More than 10,000 university students staged a rally in London last week to protest against proposed increases in tuition fees. Yet universities desperately need more money. Is there a solution?

Why are our universities in trouble?

Because of chronic underfunding. Quite simply, they are given about £5,000 a year for each undergraduate they teach, which is about £2,000 less than the average yearly cost of his or her tuition. Hence some are teetering on the edge of bankruptcy; others keep going only by attracting large numbers of overseas students who can be charged the full cost of their education (two-thirds of the students at the LSE are from overseas). In most universities resources are spent on day-to-day teaching and research; non-essential work, such as building main­tenance, has been put on the back-burner. At the same time academic salaries have stalled: plumbers earn more than professors; research staff are paid less than school dinner ladies. So top academics are fleeing to the US and there are chronic shortages of teaching staff in areas such as law, computing, maths and economics.

How has all this come about?

It boils down to a simple equation: government funding has remained static over the past few decades while the number of students has skyrocketed. As a result, Britain would now have to spend £3.5bn a year just to bring the amount it spends per student up to the EU average. And to return to student funding levels of a decade ago an extra £5.9bn in annual grants would be needed, roughly an extra 3p in the pound in income tax.

Where have all the new students come from?

The revolution in numbers was driven by the expansion of the old polytechnics, which in 1992 were renamed universities and brought into the same funding system as old universities. Back in 1981 only 12% of school leavers went to university; today the figure is 44%. Indeed, according to the OECD, the UK has more graduates per head of population than any other EU country bar Denmark. In Germany and Switzerland only 15% go on to university. Yet Labour wants the number to rise yet further: its target is 50% of school-leavers by 2010.

Does the economy really need so many graduates?

Probably not. The Government argues that by 2010, four out of five new jobs will require graduate skills, but a recent report by the Careers Services found that a third of graduates were doing jobs which didn't require a degree. And an LSE study found that graduates doing non-graduate jobs were likely to earn less over their lifetimes than non-graduates. Since the Government hopes to increase rather than limit student numbers, its only way of dealing with the crisis is to tackle the other element of the equation and beef up the level of funding.

Didn't the introduction of tuition fees do just that?

Not at all. Back in the Eighties the taxpayer funded students' tuition, and a tax-funded grant - varying in relation to parental income - paid for their living costs. In an attempt to get students to pick up more of the tab, the Government five years ago replaced maintenance grants with low interest loans - loans which students only start repaying when they get a full-time job. At the same time it made students pay an annual fee of £1,000 for their tuition, although as the charge is means-related, only 40% of students pay the full whack. But this new system has pleased no one: it has left students having to pay more for their education without doing anything to address the funding shortage facing universities.

So what is to be done?

A group of leading universities - including Oxbridge, Imperial College and Leeds - recently commissioned a report which argued that universities should be allowed to set their own fees for tuition rather than be limited to the flat-rate fee centrally ordained by government. These "top-up" fees, which would bypass the Treasury and flow straight to the universities, would enable them to charge something approaching the real cost of study. But by the same token, charging a realistic rate for tuition would require students to fork out a lot more upfront. Hence the proposal has caused a political uproar: middle-class students would be penalised, say its detractors, while poorer students, even if in theory protected by a means test, would be deterred from applying to university. Until last week the "top-up" fee solution to the funding crisis was believed to have the support of Number 10. Now it has been quietly shelved.

What's the alternative?

The solution which Gordon Brown and the Treasury seem to prefer is a "graduate tax", possibly at 3p in the pound. This has the political advantage of deferring the pain of paying for tuition: students only feel it once they're in gainful employment. Moreover, the Government claims that over a lifetime, graduates earn on average £400,000 more than non-graduates; so even though a graduate earning an average of £50,000 a year over his working life could end up paying £47,000 in graduate tax for his education, he could at least afford it. The Treasury is particularly fond of this graduate tax option because it would be the Treasury which collected the money and decided how to allocate it. Its greatest drawback, however, is that it would take years to come on steam, whereas the crisis in university funding needs to be solved immediately. The PM is now said to be considering a "middle way" based on the Australian system in which students have three options: to pay for their tuition upfront at a discount; to pay for it after university via a "graduate tax" on income they earn above a certain threshold; or to pay through a mixture of the two. The problem is that setting tuition fees at anything more than £3,000 a year is likely to prove politically controversial hut at the same time it is economically necessary for the universities.

Should students be made to pay more for their own tuition?

SOURCE: "The Week"