The new world of fees, post-Browne

Since the recent publication of the Browne report on university funding in England, and the Government's Comprehensive Spending Review (CSR), the whole way we need to think about fees and funding universities in England has undergone a sea change. So let me try to sketch how things now look for English higher education. Since the options and likely budgets for Scottish universities have not yet been announced (other than an announcement that Funding Council grants to institutions for the next financial year might fall by 16%), discussion of Scotland will have to wait. For now, I focus entirely on the evolving situation in England, with particular attention to the arrangements for undergraduate teaching.

We used to think of the fees charged to students - whether paid up front or deferred until after graduation - as a sort of 'top up' fee, implying that there would be some form of base funding in place. Up to the present that has certainly been the case, with institutional grants from HEFCE (The Higher Education Funding Council for England) providing several thousand pounds per undergraduate student (in amounts varying by broad subject area), based on approved student numbers. Indeed when fees first came into effect in England, one of the concerns was exactly over the point whether the new stream of fee income would genuinely be 'additional funding', which all universities said they badly needed; or whether the government might find a way of paring back the base funding coming through HEFCE, leaving only part of the fee income as a real addition to university budgets. For the most part, though, it seems that the government played fair and didn't try to manipulate funding streams too much, so most of the fee income did go to the universities.

All that is about to change, since the CSR was seriously bad news for English universities. For the Browne report envisaged a £3.2 billion cut in the annual teaching grant, with nothing going to the arts, humanities and social sciences; only the STEM (science, technology, engineering, mathematics) subjects would still receive public funding to support undergraduate teaching. The CSR largely confirmed this position, with a £2.9 billion cut in funding by 2013-14. Official statements have since emphasised continuing government support for the STEM subjects, with no mention of funding for other subject areas.

Thus instead of fees being a handy 'top up', in future, in many subject areas, they will be the funding stream that pays for everything. I actually wonder how far universities really understood all this when they made their submissions to the Browne Review, including comments on the future fee levels they would like to see. For the existing fees of just over £3000 per student per year of study will soon be equivalent to a base fee of roughly £7000 - for once HEFCE's teaching grant for non-STEM subjects is removed, institutions will need to be levying a fee of around £7000 just to stand still financially. In that context, the government's announcement this week that it will allow fees to rise to the range £6000 to £9000 per student-year is less of a change, financially, than it appears to be. I can't see how any university can gain by charging a fee at the lower end of this range, and perhaps all will end up charging the maximum. We shall see, it all depends on how competition between institutions works out, in the new student-led environment. The last phrase is the critical one, for any institution that fails to attract the requisite student numbers will quickly be in deep trouble financially.

As for the students themselves, there will be loans available to enable the fees to be paid to institutions up front, when the teaching costs are being incurred, but students will only start to pay back the loans once they have graduated and are in jobs earning over £21,000 per year. The loans, however, will no longer be interest free; instead, interest will be charged at the rate of 3% above the rate of inflation each year. Any debt still outstanding after 35 years will be written off. Overall, this is not a bad model for the students, and I doubt whether its provisions will put many students off higher education.