The UK’s higher education sector is failing on multiple fronts: 70% of universities are set to lose money next year, and students are suffering badly from degrees that have ever shrinking value.
The so-called ‘graduate premium’ – the average additional annual earnings graduates receive compared to non-graduates – has been trending down for over 15 years. It fell sharply in the most recently reported period, from £8,000 in 2022 to just £6,500 in 2023. Factor in £43,000 of debt and three years of lost income and the average graduate starts their career about £100,000 behind their peers. With taxes on the graduate premium, they will need over 20 years employment just to catch up. Many earning below the average will be worse off than if they had never gone to uni.
A 2020 study found one in five graduates from the mid-2010s would have been better off financially skipping university. With the graduate premium since declining further, that figure is likely much higher now. The uncomfortable truth is that for many – perhaps even the majority – a university education no longer pays.
The root cause is not too many people going to university. The real problem lies in how universities are funded and regulated. The truth is that the government pays universities to recruit students, not to educate them productively. Universities’ financial success is measured in headcount, not employment outcomes. Once a student has signed up, universities have their money, and it is left to regulation to try to ensure that the education is of value.
As the evidence shows, this is a task that regulation is ill-suited for. People are complicated beasts, and all are unique. The future demands of the jobs market are ever-changing. Not only can regulation not account for this individuality, diversity and unpredictability, its very nature inhibits the provision of what is needed. Employers and students say over and over that it is soft skills – things that can only be learned by doing – that matter more than degree grade or subject. But soft skills cannot be assessed by standardised written tests, and so are undervalued in a regulatory process that only values what it can measure – the learning of factual knowledge.
Regulation also devalues academic experience and understanding, stifles innovation and ties teachers up in costly red tape. Universities are forced to prioritise compliance with bureaucratic requirements over tailoring their courses to the real needs of students and employers. The result? Degrees that are disconnected from the skills and experiences that drive workplace success.
History offers a proven model for higher education that aligns incentives, reduces bureaucracy and delivers value for students and society. To find it, we need to look back not just a decade or two, but to the very origins of the university system itself.
In the beginning, universities were craft guilds overseeing apprenticeships, transmitting practical and social knowledge to the next generation. The funding model, where the master provided education and sustenance for free in exchange for a share in the apprentice’s future work product, aligned the interests of master and apprentice. The master’s economic success was tied directly to that of his apprentices. This alignment of interests helped create the conditions for the transmission of technical and business knowledge across society, laying the foundations for the industrial revolution and the abolition of poverty in Europe.
We can recreate this alignment of interests in today’s higher education system through two key reforms. Firstly, by aligning financial incentives. Universities should have the freedom to set tuition fees above the current government loan cap, but any excess must be financed by the university itself, repayable by students through income-contingent loans. This would align interests so that Universities would only benefit if their students went on to earn well.
Secondly, by sweeping away regulation. Aligning financial incentives makes course regulation redundant. Eliminating regulation cuts costs and frees academics to design innovative, career-relevant education.
The crisis facing higher education today is undeniable. Universities are struggling financially; graduates are trapped by debts from courses that don’t pay the bills and taxpayers are left liable for billions in unpaid loans. Yet this crisis is also a chance to rethink and rebuild the system. By adopting a model that links what universities are paid to the success of their graduates, we can align the interests of institutions, students and society.
Universities must invest in their students, free from stifling regulation, to ensure higher education delivers real value. This is a once-in-a-generation opportunity to reimagine higher education and secure the UK’s place as the global leader in learning and innovation.
Read the full ‘Shares in Students’ report here.
Click here to subscribe to our daily briefing – the best pieces from CapX and across the web.
CapX depends on the generosity of its readers. If you value what we do, please consider making a donation.
