Funding Higher Education in an Age of Expansion

Rapid, inadequately funded expansion of British higher education between 1990 and 1996, superimposed on an extended period of financial stringency, led to a funding crisis. As a response, the government established a National Committee of Inquiry into Higher Education (the Dearing Committee) (1997a,b) to report by summer 1997. This paper, a slightly updated version of our first submission to the Dearing Committee, is the first part of a trilogy. It seeks to establish a coherent strategy for reform involving (a) a wide-ranging system of student loans, (b) flexibility to allow universities to charge variable fees and (c) a move away from central planning of higher education. This paper discusses the design and implementation of a student loan system with income-contingent repayments collected by the tax or national insurance authorities; considers how to arrange the scheme so that a significant fraction of student borrowing derives from private sources; and reports on a simulation exercise suggesting the likely repayment performance of the proposed scheme. The second part of the trilogy (Barr, 1997) discusses the treatment of student scheme. The second part of the third (Barr, & Crawford, 1998) offers a critique of the Dearing Report's funding recommendations and the government's response, based on our evidence to the Parliamentary Select Committee on education and Employment.