Priced out of postgraduate education

Students who want to do master’s degrees are stymied by a lack of state finance. Paul Jump investigates how funding can be fixed

September 18, 2014

Source: Miles Cole

Of the 29,155 additional postgraduate starters at UK universities in 2007-08 compared with 2002-03, only 5,599 were home students

When a student was offered a scholarship to do a master’s degree at the University of Manchester this year, he burst into tears and said that it would change his life.

According to Tony Strike, director of strategy, planning and change at the University of Sheffield, such stories illustrate that there are currently a large number of people who would jump at the chance to undertake taught postgraduate study if only they could afford to do so.

The scholarship was one of 426 given out as part of a £4.3 million scheme co-funded by the Higher Education Funding Council for England’s Postgraduate Support Scheme and the universities of Sheffield, Leeds, York, Warwick, Manchester and Newcastle. The Sheffield-led scheme, which focused primarily on courses relating to the professions, was five times oversubscribed.

Nor is that level of demand an isolated case among the scheme’s 20 pilot projects. The University of Oxford scholarship scheme aimed at poor and under-represented postgraduates had a 75 per cent application rate from those eligible, while about 140 home postgraduates have applied for 100 loans offered by Cranfield University (see ‘Funding sources: the postgraduate support scheme’ box).

The £25 million Postgraduate Support Scheme was hastily established last summer to explore the best ways of spending the annual £50 million in funding reallocated, from 2015-16, to “remove financial or cultural barriers to participation in postgraduate education” after the £150 million undergraduate National Scholarship Programme was scrapped in 2013.

The reallocation illustrates how the issue of postgraduate finance has risen to political prominence over the past few years, culminating in the announcement that the government will set out its proposed solution to the acknowledged problems in this year’s Autumn Statement, due on 3 December.

In 2009, the Panel on Fair Access to the Professions, headed by former Labour Cabinet minister Alan Milburn, noted that postgraduate degrees “have increasingly become an important route into many professional careers”. Lamenting the lack of a “student support framework equivalent to the framework for undergraduates”, it concluded that “if fair access is to be possible, this issue will need to be addressed”.

It is certainly true that existing support for taught postgraduates in particular is paltry. While postgraduate research students still have access to a significant number of studentships funded by charities and the research councils, the latter scrapped their support for master’s students following the 2010 Spending Review. Even before that, Sir Adrian Smith, vice-chancellor of the University of London and former director-general of knowledge and innovation at the Department for Business, Innovation and Skills, estimated in his 2010 report One Step Beyond: Making the Most of Postgraduate Education that about 30 per cent of postgraduate researchers and 60 per cent of taught postgraduates did not receive any support for tuition fees or living costs.

Bank-administered professional and career development loans permit students to borrow up to £10,000, with the interest paid by the government while they are studying. But the loans are shunned by most students, probably on account of the perceived harshness of their repayment conditions, and several banks have recently withdrawn from offering them. They must be paid back within five years, beginning a month after graduation, at an annual interest rate of 9.9 per cent.

Some alternative finance options are becoming available on slightly better terms, but they remain small-scale and even the companies offering them admit that they are unlikely to appeal to students on an academic track or those heading into lower-paid professions (see ‘There is another way: alternative finance options’ box).

Despite this deficit, Lord Browne of Madingley’s government-commissioned Independent Review of Higher Education Funding and Student Finance, which was also published in 2010 and paved the way for £9,000 undergraduate fees, dedicated just one page to postgraduate education, dismissing the case for extending the undergraduate student loan system on the grounds that participation in taught postgraduate courses increased by 25 per cent between 2002-03 and 2008-09; the private benefits of taught postgraduate education were “predominant” over public ones; and there was “no evidence” that the absence of support “has had a detrimental impact on access”.

Smith’s review also found “little in the way of robust evidence on whether the cost of postgraduate study and the lack of student support prevent those who would otherwise have pursued postgraduate study from doing so”, although it acknowledged that “anecdotal feedback from both students and [higher education institutions] is that this is an issue”.

