Student funds: let's be radical

The answer is to set the universities free to solve their own problems

University underfunding is becoming a national scandal like the underfunded railways and the underfunded National Health Service. Students are increasingly taught in large classes and in buildings and with equipment that need upgrading. That is the effect of more than a decade of squeezing ever larger numbers into a system without providing enough cash. The problem is that universities are not a hot-button issue, as the Americans say. You don't have people dying as a result of too few lecturers; there are no students lying on trolleys in campus corridors, only students with the uneasy feeling that maybe they are not getting value for money.

This week's leak of a report on the real cost of higher education says that universities need £800m spent on them. That will reinforce the sense that we are falling behind internationally. But, in the absence of higher taxes, where is the money to come from? One expert, Nicholas Barr, of the London School of Economics, believes that we should be thinking radically. Make graduates pay a more realistic rate of interest on their student loans and you would net £700-800m at a stroke, he says. That money could be spend on improving universities and giving scholarships to help disadvantaged students.

Mrs Hodge, the higher education minister, does not appear very keen on this idea. Nor is the National Union of Students. It protests quite rightly that raising the interest rate on student loans would hit lower earners harder. They pay over a longer period and pay more interest in total. But the alternative of continuing with untargeted subsidies is worse. It's like the post-war argument for food subsidies. Food subsidies did help the poor but they helped the rich much more. Ditto the subsidised interest rate on student loans.

In the long run the answer is to set the universities free to solve their own problems. If governments aren't prepared to provide the wherewithal for higher education institutions in the United Kingdom to compete globally, the only answer is for them to tap more private money. Students who can afford it need to be paying the real price of a university degree; others need to be helped. At present all students are heavily subsidised. The £1,075 flat rate is way below what it costs to educate an undergraduate. How about ministers taking a proper look at Dr Barr's proposal?