Student Grants and/or Research Loans

I’m still a bit depressed after the events I blogged about yesterday. Some days you wonder why you bother, and this has been one of them. However, at least it’s got me rattled enough to stand back and think about the state of the UK university system in more general terms so I thought I’d jot down an idea which is probably barking mad, but has been at the back of my mind for some time.

The basic point is that universities essentially do two things, teaching and research. However, when you think about it, there’s a fundamental inconsistency in the way these are funded. It seems to me that correcting this anomaly could significantly improve  both the main benefits  universities contribute to the UK economy.

First, research. I wrote yesterday about using taxpayer’s money to fund research in universities:

If it’s going to pay off in the short term it should be funded by private investors or venture capitalists of some sort. Dragon’s Den, even. When the public purse is so heavily constrained, it should only be asked to fund those things that can’t in practice be funded any other way.

I’ve just remembered that a similar thing was said in in the Times Higher recently, in a piece about the new President of the Royal Astronomical Society:

Notwithstanding the Royal Academy of Engineering’s “very unfortunate” recent submission to the government spending review – which argued that the need to rebalance the UK economy required public spending to be concentrated on applied science – Professor Davies is confident he can make a good case for spending on astrophysics to be protected.

Research with market potential can already access funding from venture capitalists, he argued, while cautioning the government against attempting to predict the economic impact of different subjects.

This is pretty much the opposite of what the Treasury thinks. It wants to concentrate public funds in projects that  can demonstrate immediate commercial potential. Taxpayer’s money used in this way ends up in the pockets of entrepreneurs if the research succeeds and, if it doesn’t,  the grant has effectively been wasted. My proposal, therefore, is  to phase out research grants for groups that want to concentrate on commercially motivated research and replace them with research loans. If the claims they make to secure the advance are justified they should have no problem repaying it  from the profits they make from patent income or other forms of exploitation. If not, then they will have to pay back the loan from their own funds (as well as being exposed as bullshit merchants). In the current economic situation the loans could be made at very low interest rates and still save a huge amount of the current research budget for higher education. Indeed after a few years – suggest the loans should be repayable in 3-5 years, it would be self-financing. I think a large fraction of research in the Applied Sciences and Engineering should be funded in this way.

The money saved by replacing grants  to commercially driven research groups with loans could be re-invested in those areas where public investment is really needed, such as pure science and medicine. Here grants are needed because the motivation for the research is different. Much of it does, in fact, lead to commercial spin-offs, but that is accidental and likely to appear only in the very long term. The real motivation of doing this kind of research is to enrich the knowledge base of the UK and the world in general. In other words, it’s for the public good. Remember that?

Most of you probably think that this is a crazy idea, but if you do I’ll ask you to now think about how the government funds teaching in universities and ask yourself why research is handled in such a  different way.

Way back in the mists of time when I was a student, I didn’t have to pay fees and even got a maintenance grant from the government that was more-or-less sufficient to live on. That system changed so that students don’t get grants any more, but may qualify for loans. They also have to pay a contribution to their fees, but the government still pays an amount directly to the university on their behalf.

This change of policy happened because the (then) Labour government wanted to boost the rate of participation in universities, but didn’t think the taxpayer should pay the whole cost. The logic goes that the students benefit from their education, e.g. in terms of increased earnings over their working lifetime, so they should pay a contribution to it.

The problem with all this is that it has led to a huge increase in enrolment on degree courses in “vocational” areas such as Leisure & Tourism, Media Studies, and Business while traditional courses, such as those in STEM disciplines, providing the sort of rigorous intellectual training that is essential for many sectors of the economy, have struggled to keep up. This is partly because subjects like Mathematics and Physics are difficult, partly because they are expensive, and partly because the UK school system has ceased to function as preparation for such courses.

I’m by no means against universities supplying training in vocational subjects, but because these are the areas where the primary beneficiary is indeed the student, I don’t think the government should subsidise them as much as the more rigorous courses that we really need to encourage the brightest students to take up.

The fix I’d propose for this within the current tightly constrained budget is to cut government funding for vocational subjects and use the money to subsidise those courses contributing to the intellectual wealth of the country. I don’t mean just science, incidentally, I think we have a big problem with participation many other areas, such as modern languages. The best students – in chosen areas – should not only get their fees paid, they should also get maintenance grants as in the old days. Students should not be prevented from doing, e.g., a Business studies degree, or from doing anything without a state scholarship, but should understand that they have to pay for it.

