taxpayers rather than the institutions. (Paragraph 87)

6.The combination of incentives to offer and study for undergraduate degrees has had a negative effect on the provision and demand for other types of higher education. (Paragraph 107)

Funding and regulation

7.The structure and distribution of funding in the post-school education sector is unfair and inefficient. Further education is the poor relation to higher education and its position has been weakened and undermined by reductions to its budgets and a complex funding architecture. The separate funding mechanisms create educational silos that prevent innovation. The system accentuates the perception that routes into higher education that begin in further education are inferior to the A-Level/undergraduate degree option. (Paragraph 131)

8.A new deal is required for higher education funding which promotes all types of learning regardless of where or how it takes place. The system of funding higher education should be reformed so that it facilitates a fair and balanced provision of loan and grant funding across higher education. (Paragraph 143)

9.For students, there should be one system of funding: students should be able to access loan funding and maintenance support for all full and part-time courses at Level 4 and above. This does not mean identical levels of support for students studying, for example, a one-year diploma and a three-year undergraduate degree. Differences between qualifications should be reflected in the loan rates and repayment structure. (Paragraph 144)

10.The Government should explore restoring some teaching funding for further education colleges so they can cover costs and stimulate demand for courses at Levels 4 and 5. This should also be considered for part-time courses and modules at Level 4 and 5 such as those offered by the Open University. (Paragraph 145)

11.The purpose of these reforms is to raise the status of all higher education qualifications, creating more flexible full and part-time routes and rebalancing the current offering. The Government should explore whether this should be supported by new financial incentives for entrants into higher education to study for qualifications other than undergraduate degrees. (Paragraph 146)

12.The complex and piecemeal regulation of post-school education may prevent innovation and undermine efforts to reform the sector. (Paragraph 153)

13.In higher education, one regulator should take responsibility for the whole sector. We recommend the Office for Student’s remit be extended to regulate and fund all higher education. It should have clear responsibility for all students in higher education, regardless of their course and level of study. (Paragraph 154)

14.The Office for Students should be specifically required to:

(a)Ensure quality across all levels and institutions that provide higher education, and not just in one part of the system;

(b)Promote better availability and a more balanced offer across routes and levels within higher education;

(c)Identify and remove funding rules and regulatory barriers which prevent innovation and integration of different types of higher education;

(d)Ensure that clear information is provided to school leavers about the choices available to them and the lifetime financial consequences of those choices. This should extend to information about apprenticeships including the available salaries and the likelihood of permanent employment. (Paragraph 155)

15.Other post school education, at Level 3 (A-Level equivalent) and below, should also be regulated by a single agency. To ensure parity of esteem between the sectors, this agency should have equivalent status of the Office for Students. It should be a Council with sufficient resources and credibility to champion further education. (Paragraph 156)

16.The current funding arrangements for Level 3 qualifications provide a straitjacket: they prevent retraining and stifle attempts to create coherent pathways between higher and further education. We recommend providing uncapped state funding (on a tariff basis) for all students, full-time or part-time, irrespective of age, for their first qualification at Level 3. This is both fair and economically necessary. (Paragraph 161)

Flexible learning

17.Part-time study and adult learning have declined dramatically. A decline linked to reforms which aimed to increase participation in higher education. This neglect of part-time and mature students is short sighted: flexible learning is important for mature students looking to learn new skills to adapt to changes in the labour market and working practices. (Paragraph 187)

18.Flexible learning is one method to increase higher education qualifications. It needs to be supported and encouraged by:

(a)higher and further education institutions working closely with each other and with employers; and

(b)providers adopting innovative methods of study, such as online learning and shorter courses. (Paragraph 194)

19.But this alone will not be enough. Flexible learning must be backed by a robust, properly enforced credit-based system (where, for example credits accrued studying a Level 4 qualification would count towards—and reduce the cost of—a full degree). This requires regulatory reform and should be a priority for the new higher education regulator. (Paragraph 195)

Apprenticeships

20.An apprenticeship should be viewed by young people and society as just as valid an option as the academic route of sixth form and university: they offer a way of accessing higher education without incurring student debt and can address directly skills shortages in the economy. The Government should consider ways to promote the progression from lower to higher level apprenticeships, rather than higher level apprenticeships becoming the preserve of those with academic backgrounds. (Paragraph 237)

21.There are some excellent apprenticeship schemes but it is concerning that the recent Ofsted inspection found that over half of providers they assessed were rated inadequate or required improvement. There is worrying evidence that the system is being gamed by rebadging existing employees as apprentices, large proportions of whom are unaware they are doing an apprenticeship. (Paragraph 238)

22.The Government must renew its vision for apprenticeships, concentrating on the skills and choices that employers and individuals really need. An apprenticeship should be a method by which a young person, or new entrant to an industry, develops skills while working. MBAs and other training activities that would have happened anyway should be the employer’s sole responsibility to fund and arrange. In addition, the Government should have a clearer plan for degree apprenticeships within its broader higher education policy. (Paragraph 239)

23.The quality of apprenticeships is not helped by the Government targeting three million new apprenticeship starts by 2020. The target prioritises quantity over quality and should be scrapped immediately. Framing a target in terms of starts makes no sense when about 40 per cent of starts are not completed. It also treats a one-year apprenticeship as equivalent to a three-year apprenticeship. The target encourages the rebadging of training which should not be funded or described as an apprenticeship. (Paragraph 240)

