Archive for student loans

Why Research Loans Should Replace Grants For Commercially-Driven Research

Posted in Education, Politics, Science Politics with tags , , , on August 4, 2015 by telescoper

Two recent items in the Times Higher about UK Higher education – concerning the abolition of maintenance grants for less well-off 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 aren’t listening, so here’s the gist of the argument I made way back then….

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. If  research is going to pay off in the short term it should be funded by private investors, interested businesses 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. 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 either ends up in the pockets of entrepreneurs if the research succeeds or, if it doesn’t,  the grant has effectively been wasted. It’s yet another example of the taxpayer bearing the risk that an investment might fail, but not sharing in the benefits if it succeeds. This is analogous to the way  the taxpayer bailed out the banking sector in the aftermath of the Credit Crunch in 2008, only to see the profits subsequently transferred back into private hands.  This is happening to an increasing extent elsewhere in the United Kingdom, as public services built up through state investment are being transferred to for-profit organizations. Even our beloved National Health Service seems to be on an irreversible path to privatization.

My proposal for research funding would involve phasing out research grants for groups that want to concentrate on commercially-motivated research and replace them with research loans. If the claims the researchers  make to secure the advance are justified, they should have no problem repaying it  from the profits they make from patent income, commercial sales,  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 for having made over-optimistic claims). 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 – I 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 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 fees. The government only pays an amount directly to the university on their behalf if they are studying an “expensive” subject, i.e. a laboratory-based science, and that amount is very small (and decreasing with time). 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 policy has changed since then into one in which many students bear the full cost of their tuition.

I don’t come from a wealthy family background so it’s not clear whether I would have been able to go to University under the current system. I would have been prepared to borrow to fund tuition fees, but without a maintenance grant for day-to-day living I don’t think I could have afforded it as my parents could not have supported me financially. In my opinion the removal of maintenance grants is far more likely to deter students from poorer backgrounds from going to University than the introduction of fees.

Anyway, the problem with all these changes is that they have 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 provide adequate 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. Universities are not just for training. They have a much deeper purpose.

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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Higher Education Funding: A Modest Proposal

Posted in Education, Finance, Politics with tags , , , , , on August 8, 2014 by telescoper

With next year’s general election already looming there are signs that the higher education funding system is likely to be a hot topic. The Conservatives, for example, are reportedly considering removing the cap on tuition fees (currently set at £9K per annum) while Labour is talking about reducing the figure to £6K. Labour’s idea is likely to prove popular among potential students, it will result in a reduction of fee income to English universities of a third, potentially leading to wholesale redundancies and closures unless it is offset by an increased contribution from the taxpayer to offset this cut. Responsibility for higher education funding in Wales, Scotland and Northern Ireland is devolved, so Westminster policy does not apply directly there although the knock-on effect of changes in England would be considerable given the number of students who choose to study away from home.

The backdrop to these suggested policy changes is the obvious fact that the current system is unsustainable. Although there has not been a marked reduction in numbers of students applying to university since the introduction of tuition fees, it has become increasingly clear that the system of loans and deferred fees is actually costing the Exchequer more in terms of short-term borrowing than the old system. Moreover, there is a growing realization that the fraction of this cost that will actually be recouped in future is going to be much smaller than its advocates would like to admit. Recent estimates, likely to be revised upwards, suggest that 45% of student loans will never be repaid.

On top of this there is the problem that the so-called “elite” universities have not succeeded in “widening participation” (as the phrase goes). Oxford and Cambridge both continue to take about 40% of their pupils from private schools; many other institutions. My own institution, the University of Sussex, takes about 86% of its intake from state schools, which is about the average across the sector.

Although only a small fraction of pupils (about 7%) attend (private) independent schools, about 65% of those go on to University; only 24% from the state sector do. In my opinion, not all universities take widening participation seriously but even if they do (like we do at Sussex) it is difficult for higher education institutions to repair the divisions that arise much earlier in the education system.

The average fee per term for a day pupil at a private school in the UK is about £3400; this rises to about £7800 per term for boarding schools. Since there are three school terms per year this means that the average cost per year for day pupils is £10,200, well above the £9000 per year maximum fee for university tuition. That says a lot for how poorly funded UK universities really are, even with increased tuition fees, especially in STEM subjects which require expensive laboratories and other facilities. Moreover, private school fees are payable upfront while tuition fees for students in higher education are funded by heavily subsidized loans which do not need to be repaid until the student is earning more than a certain minimum salary (currently £21K pa).

When funding is tight it is particularly important that it should be targetted where it is needed most. For me that means to encourage more students from state schools to go to university. The principle I’d adopt here (and indeed in many other contexts) is encapsulated in the phrase “to each according to their need, from each according to their ability”.

Parents who have decided to send their offspring to private schools have, in my view, already demonstrated that they can afford to contribute to their education at a level considerably higher than the current tuition fee for university students. In such cases there is no need for a means test to determine whether they need support from the taxpayer; they have already done that calculation for themselves.

My proposal, therefore, is that students whose parents have decided to take their children out of the state school system should be deemed to be ineligible for state support for higher education. They should therefore pay the full fees upfront. I think there’s a case even for making such students pay for the full cost of their education which is not the £9K fee payable by Home/EU but the much higher fee charged to students from outside the EU, which is currently £17K at the University of Sussex. The money saved in this way should be used to provide better fee waivers and and maintenance grants for students from the state school system (on a means-tested basis). This could be accomplished by, e.g., a system of vouchers available to students from state schools in England; the rest of the UK could adopt a similar system if they wish. This would also be a step towards reducing the incentive for families to increase social divisions by taking their children out of the state system.

As well as driving greater equality and stimulating social mobility, my suggestion would also correct a number of anomalies in the existing system. One is that students attending English universities who went to Schools elsewhere in Europe (including Wales, Scotland and Northern Ireland) are entitled to the same financial support as English students. However, most students from outside the UK will return home after graduation and there is no effective means of making them pay back their fees and loans because these are currently recovered through the UK tax system. In effect, therefore, the taxpayer is providing free higher education for these students and it is one of the reason why the default rate on student loans is likely to be very high. In my proposal this loophole would be sealed; unless a student went to an English state school they would not have the means to access HEFCE support.

I have heard it said that this idea would remove choice. I don’t agree. Parents will still have the choice of sending their sons and daughters to private school if they wish. What it will do is remove part of the incentive for them to do that.

Across the UK over 80% of university students are from state schools, so the measure I suggest will not on its own solve the University funding crisis. On the other hand, I think it would at least be fairer than the current system. On the other hand, I’m not sure fairness counts for very much these days…

Student Grants and/or Research Loans

Posted in Politics, Science Politics with tags , , , on September 9, 2010 by telescoper

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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