Tuesday, 31 May 2016

University Finances and the Greek Economy

The connection between Government policy on university funding and the European banking crisis provoked by over-spending in Greece and other countries is not an obvious one. But it’s there.

Under new proposals, universities will be penalised for low scores on the quality of their teaching with enforced lower tuition fees, as a further extension of the market into the tertiary education sector. This will be trialled in 2016/17, with limited implementation in 2017/18 and greater impact in 2018/19. The full impact is likely therefore to be felt in the third year of our current Y13 pupils’ university experience. There’s a major problem with the proposal, and the Government is going to need to mitigate this effect, or the consequences for some universities, and for public confidence in universities is going to be acute.

Any university which is unfortunate enough to be penalised in the manner the Government intends will face the prospect of a ‘death spiral’ in which lower fees  (in real terms at least) are imposed because of below-excellent standards of teaching (though we don’t, of course, know exactly what that means). We do know that the highest standards of teaching at universities are generally found at the universities which spend the most on each student, particularly those whose endowments mean that they can spend more than they receive per capita. Given that increased spending results in better teaching, it’s reasonable to suppose that the funding cut associated with an adverse assessment will lead to spending cuts which necessarily reduce the product to students further. And, of course, the university is likely to find applications dip too, so the average ability of their intake will fall. The next assessment of teaching will take place against a series of factors which have made it harder for the university to sustain its previous rating, let alone improve it. Another adverse rating, a further funding cut, fewer (still) applications. We can see where this is going.

In theory of course, this will lead to inadequate universities going out of business. This is fine if your career in politics or the Civil Service has already taken off. But it’s absolutely not fine if you are a student at the university in question. And the developments which will assist a student to transfer from one degree to another at another institution are not yet clear. There’s a risk that an investment of tens of thousands of pounds by students (in the form of unsecured debt) will then be worthless. Other universities may take on such students, but it will be entirely a matter of goodwill, even if credits can be carried with a departing student to their new tertiary education provider. There appears to be no ‘bond’ between universities which ensures that such students will be able to find a place at a similar institution. There should be.

This, in turn, means that students should be extremely cautious about applying to universities which could be in any kind of financial difficulty, lest they end up marooned mid-degree. And therefore schools need to be very careful, as agents in the university choice process, about the advice they give.

Where’s the connection with the European banking crisis? The main problem with the European capital markets is that they are structured in such a way that risk trickles down through the system until all the highest risks end up in the same place. A Greek default risks the solvency of particular banks therefore, rather than being spread across the whole financial sector. This, as we know, is fine, until some what has been merely risk becomes reality. Universities had better hope that, if the Government gets its way, the risks to them don’t become a reality, because they won’t be spread across the sector, they will funnel down to particular institutions.