According to Nick Hillman, director of the Higher Education Policy Institute and, until last year, special adviser to David Willetts, then universities and science minister, Lord Browne’s “cursory” treatment of the issue was a key reason why the government did not address postgraduate finance. “If the report had gone into the issue, the government would have had to have a position,” he says.

Other factors included the squeeze on public spending and a sense that repayments for graduates of the £9,000 fee regime would, in practice, be no more burdensome than for previous cohorts. However, warnings soon began to be sounded that home postgraduate fees would rise in line with undergraduate fees, pushing them beyond the reach of all but the richest.

Those fears have been only partially realised. As reported last month in Times Higher Education, figures obtained by the Complete University Guide indicate that the average cost of classroom-based postgraduate courses for home students in 2014-15 rose by only 1.2 per cent compared with 2013-14 – although it rose by 7 per cent the previous year. The average fee of £5,680 is still a mere fraction of the £13,500 originally feared by Paul Wakeling, a senior lecturer in education at the University of York, who has been asked by Hefce to draw together the lessons of the Postgraduate Support Scheme pilots. One reason may be that Hefce has maintained teaching funding for taught postgraduate courses – although it is currently unclear whether that support will be continued in 2015-16.

Another major post-Browne concern was that students saddled with large undergraduate debts – the first cohort of whom are due to graduate next summer – might be less willing to shell out even more for postgraduate study; Hillman says that he visits universities “a lot” and “they all tell me there is going to be a crisis”. But he is unconvinced, given that a significant proportion of postgraduates do not come straight from undergraduate study.

Wakeling is also a little sceptical. For him, the recent strengthening of the political case for widening participation at postgraduate level relates more to the fact that the growth in the number of graduates and the “tightness” of the jobs market mean that students are increasingly seeking postgraduate qualifications to mark themselves out from the crowd.

Andy Westwood, chief executive of GuildHE and a former Labour Party special adviser, argues that “a lot of the heavy lifting in life-chances terms has already been done” by the time people are thinking of doing a master’s degree – particularly if they have already spent time in the workplace.

But some vice-chancellors disagree. In January 2013, the heads of 11 universities, most of them Russell Group members, wrote a letter to The Observer to complain about the “economically disastrous and socially divisive” neglect of taught postgraduate funding, and to urge ministers to come up with a funding solution for those put off by high fees.

They pointed out that whereas overall postgraduate numbers have risen significantly in recent years, home postgraduate numbers have fared less well. According to a 2011 CentreForum report, Mastering Postgraduate Funding by Tim Leunig, who is now chief adviser at the Department for Education, of the 29,155 additional postgraduate starters at UK universities in 2007-08 compared with 2002-03, only 5,599 were home students. And a 2013 report for the now defunct 1994 Group by Amanda Chetwynd, provost for student experience, colleges and the library at Lancaster University, said that home taught-postgraduate starters had dropped by 12 per cent over the previous three years.

According to Hillman, the implications of this decline have finally caught the government’s attention. The 2014 Budget document states: “The changing nature of the labour market is demanding higher skilled workers. There are, however, potential barriers in the postgraduate system that may be restricting the supply of these higher skills.” The coming announcement on postgraduate finance is billed as a way to “ensure the UK can compete successfully in the global economy”.

Another thing that has changed, says Hillman, is that there are now several “good ideas” around. The first of these is contained in Leunig’s 2011 report. His widely praised scheme would see the government offering taught postgraduates income-contingent loans of up to £10,000 on the same terms as undergraduate loans. Postgraduates would repay 9 per cent of their annual income between £15,000 and the £21,000 threshold at which repayment of undergraduate loans kicks in for the £9,000 fee generation.

Leunig’s scheme was also endorsed by the Institute for Public Policy Research in its 2013 report A Critical Path: Securing the Future of Higher Education in England.

In 2012, the National Union of Students drew on Leunig’s plan for a scheme of its own, which would offer up to £6,000 a year to taught postgraduates on similar terms to undergraduate loans. This would be supplemented by a scheme for part-time students, co-funded by the government and employers, and a programme run in collaboration with professional bodies aimed at boosting diversity in the professions by providing loans to students who received full maintenance grants as undergraduates.

