by Antonios Roumpakis
The recent strike over the University Superannuation Scheme (USS) exposed how university finances are undermined by the continuing marketisation of higher education. One could ask how a dispute over pensions is linked to students’ ability to exercise choice or even how the recent dispute relates to university competition over tuition fees, teaching and research prize awards. The answer is debt.
Debt emulsifies the social power of money as it enables creditors to generate income from interest rates, but also, to discipline debtors (see Soederberg 2014). Lazzarato (2015, 223) argues that it creates a new form of governing through ‘the expansion of the creditor-debtor relation to the whole of society through consumer credit and state sovereign debt’. These relationships allow creditors to discipline subjects, ranging from individuals to nation-state governments (see Dukelow and Kennett, 2018) while at the same time become essential for preserving and facilitating capital accumulation through the payment of interests and rents to private investors.
Here I choose to employ the analytical concept of ‘debtfare’, as opposed to ‘welfare’, in order to capture how the withdrawal of publicly funded social interventions is often substituted with the expansion of household credit exposure (Soederberg, 2014; Papadopoulos and Roumpakis, 2013; 2017). The introduction of tuition fees, especially since 2012, aimed to substitute the depletion of available public resources to education (e.g. HEFCE) with the expansion of credit. The attempt to reshape and reinstitute a public good (such as education) into a consumer choice is only one side of the marketisation process. The other side highlights exposure to debt and the creation of an important power relation — that between debtors and creditors.
University borrowing: the hidden aspect of marketisation
Not many would be aware that on 26th September 2017, the international credit rating agency Moody’s downgraded several British universities. The rationale for this was that universities are increasingly relying on borrowing to fund capital projects (e.g. indoor sport facilities, accommodation halls and teaching spaces). For example, recently Oxford University issued a 100-year bond worth £750m to stay on top of the facilities competition. Universities, therefore, are trying to attract students based on their teaching and research environment but also based on their modern facilities and the lifestyle choices they offer.
The renovation or expansion of accommodation halls is at the heart of university development — it is where students (i.e. tuition payers) live. Given the lack of available capital from the public budget, universities rely either on borrowing or on private firms to build or renovate accommodation halls. In the case of private firms, assets are held in new firms (special purpose vehicles) that enjoy enhanced capital allowances. These firms are responsible for managing and maintaining them for a long period of time. In this way, the University budget is not burdened and together with the private firms jointly decide rent prices; the downside is that rent prices are skyrocketing as private financial investors expect to recoup their capital and make a profit.
The University of York, where I work, for example, charges for its most recently built accommodation hall £147 per week per student resident (shared bathroom, self-catered). The cost to rent a student room for 44 weeks equals £6,468. At the same time, a student from a family with the average household income (£43,644) receives a maintenance loan of £6,173 (the average for students enrolled during 2017‒18). This means that the maintenance loan is not enough to cover accommodation costs. So, relying on parent income and part-time work is crucial for students.
What this example demonstrates is that while universities do not have to pay towards new accommodation projects, the cost is effectively transferred to students, their families and given that this is a government loan, to taxpayers. Effectively, maintenance loans guarantee rent extractions and income to private investment companies that are financing and managing these facilities. In the UK, University Partnership Programme owns 35,000 rooms. Some students have raised concerns collectively and decided to stage a ‘rent strike’, leading to lower rent costs. Interestingly, students are not included in the decision of the rent price, though they are regarded as consumers within this model. Their power is that they can shop around or demand more affordable rent prices.
Universities are also increasingly relying on REF results to boost their credibility — this does not refer strictly to their research reputation but also their actual credit score. Results such as REF (and soon TEF), as well as other metrics such as conversion of applicants, inform the credit rating agencies’ decisions to upgrade or downgrade universities’ credit rankings. The better their credit score and liability outlook, the better are the chances that they can access capital at cheaper rates.
