The value of university

By Guy Miscampbell, Senior Research Fellow

If any policy issue has cut through the Brexit noise in recent months, it is higher education funding. The publication of long-term graduate earnings data and upcoming Augur Review have put HE funding under the spotlight, and rightly challenged the long-held assumption that the radical expansion of universities in recent years has been unequivocally good.

In January, Onward’s report, A question of degree, and our follow up research note, Giving universities a bad name, created a fair amount of debate in the mainstream and trade media.  The research also cut through at a cultural level: it is not every day that our reports are covered by Cosmopolitan Magazine, Vice and Farmers’ Weekly.  We welcome this discussion and hope it can lead to a more sophisticated debate about the value of university, for what, and for which people. This blog is a short response to various questions and comments we have received.

1. “It is not just about graduate earnings. Universities are about more than that.”

Lots of people did not like the fact that we talk about the value of higher education in terms of long-term graduate earnings.  In fact, in our report we repeatedly argue that it’s not the only reason for someone to go to university.

But if we are talking about a subsidy of up to £50,000 from taxpayers to students then we need to justify it. Graduate earnings are a very good proxy.  Many people go to university because they think it will give them a better career, and a better life. For the last twenty years, politicians have told them that it will.  It matters that in some cases this appears to be untrue, to the individuals who earn less than they would have done had they not gone to university, and to taxpayers who foot their bill.  

This is not to say that some courses are not valuable in other ways, but it is to question whether all taxpayers (including millions on low incomes and millions without basic reading and writing skills) should pay for students to study these courses.  Nor are we saying that every graduate has to earn as much as a banker.

We are saying that the bottom 10% or so of courses are showing limited economic value, and it’s not clear they’re generating any other value that would justify the amount we spend on them. There may be exceptions, for example some exceptional music and dance courses, but the point in general holds.

2. “Creative arts courses hold intrinsic value that means they should be exempt from this type of assessment”

A number of arts organisations took umbrage with the fact we highlighted that Creative Arts courses were the most popular type of degree, with 162,000 students enrolled, but the least valuable in terms of graduate earnings. We think that is important for both prospective students and taxpayers to know.  

We do not want the Government to shut down all creative arts courses: some deliver great value for students in both economic and cultural terms. This was one of the most interesting things about looking at the data has been the variation within subject bundles: the top quartile of some creative arts courses earn quite a lot, and the bottom quartile often earn a lot less.  

The same is true for other subjects. In a few cases the worst performing and the best performing graduates in a subject area are in the same university. Geeks like myself will have hours of fun trawling through the data in this set of DfE statistics.

This is why we state that a blanket end to creative arts courses is “clearly not a reasonable or desirable policy,” and we use it only to demonstrate savings that might be gained from stopping low return courses. However, what it probably does tell us is that across the board there are course/institution pairings delivering low, or no, value for their graduates.  And the fact remains that the majority of creative arts courses are not economically worthwhile for students or taxpayers.

3. “What you are proposing amounts to bureaucratic central planning”

The good folk at HEPI seem to have misread that our report suggests the gentleman in Whitehall knows best and that we support bureaucratic central planning.  Nowhere in our report do we propose central planning and we actually favour a graduate earnings threshold operated at university level, allowing institutions to decide which courses to offer provided their graduates on average reach a certain level of graduate earnings.

But we agree with the Department for Education that we must “crack down on institutions which are delivering poor outcomes for students.”  With the vast majority of courses costing the maximum amount and imperfect information for students on earnings until now, the HE market has not been operating as a very efficient market. It appears that some universities, insulated from the costs of low returns, are driving up enrollment in low return courses, and creating a deferred cost for the taxpayer down the road.

Solving this means changing the incentives universities face.  We laid out options on page 36 of our report. These could also include regulating maximum fees, targeted grants for high-return courses, minimum requirements for loan eligibility, or other methods that make universities internalise some of the costs. Some of these are hardly new ideas; the Browne Review proposed a minimum entry standard in 2010.

4. “Vice-Chancellors are actually being rewarded fairly”

Despite a well-publicised explosion in university remuneration in recent years, some people have defended vice-chancellors’ pay rises. Different factors affect Vice-Chancellor pay. Unsurprisingly those with the highest raw pay are, on average, delivering higher returns for their graduates. However, we found that this was not the case with the biggest changes in pay – those that have seen their pay rise fastest since the introduction of higher student loans deliver the lowest average earnings for students.

A simple regression analysis controlling for their current level of pay, the number of students, and the annual turnover of the university, we found that there was a statistically significant association between increases in VC pay and declines in expected earnings for both male and female graduates (You can see the regression outputs here, or email me to discuss the details/methods/variables).

Our results found that the lowest tenth of universities by graduate earnings increased their vice-chancellor salary by 24% between 2012 and 2017. Holding all things equal, this looks suspiciously like rewards for failure. Revealingly, the strongest response we’ve seen so far was from the UCU who stated thatthe suggestion that vice-chancellors’ pay rises are anything other than arbitrary is perhaps a little fanciful.”  We don’t think pay rises should be arbitrary, especially when subsidised by taxpayers: they should be based on performance.

5. “Geography matters and you have not accounted for this”

People have pointed to the fact that the data does not account for geography. According to this argument, the place of a university, student background, and where the graduate lives and works afterwards, are all linked in a way that would explain at least some of the variation.

We agree. While we were able to account for prior attainment, the lack of geographic weighting is still a limitation in the data, which feeds into our analysis (and others’, such as the IFS). Luckily, it is a gap the DfE are aware of and we hope they will release the data in the future to allow us to improve our research.

Where does this leave us?

Patiently awaiting the release of the Augar review. But in the meantime you can reach me on [email protected] if you are interested in more details on the research.