School Daze At British Universities

They're facing huge funding gaps as subsidies shrink and enrollments swell

On Oct. 26 buses carrying thousands of students from all over Britain converged on the University of London campus in the center of the capital. The crisp fall day was perfect for a demonstration, and the cause was dear to the protesters' hearts: Prime Minister Tony Blair's plans to permit Britain's universities to charge students up to $5,100 per year. "It will be an elitist system; only the rich will be able to go [to university]," said Elizabeth England, an 18-year-old first-year student at York St. John College, as she waited for the march to Trafalgar Square to begin.

The new charges, known as "top-up fees," could prove to be one of the most controversial issues of Blair's tenure. Already bruised by public discontent over the Iraq war, Blair may face a rebellion by Labour Party backbenchers when he puts the legislation to a vote in the parliamentary session that opens in late November. A defeat would prompt fresh doubts as to whether the British PM has lost his once-golden touch.

Whatever the outcome of this particular battle, the government's proposal has sparked a hot debate about how to finance the rising costs of higher education -- one that is being watched closely on the Continent, where universities are under even greater pressure to come up with new financing.

Under the present system, British students pay only about $1,900 a year for tuition -- about a quarter of the cost of an education at top universities. Taxpayers and universities foot most of the tab. But this system is growing increasingly untenable. Years of tight government budgets, coupled with rising student enrollment, have boosted student-to-professor ratios, squeezed faculty salaries, and left some universities in financial distress. Universities UK, an umbrella organization, figures that undergraduate student numbers have risen 88% since 1989, while funding per student has fallen 38% in real terms. "There is no doubt that U.K. universities have a very serious funding crisis," says Ivor Crewe, the organization's president and vice-chancellor of Essex University.

LONG-TERM RISK

At stake is Britain's cherished reputation as a mecca of higher learning. Longer term, the country's competitiveness as an economy of well-educated workers could be at risk as well. For now, British universities still have their power to attract some 225,000 foreign students. And the system continues to churn out some of the world's best scholars. But university administrators complain that the funding crunch is hobbling their efforts to recruit and retain the world's best and brightest. That's also true for world-class outfits such as Cambridge University's crack Computer Laboratory. "We lose on attracting Americans here," says department chief Ian Leslie, who estimates that salaries for junior professors are only half to one-third what they are in the U.S.

Such views are echoed by Richard Sykes, the former GlaxoSmithKline PLC chairman who is now rector of Imperial College London, a top medical and scientific school: "It is becoming more and more difficult to remain internationally competitive," Sykes says. "We have to attract the best researchers in the world."

Even revered institutions such as Oxford and Cambridge, with their exquisite medieval buildings and centuries-long tradition of excellence, are feeling the pinch. Oxford University's overall endowment, at around $4.4 billion, is a fraction of Harvard University's $19.3 billion stash. Britain's elite duo remain heavily dependent on government financing, leaving them at the mercy of policymakers such as Chancellor of the Exchequer Gordon Brown, who questions whether they are admitting enough students from less-well-off families. What's more, government funding does not cover all their costs: Oxford estimates that it loses $8,500 per student per year. Cambridge is in the same boat. "We believe we are losing a significant amount per student, which we are subsidizing from discretionary money," says Andrew Reid, Cambridge's director of finance. "It gets harder and harder every year."

WHO NEEDS CHEMISTRY?

Less wealthy but still highly rated British schools are taking painful steps to trim costs. Durham University, which ranks just below Oxford and Cambridge in reputation, is closing its East Asian studies department and limiting access to its well-regarded Middle East and Islamic studies curriculum to graduate students. "I think this is extremely short-sighted," says a professor in one of those fields, who is leaving for a job at another university to escape the turmoil. Another prestigious school, King's College London, has stopped accepting applicants to its undergraduate chemistry program and has placed the fate of the entire department "under review," leading to a mass exodus of professors. A spokeswoman says the scrutiny of the department reflects a decline in interest in the subject as well as the high cost of teaching it.

At Imperial College, Sykes is toying with an even more radical plan. He would like to be able to charge $17,000 to $25,000 for some programs, such as medicine and engineering, in order to have enough money to provide scholarships for talented but needy students. He notes that even if the government's proposal is approved, Imperial will lose $1,700 per student a year. "We have to be given more financial flexibility to charge for what we do," he says.

Sykes and other educators also want to fatten anemic endowments. But it will take time to persuade Britons to give more generously to their alma maters. In addition, the government needs to consider changes in the tax laws to give U.S.-style write-offs for donations.

Experts reckon that even if the top-up fees go through, many universities will still face a funding gap. The new charges would raise an estimated $2.5 billion to $3.4 billion a year. But Crewe believes the entire system needs an additional $17 billion to cover both ongoing and capital costs beyond the roughly $41 billion the government is providing for the three academic years ending in 2005-06. Nevertheless, Crewe endorses Blair's plans: "I don't think anything better is being proposed," he says.

THOSE WHO CAN, SHOULD

The top-up fees won't provide immediate relief, either. For one thing, they won't go into effect until the 2006-07 academic year. And students won't even have to pay the charges up front -- they will be able to defer them until they land their first job after graduation. In addition, they won't be required to pay a penny until after their earnings reach $25,000 per year.

Even so, Blair may have to water down his proposal to get it through parliament. That prospect raises the hopes of proponents of more radical plans, such as Robin Butler, the Master of Oxford University College, who is pressing for an American-style "Ivy League model, where wealthy parents pay something near the cost of courses," while poorer students get more relief.

Measured against soaring tuition costs in the U.S., Blair's proposal seems tame. But in Britain, where the average graduate is already saddled with loans of $19,000 to cover the costs of room, board, and textbooks, it's a call to arms. "It will triple student debt in one fell swoop," says Mandy Telford, president of the National Union of Students. (Telford figures most students would defer paying the fee until after graduation.) Telford's alternative: Raise taxes on the rich.

But seasoned university administrators think that idea is a nonstarter. "Whenever there is an increase in the government budget, the money goes to higher priorities like health care or primary schools," says Steven Schwartz, vice-chancellor of Brunel University in London. Charging the customer for education may still run against the grain in Britain, but there doesn't seem to be any other choice.

By Stanley Reed in London

    Before it's here, it's on the Bloomberg Terminal.
    LEARN MORE