24.The role of the Institute for Apprenticeships is unclear. It should be abolished. Under our proposed new regulatory structure above, the quality and outcomes of Level 2 and 3 apprenticeships should be the responsibility of the new further education regulator; the quality and outcomes of Level 4 and above apprenticeships should be the responsibility of the Office for Students. The Minister for Apprenticeships and Skills should provide oversight of both. (Paragraph 243)

Information and advice

25.The prioritisation of the undergraduate degree in schools, through the use of incentives and targets, has helped fuel perceptions that other routes are inferior. Schools must present all post-16 and post-18 options as equal. Incentives aimed at schools which encourage them to promote sixth form and university should be removed. Every pupil aged 16 should spend one day learning about apprenticeships and how to apply for them. (Paragraph 254)

26.There is a clear and well understood process for university applications which is not available for other forms of post-school education. The process for students considering routes other than university should be clearer and less complex. There is merit in a single, UCAS-style, portal for covering all forms of higher education, further education and apprenticeships. The Government should ask UCAS how such a portal could be designed and implemented. (Paragraph 260)

Student loan design

27.When the net present value of repayments is considered, the student loan system does not appear as progressive as its advocates have suggested—graduates who only just pay off the loan within the 30 years will pay far more in real terms than higher-earning graduates who pay the loan off sooner. (Paragraph 272)

28.We recommend that the interest rate charged on post-2012 student loans should be reduced to the level of the ten-year gilt rate (currently 1.5 per cent). This is fairer for students as it means that they only pay an interest rate which is equivalent to the Government’s cost of borrowing money. Interest should not be charged on loans until students have graduated. (Paragraph 275)

29.There should be no change to the repayment threshold, the repayment rate or the term of the loans. (Paragraph 276)

30.There is little transparency around what universities are spending their income on. Students have little idea about the activities that their course fees may be subsidising. Tuition fees should remain frozen at £9,250 for the medium-term. (Paragraph 300)

Maintenance support

31.The current maintenance system for post-school education is unfair. For those entitled to loans:

(a)the loans available are insufficient to cover day-to-day living expenses; and

(b)the loans impose the greatest burden on students from the poorest households; the most disadvantaged students graduate with the largest debt. (Paragraph 324)

32.For some students these problems are a greater concern than tuition fees. Universities report that those from the poorest backgrounds are deterred from pursuing university education. (Paragraph 325)

33.The current maintenance system is also inconsistent. It perpetuates inequality across higher education by restricting maintenance support to certain types of student and certain institutions to the neglect and detriment of others. (Paragraph 326)

34.The structure of student maintenance support must not place students from poorer backgrounds at a long-term disadvantage. A maintenance system based only on income-contingent loans will deter some prospective students from applying; a grant-only system would be too big a burden on public funds. We therefore recommend that the Government reinstate the means-tested system of loans and grants that existed before the 2016 reforms. (Paragraph 332)

35.The inadequate level of maintenance support is causing hardship to students. We recommend that the maximum maintenance support should be increased to reflect the cost of living for students. This increased support should be available as a mixture of means tested grants and loans as set out above. (Paragraph 333)

36.Access to maintenance support should be consistent across all post-school education, regardless of method or place of study. We recommend that the Government extend maintenance support to:

(a)students studying for a qualification at Level 4 or above in a further education college; and

(b)all part-time and distance learners at universities and further education colleges studying for Level 4 and above qualifications. (Paragraph 338)

37.Differences between qualifications should be reflected in the loan rates and repayment structure. (Paragraph 339)

Student loans and public accounts

38.Recent changes to higher education financing have been motivated mainly by the desire to lower the deficit. (Paragraph 376)

39.The decision to switch almost all higher education funding to tuition fees hides the true cost of public spending on higher education. When the change was made in 2012, the upfront spend by the Government on higher education increased by £3 billion but as the vast majority of funding was provided through loans rather than grants, the deficit figure was improved by £3.8 billion. Write-offs on student loans will be included in the deficit only when the loans expire in 30 years; if the loans are sold before that point, the write-offs never hit the deficit. (Paragraph 377)

40.The high rate of interest on student loans creates the illusion that Government borrowing is lower than it actually is. It was presented as a progressive measure but in reality, the motivation appears to have been the flattering effect that accrued interest on those loans will have on the deficit. (Paragraph 378)

41.Future governments will have to adjust spending plans to recognise historic student loan losses: in today’s money, that would mean the 2047/48 government having to find an extra £8.4 billion to cover expected losses on the 2017/18 student loans. Alternatively, a future government may attempt to abandon the use of public sector net borrowing as a measure of the strength of the economy. It is unacceptable to expect future taxpayers to bear the brunt for funding today’s students. (Paragraph 379)

42.Most student loans will not be repaid in full: some will be paid in full, some not at all, and a lot only partially repaid. The expected write-offs should be shown in the deficit when the loan is issued. The true cost of funding higher education would then be immediately apparent. This would allow for a better discussion as to where funding in the higher education system should be allocated. (Paragraph 388)





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