And it is here where USS dispute is key. At the moment, USS pensions are part of universities’ liabilities, which are collectively pooled across higher education institutions. The request to put forward the sectionalisation of pension assets and liabilities meant that universities that have taken riskier or even excessive borrowing decisions would be exposed. Put it simply, rich universities will no longer subsidise and de-risk the borrowing of other universities. The pensions dispute therefore becomes a hindrance to raising capital for new projects and future rent extraction from often premium-priced facilities (e.g. gyms) and accommodations halls.
The collective risk that we are facing here is that universities have expanded their debt exposure to levels that might not prove sustainable because they might not be able to guarantee the necessary income from tuition fees, or because they might be exposed for their risky decision to expand their facilities. Also, the decision amongst universities to outsource accommodation halls, in the long run, will effectively transform student recruitment as it is only those from middle and upper-income families who will be able to pay higher rents. The National Audit Office report has already highlighted the systemic risk of creating a two-tier system where students from above middle-income families will be able to choose their university and students from less wealthy backgrounds will face geographical limitations in their choice.
Student Loans: debt, insecurity and mental health
The increase of tuition fees for post-2012 students was accompanied by the expansion of available credit to cover fees and maintenance costs. The most recent data suggest that the total amount of student loan debt exceeds £100m, with average debt faring around £32,220, though this is expected to increase as post-2012 students currently pile up around £50,800 debt on average. Available data highlight that students are facing increasing stress and mental health problems as a result of their high debt levels. It has been reported that 75 per cent of students are stressed about their accommodation payments and 58 per cent run out of money before the next payment of their maintenance loan. These figures can certainly contextualise the increased demand for mental health services in higher education.
Often the argument in public fora is that students do not really need to repay their loan until they get a job that pays above the income threshold (soon to be raised at £25,000). Indeed, 40 per cent of graduates have not made any payments towards their student loan. (Government, for its part, sold student loans which had a face value of £3.7bn last year to private firms.) However, this neglects two important aspects of their future life. First, it becomes difficult to have control over your budget as the interest rate varies (depending on income and Retail Price Index). Second, students will face additional finance pressure once they apply for a mortgage. Student loans may not show up on credit rating scores but commitment and ability to pay towards a mortgage will be compromised for those students with high debt levels (let alone that they are unlikely to be able to save towards their future pension). Once more, it is important to highlight here that these ‘creditor-debtor’ relations will add pressure to younger generations to pay towards their student loan; a liability that their university educated parents did not have to worry about.
As a final thought, the greater systemic risk is whether universities exposed to unsustainable debt levels could go bankrupt — this will require the government to decide whether access to higher education is a public good or a consumer choice. Rather worryingly, similar issues emerge from the marketisation of secondary schools. The marketisation of higher education and the ‘democratisation of credit’ highlights the expansion of ‘debtfare’ — as opposed to ‘welfare’ as well as the creation of new forms of ‘debtor-creditor’ relationships. These relationships add substantial stress for students, staff and effectively create a fertile ground for private financial investors to extract profits from families and the taxpayer.
Social policy scholars have explored how the marketisation of higher education reproduces inequalities (Holmwood, 2016). We also need to expose that universities are increasingly becoming hostages to credit rating and capital market dependence (let alone future tuition fee income). This ‘debtor-creditor’ relationship is often mediated to the workplace as it puts more pressure on staff in securing funding and good results in competitive exercises (e.g. TEF and REF). The recent USS pensions dispute was just another example of how a defined benefit scheme became a hindrance to raising capital for new projects.
For Higher Education as a sector, we need to re-evaluate USS assets and liabilities and also demand to eliminate the gender pay gap and casualization of job contracts. These moves alone will allow a healthier asset building of USS and prevent the gender pension gap. Finally, the key discussion should be to democratise USS pension fund governance and replace existing governance structures which proved ineffective in dealing with Universities UK pressures to tidy up their balance books.
Antonios Roumpakis is Lecturer in Comparative Social Policy in the Department of Social Policy and Social Work, University of York. His research on household debt (in collaboration with T. Papadopoulos) has been published in the Journal of International and Comparative Social Policy and in Social Policy & Administration. He tweets @ARoumpakis.