Miles Cole illustration (18 September 2014)

Individual institutions’ negotiations with banks have been ‘protracted and unsuccessful’, with the banks asking: ‘Who is guaranteeing the loans?’

Then, in June this year, the University Alliance proposed an Australian-style scheme called HELP UK that would give all students a lifetime income-contingent loan allocation. The mission group proposed that this should first be rolled out for postgraduates, with £9,000 a year offered. In his recently published pamphlet for the Social Market Foundation, called Robbins Rebooted, Liam Byrne, Labour’s shadow minister for universities, science and skills, praises the “compelling” Leunig/IPPR proposal, as well as the University Alliance’s “important alternative”. Funding permitting, both ideas should be given “serious consideration” by an incoming minister in 2015, he says.

Hillman is surprised that the government, for its part, has apparently committed itself to announcing a solution to the postgraduate funding issue ahead of a general election and before Wakeling’s report on the Postgraduate Support Scheme, which is not due until early next autumn. Hefce also expects to make an announcement later in the autumn on how it will spend the £50 million redirected from the National Scholarship Scheme. Sheffield’s Strike is already convinced that the best solution would be a national version of his scholarship scheme targeted at poor and under-represented groups, particularly for courses related to the professions. Other commentators point to the difficulties of defining postgraduates’ socioeconomic status, however. The NUS document that sets out its plans describes the task as “almost impossible” since “at the age of 21, graduates become independent from their parents and so parental income is not a useful indicator of need; still less when the prospective postgraduate is in her thirties and has a career and a family to support”.

One significant brake on the extent of any government scheme is the squeeze on public spending that, as Hillman notes, is likely to see the BIS budget shrink further in the coming years. There is also concern about the sustainability of the undergraduate loans system, with current official estimates suggesting that 45 per cent will never be repaid. But the restricted number of loans in the NUS’ main scheme would be available only to students with a first or upper-second class degree at universities that agree to cap their fees at some level – perhaps £6,000 – while the interest rate charged would be “high enough to make the overall structure cost-neutral”.

The University Alliance scheme suggests repayments would come out of a graduate’s total salary once it passed £21,000. This means postgraduate loans would be repaid within seven years, minimising the chances of loans being written off.

Hillman approves of some of the cost-minimising features of Leunig’s scheme, such as its classification as a loan for maintenance rather than fees, meaning that students from the rest of the European Union would not, in principle, be eligible. The £10,000 borrowing limit would discourage fee inflation, while students who had already paid off their postgraduate loan would continue to repay their undergraduate loans out of all earnings above the lower £15,000 threshold. He also wonders whether it would be legally possible to restrict it to students who paid £9,000 undergraduate fees, while another cost-minimising option would be to charge a fee on top of the loan, as happens in Australia’s postgraduate loan scheme.

Leunig himself estimates that about 86 per cent of his proposed loans would be repaid and that the government’s losses would be compensated for “many times over” by an increase in tax revenue; the Sutton Trust has calculated that somebody with a master’s degree earns on average £200,000 more over their working life than someone with a bachelor’s degree.

So might the government adopt something like the Leunig scheme? Hillman notes that ministers are almost alone in being sanguine about the sustainability of undergraduate loans. This is indicated by Chancellor George Osborne’s announcement in his 2013 Autumn Statement that undergraduate numbers will be uncapped from 2015-16 – which Osborne predicted would bring another 60,000 students into the system. But Hillman says the Treasury will need to be convinced, as it was with undergraduates, that more postgraduates will mean more economic growth, and not just lumber it with “paying for a bunch of people who are going [to do postgraduate study] anyway”.

Another way to limit costs to government would be for universities to finance postgraduate loans themselves. Jon Wakeford, group director of strategy and communications at university estates company UPP, has suggested that groups of universities could raise the funding from bond issues. Days after leaving office in July, Willetts also suggested that universities could take on their own undergraduate loan debt to give themselves “a financial incentive to raise their game through pushing their students harder towards success in the jobs market”.

According to William Stephens, university secretary and head of the executive office at Cranfield, there is an “inescapable logic” to such suggestions: that if universities really believe their courses will lead to jobs, they should also assume the risk that they will not. But he warns that such an approach would result in universities’ accountants demanding the closure of courses with lower employment or earning potential. Another risk is that they would preferentially recruit men, who have higher earnings expectations than women.

