Cutting tuition fees will turn universities into vassals of the state

Simon Jenkins, The Guardia, 10 January, 2019

Lowering the cost of degrees will devastate university budgets. The state will bail them out – in exchange for more control

Struggling UK universities warn staff of possible job cuts

Meanwhile, back at the ranch – or in this case the campus – the mice are running riot. Ignored by Brexit, Britain’s universities are facing financial meltdown. I predict that within a decade they will become institutions wholly owned by the state, their academic autonomy unrecognisable.

A few weeks ago, three universities were reported to be on the brink of bankruptcy. University debt has soared by £12bn in the past decade. Cardiff has borrowed £300m over 40 years, with experts suggesting it would take 2,000 years to repay if its current surplus does not improve. The backing for these loans is supposedly the ballooning scale of student fees, which David Cameron almost tripled to £9,000 in 2012 in England, and the removal of the cap on student numbers. Fees, rather than grants, now comprise the vast bulk of all university income for teaching undergraduates.
The fee rise was an open cheque. Universities slammed on the accelerator and drove fees for virtually all courses up to the £9,000 cap. They made unconditional offers and hurled money at providing lifestyle value. The chief draw to students was the smart residences now towering over cities, notably across the north of England, many financed from overseas tax havens. Dubiously productive masters degrees were heavily marketed, and applicants were admitted from abroad with few questions asked. More than four in 10 postgraduate students in Britain are now from outside the European Union. Many universities are little more than global finishing schools.
Universities have been able to borrow to finance this capital expansion against the income they get from fees. But since the government pays these fees upfront, and barely half of student loans are expected to be repaid, the guarantor is effectively the Treasury. This resulting student debt has reached a staggering £100bn, and is predicted to rise by 2042 to £200bn, and on some estimates to as much as £1tn.
The government has tried desperately to treat this student debt mountain as an asset with a future income stream. But when it tried recently to sell a loans parcel in the money market, it got just half their face value. The Office for National Statistics changed the way student loans are treated in the government’s books last month, slamming an annual £12bn on to public expenditure and wiping out Philip Hammond’s budgetary “improvement” overnight.
Cameron’s former universities minister, Lord Willetts, must rank with Charles Ponzi among the wizards of debt. There is, of course, a difference. Ponzi made snake-oil promises to dumb investors, who took the eventual hit. The university snake oil – higher education for half the nation – was sold to dumb ministers for political glory, in the knowledge they dared not refuse. The Ponzi pyramid was built on the assumption that ever-growing numbers of students would take out – and repay – ever more loans.
That pyramid is collapsing. The number of students at UK universities has fallen since 2012. EU research funds will likely vanish with Brexit, which could also do more damage to student numbers. An imminent review of university finance by Philip Augar is rumoured to advise a fee cut to £6,500. This will be despite the Russell Group of the most selective universities wanting the cap on fees to be raised or abolished, so they can go on digging for state gold.