If it’s fair to ask students to contribute to their teaching, it’s fair to ask commercial companies to pay for the research that they exploit. Just as student grants should be re-introduced for certain disciplines, so should research loans be introduced for others. You know it makes sense.

However, if you want to tell me why it doesn’t, via the comments box, please feel free!


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36 Responses to “Student Grants and/or Research Loans”

  1. I’ve also wondered a lot about this and university funding in general and I like your idea in general. I think the main problems we would face trying to promote or implement such an idea are the following:

    Politicians, the media and the public to some extent have a difficult time thinking about long term investment and long term consequences. Appreciation of the value of fundamental STEM research depends on a proper appreciation of the long term benefits (and an idea of the long term goals for our economy etc.)

    In all the talk of economic plans, education and international competitiveness I may hear in the media, there is very little mention or discussion on what the ideal proportion of our workforce trained in STEM subjects should be. Are we training too few mathematicians and physicists? I think we are, but have any economists come up with a good estimate of what proportion of the workforce advanced countries such as the UK should be training to stay competitive in the coming years?

  2. >> it’s fair to ask commercial companies to pay for the research that they exploit.

    Commercial companies do pay for the research they exploit.
    Intellectual property generated by STFC grants generally goes to the university (the situation varies for other research councils).
    A commercial company can then licence the IP from the university.
    A university spin-out can either licence the IP on a royalty basis or offer a share of the company to the university (it’s important not to get suckered into doing both !)

    If a researcher wants to put his own (and other people’s) money at risk on research with commercial potential, there are already mechanisms for doing so.
    The researcher can form a company and seek venture capital investment.
    The VC people will have greater expertise in commercialisation than a research council.
    Why would a research council loan be a better way to go?
    What advantage does it have over the current methods?
    (Why couldn’t the researchers just try their bank manager?)

    As a side-point, a loan is generally a poor way to finance new venture R&D. The preferred method is usually investment in a spin-out company.
    That’s because a loan incurs debt repayments on the company at the very time when it is least able repay (when it has no sales revenues),
    while the lender is fully exposed to the risk of venture failure, but he does not get any of the benefit if the company is a soaraway success.
    He still only gets his few percent interest, he doesn’t see any of the benefit if the company achieves 100% annual growth.
    A loan is a lose-lose for borrower and lender, an investment in the company is a win-win.

    If a “commercially driven research group” wants to use risk money, why would it do that through the university?
    Why wouldn’t it opt for a spin-out company?

    UG students have to use a university to get a degree.
    Researchers looking for risk money already have other options.
    That’s where your analogy breaks.

    The Research Council loans idea boils down to pulling out of commercially relevant research altogether, and leaving it to commercial sources of risk money.
    There are better sources of risk money than a research council.

    • You can argue that if a company is a success after an injection of capital then it will employ people and pay taxes too, so that’s good for the economy. However, that benefit does not necessarily go back into research funding. If they can borrow cash, make a success of a spin-out company and pay it back in a cost-neutral way then I think it’s a success all round. However, what happens now is that a research grant – even one that leads to a profit-making enterprise, is never repaid.

      I agree that private investment would offer many advantages for a spin-out company, but it might be difficult to secure investment genuinely new ideas based on advanced science. That’s where government loans might be useful.

      I don’t quite understand your final paragraph, but I agree that research enterprise loans – see, I’ve even got a title for them now – should not be managed by the research councils.

  3. make a success of a spin-out company and pay it back in a cost-neutral way

    If the spin-out isn’t a success, who has to pay back, the researcher or the university?

    If it’s the university, why would the university expose itself to this risk?
    It isn’t set up for risk finance.
    VC firms exist for this very purpose.

    If the researcher is exposed to the risk, he would expect the full benefit of a spin-out company owned by himself.
    1) Why would he seek a loan instead of an investment?
    2) Why would he seek a loan from an RC instead of a bank?

    i.e what advantage does the RC offer to the researcher?
    What is the RC’s competitive advantage over other sources of cash?

  4. i.e. the rather crucial advantage of a “grant” is that you don’t have to pay it back…

    If that goes, what does the research council offer that other sources of money don’t?
    What’s the point of the research council as a money-lender?

    • You’re assuming that anyone who wants a bank loan can get one. Haven’t you heard of the credit crunch?

