What Dearing says

A NEW "compact" between the main stakeholders in higher education - the Government, students and their families, employers and institutions - is the guiding principle behind Sir Ron Dearing's funding proposals.

Together, they must meet what the report sees as "the unavoidable additional costs" of a higher education system capable of sustaining Britain's economic competitiveness as well as people's educational and career aspirations.

Funding requirement

These additional costs, as calculated by the committee, run into the billions - even after efficiency savings of Pounds 580 million a year and the expected gain of Pounds 200 million from the use of information technology in teaching. Without more money, "there is a real danger that the potential long-term contribution of higher education may be undermined by short-term decisions by institutions in the face of current funding pressures", the report says.

Funding cuts set by the last Government of 6.5 per cent over the next two years are not achievable without significant damage to the quality of the student experience and research, it adds. This immediate threat should therefore be cut back by limiting reductions in funding to 1 per cent per year for two years, at a total cost of Pounds 370 million.

The report calls for a new low-interest loan scheme for new buildings and equipment, to help compensate for an estimated Pounds 250 million a year shortfall in capital funding. These and other measures including resumed expansion would cost Pounds 350 million in 1998/99 and Pounds 565 million in 1999/00.

In the longer term, the report calls for a series of 20-year projects: * better support for part-time and disabled students and doubling of Access funds, costing about Pounds 40 million a year after 20 years

* full-time student participation rates to be allowed to rise to 45 per cent, with a price tag of an extra Pounds 2.1 billion a year. The cost of this growth might be reduced by Pounds 520 million a year if half of the extra numbers are concentrated in one- and two-year courses

* an extra Pounds 110 million a year so that the research councils can increase their contributions to project overheads

* remission of fees for part-time students in receipt of a Job Seekers Allowance or on family benefits, an idea borrowed from further education in England, would cost Pounds 50 million a year

* Pounds 50 million a year to promote industrial partnerships through the Industrial Partnership Development Fund

* plans for an Arts and Humanities Research Council would add Pounds 25 million a year

* a real pay rise in line with other parts of the community, costing Pounds 600 million a year after 20 years.

Who pays?

The report's overall conclusion is that students should contribute more to the cost of their higher education. Studies carried out for the committee showed a strong link between participation in higher education and higher subsequent earnings. A bigger contribution to the sector's overall costs from graduates in employment therefore seemed a reasonable approach to finding the extra money needed.

But the committee also notes "the Government's desire over the long term to increase the proportion of national wealth directed to education and training", and so also recommends that public spending on higher education should increase with the growth in Gross Domestic Product (Rec 71). Employers, too, should have a role in meeting the bill through sponsorship, bigger contributions to research, and support for continuing education.

After examining a number of options, its preference on balance (Rec 79) is for a system of student payment under which all graduates make a flat-rate contribution of about 25 per cent of average tuition costs (a contribution likely to be about Pounds 1,000 a year), paid at the time of study or by repaying a loan on an income-contingent basis once in work. The proportion of tuition costs to be met by students should not be increased without an independent review and a resolution in both Houses of Parliament. Support for living costs would stay in their current form, with half through loans (though on an income-contingent basis) and half means-tested grants.

The report turns down options to remove maintenance grants and transfer living costs to loans, with no contribution to tuition costs; to transfer all living costs to loans and introduce a means-tested contribution to fees, with no loans available for fees; or to revert to maintenance grants only, with a flat-rate contribution to fees.

The report suggests the Government should structure any new arrangements to cover contributions to tuition costs so as to maximise the proportion of students who pay in advance rather than taking out a loan. This could be achieved either by means testing access to the loan, or introducing a real rate of interest. The report says on balance it prefers not to means test loans, but adds: "We recognise that means testing would release substantial additional funds in both the short and the long term, and it is an option which the Government may have to consider if it cannot solve the short-term funding problems in any other way. The decision on its acceptability to society is essentially a political one."