“People should be able to study the sorts of things they want, and that isn’t always driven by jobs and money,” Stephens says.

Another suggestion is that, as with the NUS’ proposed scheme for part-time students, employers put up some of the money. Indeed, even the CBI urged businesses, in the 2009 report Stronger Together, to “provide some financial support to students to undertake postgraduate study, rather than to enter the labour market immediately”.

Rob Wall, head of employment and skills policy at the CBI, points to the “good work already happening in key strategic sectors”, such as the Aerospace Growth Partnership. Launched in 2010, this sees companies “match-funding government to provide a total of £6 million for 500 MScs”.

Stephens is also confident of attracting £4.5 million from industry for Cranfield’s loans scheme. Companies would not receive any return except, perhaps, their capital back some years down the line, but they would get “15 students every year, ad infinitum, studying courses relevant to them and their sector, including their supply chain”. However, he is waiting to approach likely companies until he has demonstrated “proof of concept”.

Strike’s discussions with employers indicate that although they are happy to offer more internships and advise on curriculum design, they are “not interested in putting up a scholarship”. Nor, he says, are donations likely to amount to enough to run a scheme such as he is suggesting.

However, the universities of Oxford and Cambridge have been busily amassing large endowments in recent years, portions of which are earmarked for graduate scholarships. According to Jane Sherwood, director of graduate admissions and funding at Oxford, the university is well on its way to amassing a £125 million pot, in line with its aim that no student should be dissuaded from applying for financial reasons. “Graduate scholarships have proved to be an incredibly popular cause with donors,” she notes.

Some observers are surprised that financial institutions themselves are not more willing to offer more generous loans to postgraduates, given their high earning potential. It is well known that Willetts held meetings with several banks while in office and Hillman notes that there is a view in BIS that “the banking sector has done quite well out of government in recent years and part of their corporate social responsibility might be to help the government resolve the postgraduate problem”.

In 2012, it was revealed that Willetts was speaking to Barclays about an improved version of professional and career development loans in which the bank shared risk with the government or universities. But a Barclays spokeswoman says that, more than two years later, there is still nothing further to report.

Stephens notes that, apart from Metro Bank’s agreement to offers loans to postgraduates at the University of Law, individual institutions’ negotiations with banks have also been “protracted and unsuccessful”, with the banks constantly asking: “Who is guaranteeing the loans?”

Most commentators conclude that the complexity of the backgrounds and motivations of taught postgraduate students means that a one-size-fits-all scheme is unlikely to be the ideal solution. Oxford’s Sherwood, for instance, would like to see a combination of a national loan scheme and lump sums given to universities to use as they see fit, based on their particular missions. However, she would reject a loan scheme if – as Willetts once warned – it came with restrictions on the number of students that universities could recruit, or what they could be charged.

For Wakeling, while “some sort of financial settlement” is required, it is not the only issue regarding the decline in home postgraduates. Others – which some of the Hefce-funded pilots are addressing – relate to undergraduates’ access to advice and guidance on postgraduate study. Research is also needed into which universities postgraduates come from, he says, to identify potential “cold spots”.

“The Postgraduate Support Scheme is looking at employability, shortage areas, fair access and social mobility. All might need different levers to address,” Wakeling says. “We wouldn’t want to subsidise people doing MBAs who are already working for a successful company as a manager.”

Westwood agrees, pointing out that a lot of the recent decline in home postgraduate numbers can be attributed to a decline in funding from the public sector for potential teachers, health service and local government workers to undertake postgraduate study.

He expects the Treasury to set up some kind of loan scheme, but he urges it not to rush in. Among other things, he worries that such a scheme might lessen universities’ incentive to innovate, such as by integrating courses more closely with employers’ applied research needs.

“This is all very complex,” he says. “It is not just about preserving an endangered system: it is also about lifting our heads up a bit and asking what kind of postgraduate system we actually want.”

Miles Cole illustration (18 September 2014)

Funding sources: the postgraduate support scheme

The £25 million Hefce-funded scheme is supporting 20 research and pilot projects in England this academic year, most of which will report their conclusions next autumn.

