Business schools need to be realistic with costs

Much academic and administrative time in UK universities is currently focused on the upcoming Research Excellence Framework exercise. However in focusing so much attention on this particular metric, the UK may be in danger of losing sight of an even greater challenge to the long-run viability of a number of higher education institutions: adjustments to the scale and magnitude of the UK’s current student loan arrangements.

In the US, serious concerns based on recent federal data have emerged about its student funding model. A typical example noted that overall delinquencies on student loans now exceed credit card debt The central message seems clear: the current regime for student loans in the US is not sustainable. What implications does this have for the English system?

There is some dispute as to whether the student loan scheme in England should be seen as a loan system, a graduate tax, or even a “no win-no fee” arrangement. The reason for this dispute is pretty clear: the actual scheme is rather a complex mix of all of these. In particular, it is closest to a loan scheme in the short-run but when it comes to repayment it is a progressive tax arrangement up to an absolute cap.

Two problems seem to have arisen with the arrangement. While the short-term “loan” arrangement helps from a policy viewpoint to avoid any suggestion that the loans should be treated as public expenditure, the general public, quite rightly associates loans with debt and worries a great deal about an accumulated loan of up to £50,000 at graduation. At the other end of the process, which can be as long as 30 years, there is quite possibly going to be a very substantial charge on the public purse to cover defaults. It is no surprise therefore, that there has been disagreement as to the best forecast of the amount of money that will not be repaid, commonly referred to as the resource accounting and budgeting (RAB) charge. A recent paper from the Higher Education Policy Institute – a UK think-tank – suggested that the available government estimates were possibilities. However, it said that there were more reasons, particularly those related to economic austerity leading to slower average growth and wider dispersion of individual graduate incomes, that suggested a higher RAB charge than the government has estimated.

The implication of this analysis is that austerity will cause significant problems for many universities. Both directly in terms of demand for student places (reduced aggregate numbers and increased competition) and also through the further squeeze on government expenditure. For those subject areas outside the relatively protected stem subjects (science, technology, engineering and mathematics) the pressure will be even greater.

This means that business and management schools, which now account for about 15 per cent of all higher education students – and a greater proportion of both postgraduate and international students – will need to give more emphasis to ways in which they can reduce their unit costs without negative effect, but hopefully with some positive, on the overall student experience. It is at least partly true that many such institutions have responded to such pressures by increasing the numbers attending lectures and seminars and, where group work is involved, increasing the size of the groups. Much of the talk nowadays is about “balanced learning” but it will now need to be put into practice more quickly, cost effectively and radically. In broad terms these are not new pressures but they are likely to become much more severe and in a context in which universities may still see their own business and management schools as providing significant subsidies for other activities within the overall teaching portfolio.

A long-run sustainable solution will require significant action in individual institutions and across the whole sector. This will mean realistic choices being made not only about revenue and margin targets, but also around pricing and volumes. Within the sector, almost every supplier currently seems to be attempting to charge premium prices and claiming an elite position. Overall this will simply not add up. Indeed, even among the elite, the overall learning experience will need to be both high touch and high-tech. After all, we have been quite used to arguing that the worth of a taught and accredited module is substantially more than the cost of the requisite textbook.

Some of the effects of the student loan scheme itself will take considerable time to become evident to all, but it can only add to the rising pressures on universities to initiate more rapid and radical change.

The author is emeritus professor of policy and marketing at Warwick Business School