      However, your point is not inconsistent with my argument. I think applied research needs to be weened off taxpayers’ support and encouraged to work more with its users.

  5. If you want a state bank to perform a role not being performed by commercial banks, you can argue for that and set one up.

    But why use a research council as the mechanism for setting up a state bank?

  6. …in any case, as I said in my first post, an investment is generally better than a loan to finance new venture R&D.
    If it’s a “new idea” (presumably meaning longer-term) that’s even more important.

    You can’t pay back a loan until you’ve got a finished product generating sales revenues.

  7. Hmm, I think it is quite a sound proposal really I especially agree with respect to the student funding.

    I am fortunate enough to have a merit scholarship I don’t know how I’d afford it otherwise, as my household income was ~50k the loan I get doesn’t even cover my rent, but with 2 siblings also at university I can’t just expect money from my parents (and indeed for how long are they expected to support their offspring? Are we not independent citizens at 18?). It disgusts me that the taxpayer is expected to fund those who scarcely obtain three C’s (sometimes not even that) in less rigourous A level subjects and then go and ‘study’ Film or Psychology and enjoying a three-year piss-up at the taxpayer’s expense whilst there are many people on my Physics course who have to struggle to balance their academic studies with part-time work.

    As for research loans, I don’t understand why the government stresses the need for economically useful research when it hasn’t put forward any clear mechanism for ensuring that the financial fruits of this research end up back in the hands of the Treasury that funded the research and that we aren’t simply subsidising entrepeneurs (who may or may not pay taxes in the UK – the number of times research has been taken and used by US companies is painful).

    I see some difficulty drawing the line between what should receive grants and what should receive loans though – I mean what about facilities like JET which will (hopefully) one day result in commercial fusion power, and it certainly isn’t blue skies fundamental physics research, but would find it impossible to get funding from venture capitalists?

    On the whole they are excellent proposals though, some of the other commenters have asked why use the RC instead of just setting up a State Bank? In a recession setting up a state bank to encourage investment would probably be a good idea, but a state bank may not be popular (arguments of gambling with taxpayers money, might as well have let Stalin take over 😛 etc.) and so doing it in science via the RC would probably meet less resistance.

  8. I think applied research needs to be weened off taxpayers’ support

    If by “weaned off” you mean a requirement that it be 100% self-financing, then the university structure has nothing to offer it, and the research councils have nothing to offer it.

    This self-financing research group is better off operating as a limited company that as a university research group,
    and it is better off seeking funds from commercial sources than from research councils.

    i.e. you’ve reinvented the existing system of VC funding for high-tech start-ups, and the RCs have no particular value-added role to play in this as money-lenders.

  9. Wouldn’t the research loan idea just lead to research groups trying to show how utterly useless their research is and how it could never be of any economic benefit so that they can still get government funding as the private sector has never been terribly generous.

    So it probably wouldn’t solve the problem but would make for rather amusing grant proposals in a Python-esque sense.

    • I don’t think so, because in order to get research grant income it would have to be fundamentally important in itself, as judged by peer review.
      To give an example, some of the work on the “materials” side of physics is of no great interest from the point of view of basic science but gets EPSRC funding because it is alleged that it will lead to new uses in technology. This type of thing should be funded by industrial sponsors, venture capitalists or, as a last resort, some returnable government investment.

  10. and incidentally, you’d think that venture capital investors would resent the fact that they must compete against the “free money” from research grants when they’re chasing new investment opportunities.

    In fact they recognise that the free money must be there in the earliest stages to get a viable investment opportunity in the later stages.

    Applied research isn’t commercially viable in its earliest stages (in terms of the projected return-on-investment versus risk).

  11. You can argue that if a company is a success after an injection of capital then it will employ people and pay taxes too, so that’s good for the economy. However, that benefit does not necessarily go back into research funding

    STFC has STFC Innovations Ltd, presumably that generates money for STFC from STFC’s intellectual property?

  12. I noticed some traffic was coming in this direction from Cambridge, and sound the following comments on a web page there:

    In a recent article, the astronomer Professor Peter Coles points out that the Treasury’s wish to concentrate public funds in projects that can demonstrate immediate commercial potential is misguided, because “Taxpayers’ money used in this way ends up in the pockets of entrepreneurs if the research succeeds and, if it doesn’t, the grant has effectively been wasted.” He therefore proposes “to phase out research grants for groups that want to concentrate on commercially motivated research and replace them with research loans.” The money saved in this way “could be re-invested in those areas where public investment is really needed, such as pure science and medicine. Here grants are needed because the motivation for the research is different … [i.e.] to enrich the knowledge base of the UK and the world in general. In other words, it’s for the public good.”

