Universities need to deliver value for money

Writing in The Times on Wednesday, Jo Johnson, the new Universities Minister, noted the disappointing statistic that almost half of students feel they do not get value for money from university teaching. To address this he said he planned to “deliver a framework focused on meaningful outcomes rather than box-ticking bureaucracy”. He recognised that “We need to ensure all students receive excellent teaching that encourages original thinking and prepares them for the world of work” and that “Students rightly expect their degrees to hold their value over time.”

It was encouraging reading. For a moment it sounded like the Conservatives were about to adopt the IEA’s proposed “Free Market Graduate Tax”, which blends Hayek, Friedman and Markowitz to align the interests of universities with those of their charges over the long term.

Sadly, the actual proposals offered up by Johnson failed to live up to the scale of the challenge. Rather than announce a new approach that ensured that incentives were consistent with the objectives he set out, he proposed no more than to “support external examiners” and “encourage more universities to adopt the Grade Point Average system”.

Not only is this minimalist and wholly lacking in imagination, it flies in the face of what has been learnt at GCSE level about problems with continuous marking, with Michael Gove keen to place more importance on the exams pupils take at the end of their studies, rather than on coursework.

Employers care far more about the work skills that a prospective employee has – their creativity, problem-solving ability, communication skill and teamworking – than they do about whether the student got a “high” or a “low” 2:1. Companies pay particular attention to the extra-curricular activities that students engage in as these show commitment and self-motivation and not simply slavish obligation. A focus on continuous marking could make it harder for students to take the time to engage fully in non-academic activities resulting in a wholly contrary effect on their employability.

Not only might the focus on the GPA diminish the employability of the graduate, it will in any case add little information of use to employers. They face the bigger challenge of trying to compare the abilities of graduates with the same grades but from different universities. Companies get round this by largely ignoring the grades after the CV filtering process – applying their own tests, whether simply in the form of an interview or a more formalised written test. Grade Point Averages plainly represent an increase in box-ticking bureaucracy unrelated to the meaningful output – a graduate who is a valuable prospective employee – and directly contradict Mr Johnson’s stated objectives.

Mr Johnson made another important point – that a higher education should hold its value over time – but again offered nothing that could help to deliver this outcome. The problem is not so much in what is taught, but in the fact that the jobs market changes rapidly. There is consequently no guarantee that what is studied at university – beyond the general work skills listed above – has any value even ten years after graduation. So dynamic is the jobs market that, for the ONS’s Annual Survey of Hours and Earnings, the classifications of occupations have to be changed every decade, as new occupations appear on the scene and old ones wither and disappear. For example, between 2002 and 2011, using the 2000 classification set, the biggest percentage growth in an occupation was for “Marketing associate professionals”, at up 480%, while “Hospital and health service managers” gained 123%, and “Public Relations officers” grew 78%. At the other end of the spectrum we see the effects of computerisation affect graduate jobs as well as non-graduate jobs with “Telephonists” down 60% and “Typists” off by 58%, but also “Chartered and certified accountants” declining 27% and “Journalists, newspaper and periodical editors” reduced by 19%.

When I left university in 1980 the careers adviser suggested I become an accountant as it was a “safe choice”. In the knowledge economy security comes not from what one knows, but from one’s ability to acquire new knowledge. Universities are uniquely well-placed to meet this developing need, to supply life-long educational support, so that new knowledge is readily accessible. But for them to deliver on this need they must be paid in a way which creates an incentive and economic justification to so do.

Instead, the current funding scheme creates a strong incentive to persuade as many students as possible to come to a given university, but once they are on board the logic is that the institution is best compensated if it can educate them for as little cost as possible while keeping the students sufficiently happy so that they do not drop out. It is in this incentive structure that we see the root of the near 50% dissatisfaction with value-for-money and the one third of graduates still in non-graduate level jobs fully five years after graduation.

If we want, as Mr Johnson professes he does, to “deliver a framework focused on meaningful outcomes” that prepares students for the world of work, then the financial incentives that motivate universities must relate to that objective. The “meaningful outcome” that most students want is a well-paid job. If we simply pay to the university a share of the graduate’s income we can create the nexus between university resources and graduate employability that will drive the desired outcome.

This is not as radical as it sounds. Under the current student loan scheme graduates already pay a share of their income. But the income flows to the government where it’s informational and incentive value is lost. Consider, instead, the alternative of directing the income flows back to the graduate’s university. At a stroke the university begins to care very strongly about how well its graduates are doing in the jobs market, not just one year after graduation but for the full 30 year term of the repayment. Just as companies serve their customers because their financial success depends on it, so universities need to see their own success tied to the success of their charges. Then and only then will we have the framework to ensure that students get value for money.

Peter Ainsworth is the Managing Director of EM Applications. He is the author of the IEA Discussion Paper ‘Universities challenged: funding higher education through a free-market ‘graduate tax’’.