If neither means testing access nor a real rate of interest are introduced, Dearing recommends offering discounts to the fee contribution to students who pay in advance, along the lines of the Australian model.

The report warns that simply increasing the size of the graduate contribution will not, if supported by an income-contingent loan, necessarily increase the flow of funds to the Treasury or to higher education. And it adds that any option that attempted to raise all the extra money needed "would produce either an unacceptable burden on graduates and on families of modest means, or would lead to a level of graduate commitmentI such that demand for higher education and participation would be seriously affected."

For the long term, it says "it would be more equitable for taxpayers in general, rather than the parents of students, to meet some of the cost of an expansion of higher education".

Introducing a fee contribution for full-time students will go some way towards addressing the inequity of treatment between full-timers and part-timers, who already pay fees, the committee says. It would cost too much to extend loans to part-time students. So instead the report suggests waiving fees for part-timers in receipt of a Job Seekers Allowance or on family benefits (Rec 76). Part-time students should also become eligible for access funds. A limited number of vouchers to help cover tuition fees should also be provided for dance, drama and stage management students. But no extra support should go to postgraduate students, other than loan repayment arrangements which take account of their circumstances.

The report says a severe problem with the Government providing loans to students is the way they are treated in the national accounts. The value of the loans is scored in the same way as grants, with repayments counted as negative public expenditure. This means any options changing grants to loans produce no short-term savings. The report therefore recommends the Government looks urgently at alternative approaches to accounting (Rec 80). It also suggests that Government plans to sell student loans to the private sector "may well represent poor value for money".

Fee paying arrangements

In the short term, Dearing suggests that the Student Loans Company, which should "form the nucleus of any future student support agency", could handle loans for maintenance and tuition. Mortgage-style deals to transfer fee contribution funds to institutions, requiring students to sign a contractual commitment, would ensure money advanced for maintenance and tuition was treated differently.

The report recommends that the Inland Revenue should be used as the principal route for collecting repayments on fee loans, rather than the national insurance system, which could prove excessively bureaucratic (Rec 82). The income threshold at which repayments are triggered should be lower than under the current loans system, but much higher than that for national insurance payments, it adds.

In the longer term, responsibility for maintenance grants, loans, other student support, means testing, and administering publicly-funded tuition fees, should pass to a new unified Student Support Agency (Rec 83). The committee suggests that in time, Individual Learning Accounts might be set up to help students save towards the cost of their higher education, and to attract contributions from employers. However, it concludes that "a good deal more work is required to define the exact nature and purposes of ILAs, and to sell the idea to individuals, employers and others."

Funding learning and teaching The committee wants a system for funding teaching that combines the stability and control of the block grant with the market responsiveness of an approach where cash follows the student. It recommends a gradual shift from the former to the latter, with a target of distributing at least 60 per cent of public funding to institutions according to student choice by the year 2003 (Rec 72).

An important and potentially controversial step in this direction would involve any student contributions to tuition leading to a reduction in block grant.

A central proposal in the committee's funding plans is for the creation of a single Student Support Agency (Rec 83). The agency, built around the Student Loans Company, would be a national one-stop shop for handling student support covering living costs and tuition contributions; keeping track of how much financial aid students have "used up" as they progress through higher education and perhaps dip in and out of courses; and administering the student choice element of public funding of institutions. It would take over the latter from local authorities in England and Wales, the student awards agency in Scotland, and the Education and Library Board in Northern Ireland.

Ideally, payments to institutions would be linked to a national credit framework, rather than on a yearly basis as now. This longer term change would follow the creation of a more flexible system, under which students could study full-time for periods of less than a year.

The report recommends variations in the level of public funding for teaching between institutions, allowing only modest variations in approved cases (Rec 74). Under this proposal, college fees at Oxford and Cambridge would be reviewed.

But the report does not rule out different levels of fee charging by institutions providing quality is safeguarded and tested, extra fees are not covered by public funding of students, bursaries are provided by institutions, and extra fee charging is not widespread.