The largest project is a £4.3 million scholarship scheme run by the universities of Sheffield, Leeds, York, Warwick, Manchester and Newcastle aimed at boosting the supply of people from disadvantaged and under-represented groups into the professions. Worth between £10,000 and £15,000, 426 scholarships have been offered, but demand outstripped supply five times over. Hefce contributed £3 million to the scheme.

The largest single-institution project is run by the University of Oxford, which has been given £3 million to offer scholarships that, for the first time at Oxford, are allocated primarily on the basis of students’ financial need and socio-economic background. Topped up with £750,000 of institutional funds, the scheme is offering 115 scholarships to home and European Union students that cover full fees and offer nearly £14,000 in living expenses. According to Jane Sherwood, director of graduate admissions and funding at Oxford, this relative generosity reflects the fact that “even half a scholarship may be no good to someone if they have no money” and is also explained by the fact that the university competes for students with similarly generous Ivy League universities. All eligible students were invited to apply and 75 per cent did so.

Graduate-only Cranfield University is offering loans of up to £15,000 to its home postgraduate-taught students, co-funded by the university (£1.3 million), Hefce (£2 million) and – it hopes – industry (£4.5 million). Loans will be repaid over seven years at the same rate as undergraduate loans, beginning six months after graduation. The university has modelled for 10 per cent of the debt not to be repaid but it hopes that the figure might be even lower given that Cranfield attracts job-focused students in the relatively high-wage fields of management and engineering. The scheme, which will become self-sustaining after four years, has received about 140 applications for about 100 loans.

Durham University is conducting a feasibility study into the establishment of a credit union to finance low-cost postgraduate loans that would eventually become self-sustaining. The members of the union will be all Durham staff, students and alumni.

There is another way: alternative finance options

The lack of a postgraduate student loan scheme and the unpopularity of the high-street banks’ professional and career development loans have encouraged alternative financial providers to enter the market.

London-based Prodigy Finance was set up by three MBA graduates in 2007 to provide loans to MBA students at top business schools, financed by private investors. Graduates pay a typical APR of about 9 per cent and, according to the company’s website, $50 million (£30.2 million) has so far been lent worldwide.

In 2013, London-based social enterprise StudentFunder was set up with an initial focus on helping students fund master’s and professional courses via crowdsourcing. More recently, lending has become the company’s main focus. It commonly offers loans of up to £12,000 at a typical APR of about 8.3 per cent. An upfront fee of £480 is also charged. Students who lack a credit history in the UK can nominate a UK-based guarantor. If that is not possible, they can launch a crowdfunding campaign; if they raise £1,500 or more from 15 or more people, this “demonstration of social capital” qualifies them for a loan for the remainder. In its four months, it has had 660 applicants and its loans were 10 times oversubscribed.

Also formed last year is Dublin-based Future Finance, which offers loans of up to £40,000 to both undergraduates and postgraduates. Interest rates for postgraduates are 6 to 8 per cent after graduation for those with a good credit history and up to 11 per cent for those with an “average” one. Loans must be repaid within 10 years, but up to four repayment holidays of up to three months can be taken. A charge of 6.5 per cent is added to the total cost of the loan. Monthly repayments are capped at £75 while students are studying and full repayments begin three months after graduation. “In the universe of finance it is not exactly cheap but compared with the alternatives it is a very reasonable option,” says the company’s chief executive Brian Norton. Despite a low-key launch, the company has already had about 1,000 applications. “There is £50 billion spent on higher education in the UK each year. We are an additional option where government support isn’t available or isn’t enough,” Norton adds.

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Reader's comments (2)

I did my undergraduate dissertation this year developing a mutual idea. It's going to be published soon by a couple of think tanks but if people are curious, it's also on my blog: http://jockcoats.me/financing-postgraduate-education-mutual-approach
This article has some very positive suggestions, what was missing however was ways in which postgraduate education can be offered flexibly to allow students to combine with full time work to cover fees and maintenance. For example, distance learning and part time evening courses (as at Birkbeck) offer opportunities for wider access than traditional full time study.

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