Alma mater earnings data: ground zero sums?

Martin McQuillan warns of a possible Manhattan Project for the sector

June 20, 2013

Such actuarial analysis risks turning universities into the engine that entrenches social inequality in England

If you think that the contents of the Browne review and its (partial) implementation by the coalition government has created a crisis in English higher education, you ain’t seen nothing yet.

As was recently reported in these pages, a research project into the so-called “variable human capital measure” is under way, the aim of which is to match the earnings of individual graduates with the university they attended, the subject they studied and their student loan repayment history. Involving unprecedented access to the PAYE tax records at HM Revenue & Customs linked to Student Loans Company information, the research will investigate an initial sample of 170,000 graduates.

The consequences of this research are far from being of mere “academic” interest: our politicians are already eyeing the project, with potentially far-reaching consequences. Why?

Because the fundamental problem with the present system of student finance is that the resource accounting and budgeting (RAB) charge (the percentage of loans that will never be repaid) currently stands at 39.4 per cent, according to the Institute for Public Policy Research (other similarly eye-watering estimates are available): this makes the current dispensation fiscally unsustainable. At the same time, the introduction of a cap of £9,000 on undergraduate tuition fees has failed to produce the differentiation in charges the government desired.

If the data are robust, they could be used to address both problems. For example, a soft fees cap of £6,000 might be introduced, with universities held liable for the repayment of anything higher than that. Only institutions able to convince the Treasury that their graduates are good creditors would be allowed to continue to charge £9,000.

It is worth speculating about this and other possibilities because the results could be so serious. This could be the equivalent of the Manhattan Project for universities in England.

Under one scenario, the fees cap might be lifted for universities whose records reassure the Exchequer that the borrowing would be repaid. By the point of policy implementation, this might not even depend solely upon graduate earnings but also on institutions’ ability to take on the liability of the RAB charges associated with their graduates: hence, universities with large endowments or the capacity for successful bond issues could be allowed to charge higher – even limitless – fees.

Meanwhile, institutions with relatively poor graduate employability rates and earnings would have their access to the loan book capped. Caps could even vary by subject, allowing universities to charge more for courses with good graduate earning potential (such as dentistry and business studies) but limiting fees for other subjects (such as art and design or initial teacher training).

Such a policy, of course, would fundamentally change the nature of higher education. Rather than employability being a matter of reputation, it would become core to the sector’s business model. Universities would be incentivised to run courses with high graduate earning potential at the expense of a comprehensive disciplinary offering. At this point, all bets would be off as to which universities would continue to persist with the humanities over, say, pharmacy.

There would be significant problems with the figures, however. When measuring the salary of graduates over some 20 years, the data have to be questionable: a graduate’s earnings over that timescale may have little to do with what they studied as an undergraduate, or be more obviously related to a postgraduate qualification earned at another institution. Their wages may even be more closely tied to the social advantages they had before they attended university.

However, such subtleties might be lost on politicians keen on a quick fix for the fiscal cost of loans, and on vice-chancellors anxious to secure hierarchical divisions in the sector. Used unscrupulously, such actuarial analysis risks turning universities into the engine that entrenches social inequality in England when they were once the means of its amelioration.

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