    Professor Coles’ proposal to fund high-impact research by low-interest loans rather than grants perhaps deserves further consideration, but he appears entirely justified in arguing that commercial Impact should not be a factor in awarding public funding, because it is perfectly suited as a criterion for attracting private funding. This is why we have a national fiscal policy: the only justification for levying taxation is to fund projects which will not yield short-term economic returns. There is no reason to spend public money on commercial projects: we need to justify pure research by a non-economic valuation.

    Perhaps my modest proposal wasn’t as mad as I thought?

  13. Taxpayer’s money used in this way ends up in the pockets of entrepreneurs if the research succeeds and, if it doesn’t, the grant has effectively been wasted

    The intellectual property generated by an STFC grant is owned by the university. It isn’t owned by the “entrepreneurs”. They have to buy it.

    If you want the money generated by the grant-generated IP portfolio to feed back into new research grants, presumably you are arguing that STFC should hang on to the IP, instead of giving it to the university?

    • No. I want the taxpayer to fund pure science. All science funded in this way should be in the public domain. “Intellectual property rights” are in any case inconsistent with the proper operation of the scientific method.

      I want applied science to be funded by business and industry, not by research grants from STFC or anywhere else.

  14. I want applied science to be funded by business and industry, not by research grants from STFC or anywhere else.

    That takes me back to the last paragraph of my first post:

    The Research Council loans idea boils down to pulling out of commercially relevant research altogether, and leaving it to commercial sources of risk money.
    There are better sources of risk money than a research council.

    The “loan” idea doesn’t work, and by the time you’ve modified it to make it work it’s really a proposal to remove applied research from RC funding (and hence from the university sector) altogether.
    I think we agree on that point now.

    How “applied” would it have to be? Where’s your “applied”/”pure” boundary?

    The general case for state funding of pre-commercial research is that the commercial potential only emerges at a later stage, the risks are too high and the timescales too long to make it a viable investment opportunity at the “research” stage.

    • You haven’t convinced me that the loan idea doesn’t work. You are presupposing that the Research Councils would administer enterprise loans. That’s not my intention. Some other body would do that, probably not even one that is in the public sector. That would be better than loading, e.g. STFC, with business people and industrialists (which is what is being done now).

      Your last paragraph makes clear the inconsistency of the current system. The government wants to concentrate public funding on science that has a clear potential for commercial exploitation, but that is precisely what it should not be doing.

  15. You haven’t convinced me that the loan idea doesn’t work.

    You mentioned a 3-year timescale for repayment.
    Repayment can only start when a finished product starts selling.
    That won’t be 3 years.

    If loans worked they would be used by start-up companies.
    Start-ups generally go for investment in the company, not loans, for reasons I outlined in my first comment.

  16. That would be better than loading, e.g. STFC, with business people and industrialists (which is what is being done now).

    The potential of astronomy research to generate new high growth industries is low.
    Claims about the industrial potential of astronomy are unlikely to convince many people because they are, to a first approximation, untrue.

    I agree that pitching the industrial case for STFC is doomed to fail.
    You’ll destroy the original purpose of the council and replace it with a second-rate industrial research agency.

    STFC’s problem is that it’s purpose remains unclear.
    “Astronomy” and “particle physics” aren’t on the name-plate any more.
    What’s it for? Its whole purpose is up for grabs.

    • I don’t agree with your first sentence, but would do so if it said “in the short-term”. There is in fact a proven record of benefit to industry from astronomical research (e.g. CCD cameras) but this should not be the argument for funding astronomy.

  17. However, what happens now is that a research grant – even one that leads to a profit-making enterprise, is never repaid.

    That’s simply incorrect.
    A profit-making enterprise is paying back licence royalties to the university if it has a licencing deal, or the university is benefiting from the growth in the value of the company, if the university has a shareholding in the company.

    • I’m not talking about the university! I’m talking about whoever supplied the funding. As it is, the taxpayer grants funds to the university, which carries out the research. Whether the research is successful or not those funds do not return to the funding agency (except indirectly through taxation of the profits, but in that case the % that returns is negligible; we spend less than 1% of our GDP on science).

