In the shake-up to come, no guarantees for anyone

Lord Browne's review of student fees and finance - if implemented in full - will have a huge impact on the structure of the sector. Here we examine the likely outcome for different types of institution of higher fees coupled with a massive loss of teaching funding following forthcoming cuts

October 14, 2010

THE ELITE RESEARCH INSTITUTION

• Government funding as a share of income: 20 per cent

• Split between research and teaching grants: 67 per cent/33 per cent

• Share of teaching grant for band C and D subjects (mainly arts, humanities and social sciences): 40 per cent

With its low reliance on state funding and with a greater proportion of public funds likely to be directed towards research rather than teaching, this institution should be free to compete on level terms with the world's best.

If the cap on domestic student numbers at each institution is lifted so that universities may compete for students, its reputation will ensure that it can expand to meet demand - even while charging higher fees.

It may still need to dip into research money to help fund some undergraduate courses that are no longer subsidised and where it has to charge lower fees, but it is likely to be keen to continue offering such subjects to maintain breadth of provision.

If, however, fees are capped in some way - and Lord Browne recommends that there should be no hard cap - this university could struggle to maintain income and may have to consider boosting its proportion of international students.

THE SECOND-TIER RESEARCH INSTITUTION

• Government funding as a share of income: 30 per cent

• Split between research and teaching grants: 40 per cent/60 per cent

• Share of teaching grant for band C and D subjects: 60 per cent

This university is likely to find itself in the midst of cut-throat competition between similar institutions. Three factors will be vital to its future: the nature of the fee cap, whether the number of places is restricted, and the distinctiveness of its mission.

If it cannot recoup the likely loss in teaching funding from higher fees - for example, if demand from students falls as more prestigious research institutions begin to offer more places - it will be forced to turn increasingly to the international-student market to stay afloat.

"That is going to be possible only for institutions with international reputations - but those very institutions are going to be the ones where there is the most pressure on costs," said Anna Vignoles, deputy director of the Centre for the Economics of Education.

There is also the risk that such universities will suffer a "second knock at the door" in the form of budget cuts if research funding is concentrated further on the elite.

THE TEACHING INSTITUTION

• Government funding as a share of income: 45 per cent

• Split between research and teaching grants: 10 per cent/90 per cent

• Share of teaching grant for band C and D subjects: 70 per cent or higher

The likely loss of teaching funding could leave this institution in financial trouble unless it quickly develops a specialist business model that sets it apart from its competitors.

However, its fate will be sealed by whatever is done with the cap on numbers across the academy, which Lord Browne says should be scrapped for individual institutions.

Neil Shephard, director of the Oxford-Man Institute at the University of Oxford, said that if the restriction on numbers stays, then even a teaching institution is likely to charge £6,000 to £7,000 in fees as it would have no other choice given the loss of subsidy. He also predicted that such a rise would not affect demand as much as is thought.

However, if the numbers cap for each university is lifted, then the market will be unleashed and this institution will be forced to slash fees to compete.

Anna Vignoles, deputy director of the Centre for the Economics of Education, warned that arts and humanities subjects could be abandoned by such a university.

"In a lower-ranking institution with no research income ... the only outcome would be the closure" of those courses, she said.

SPECIALIST NON-SCIENCE INSTITUTION

• Government funding as a share of income: varies

• Split between research and teaching grants: varies

• Share of teaching grant for band C and D subjects: 100 per cent

Such an institution has the distinction of receiving no government teaching funding for high-cost subjects such as medicine or laboratory-based science.

Should the teaching grant be removed completely from arts and humanities subjects and replaced with fee income, this institution's undergraduate teaching will in effect be privatised.

This raises the question of whether such a university should continue to be subject to the same regulatory controls as other institutions that continue to receive public grants for teaching.

If Lord Browne's recommendations are implemented, then the general financial health of such an institution will depend on its reputation, its international standing and its ability to occupy and control a niche in the market. If it proves itself on these criteria, it will flourish because it will be able to command income from domestic and international students.

However, if it lacks a distinctive mission and is bedevilled by a poor reputation, it could end up being merged into a larger nearby university or even disappear altogether.

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