  18. Whether the research is successful or not those funds do not return to the funding agency

    This simply takes me back to my 2:27 comment.

    Some research councils hang on to the IP from grants they fund (the Medical Research Council does this, for example).
    Licence royalties go straight back to the research council in those cases.

    The STFC happens to GIVE the IP to the university that holds the grant.
    If you want the money to return to the funding agency (instead of the university) then the STFC has to adopt the IP policy of the MRC.

    In effect, you are arguing that STFC should retain IP from grants it funds, like some other RCs do, as I said earlier.

  19. If you want the funds to return to the funding agency instead of the university, you should lobby to get STFC’s IP policy changed, so that it retains IP instead of giving it to the university.

    (That would probably be a mistake, and STFC’s policy is probably the correct one for its circumstances, but I won’t go into that now).

  20. Grant Ingram Says:

    As others have pointed out if you have ideas that can generate enough cash to fund a loan you can go and get one now. In fact if you look around Universities you’ll see research that is directly funded at full economic cost by industry because they recognise that it will produce short term gains.

    The argument for funding research in “commercial” areas is that same as that for funding research in “non-commercial” areas – it is for the public good! The commercial benefit is just one element of the argument for funding not the be all and end all.

    • Exactly my point. That’s why research that has immediate commercial spin-off potential does not need free government money.

      Let’s keep the research grants for things that can’t be funded any other way.

  21. lightbucket Says:

    Let’s keep the research grants for things that can’t be funded any other way.

    You haven’t provided a concrete example to pin this down, so I’ll chip in again.

    If you’re looking for examples where public money was put into research projects which could have been funded commercially,
    The Human Genome Project is perhaps the most egregious example.
    Not only was private money ready to finance this project, private money was willing to finance the project even when a publicly funded project was running in competition against it.

    Presumably this is among the most outrageous cases where public money was squandered on a research project which private money was more than willing to finance.
    This money would have been better spent on cosmology, which has a shortage of private investors.

    The genetic mapping of malignant melanoma cells is presumably the next case where public funding should pull out and leave it to willing private investors.
    Private money is more than willing to finance the “end-game” for cancer.
    The public money that gets freed up could go to “public good” research instead.

  22. lightbucket Says:

    (I honestly wasn’t trying to pimp my blog there, by the way, just had the wrong log-in…)

  23. “The logic goes that the students benefit from their education, e.g. in terms of increased earnings over their working lifetime, so they should pay a contribution to it.”

    It is difficult to find a more inane argument. If the person earns more, then he pays more in taxes. This happens automatically. With the loan situation, the person pays more in taxes AND pays back the loan. Also, there is the additional bureaucracy of the loan.

    When students have to pay, either out of their own (or their parents’) pocket, and whether or not it is paid back later as a loan or paid up front, this keeps poorer students out of universities. There are no two ways about it. (This might actually be the intended result of some supporters of the loan scheme, though they probably won’t admit it.) Anyone who thinks that a student can work on the side and earn enough has lost touch with reality, and even if that were the case this would be a disadvantage compared to those with rich parents.

    In conjunction with the loan idea, one often hears the argument “Why should the nurse/cleaner/bus driver pay, with her taxes, for the education of people who will earn much more than her after graduation?”. First, not all graduates earn a lot of money. But even assuming they do, the argument for funding university (and all) education from tax money is that it allows the nurse/cleaner/bus driver to a) go to university herself and b) send her children to university.

    Also, note that the same argument can be applied to primary school. The sad thing is, some neoliberal jerks really do want this sort of society.

  24. […] many new admirers. Neither is the fact – and this is a point I’ve tried to make before – that the engineers’ argument simply doesn’t hold any water in the first […]

  25. […] actually nothing more than a direct subsidy for private industry. This troubles me. As I’ve blogged before, I think research that really is near-market shouldn’t be funded by the tax payer but by […]

  26. […] argued before that I think EPSRC’s approach is fundamentally wrong. When taxpayers’ money used is used to […]

  27. […] what it’s worth this gives me an excuse to a view that I’ve expressed before that “commercially useful” research should not be funded by the taxpayer through research […]

  28. […] students and whether business should contribute more to the cost of research reminded me of a post I wrote almost exactly five years ago. Was it really so long ago? Anyway, I am old so I am allowed to repeat myself even if people […]

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