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The vicious circle of higher education funding

Underperforming international students are propping up underperforming British universities

The Graduate route visa, which allows international students to remain for up to three years upon graduating from a British university, has faced mounting scrutiny since its introduction in 2021. Unflatteringly compared to a food delivery service, but for visas, critics have argued that it has transformed British universities into visa mills for low skilled workers from the Third World, rather than attracting top global talent as it had been intended to do. Amidst concern that the route was being abused, the government commissioned the Migration Advisory Committee (MAC) to investigate and make recommendations on the Graduate route. This week, the MAC published their report and were unambiguous in their conclusion: “The Graduate route has broadly achieved, and continues to achieve, the objectives set by this government”. They therefore recommended that the route be retained in its current form. 

The report was hailed as a vindication by supporters of the route, especially those working within the higher education system, who strongly urged the government to follow the report’s recommendation and give assurances that the Graduate route would be here to stay. However, the report is clear from the outset that its recommendations are not based on an assessment of the overall impact the route has on the British economy, but is instead restricted by the very limited criteria the government set the MAC when commissioning the report. As MP Neil O’Brien pointed out, these objectives are themselves highly contestable. They were to make UK universities more internationally competitive to prospective students, to retain talented foreign graduates and have them contribute to the British economy, and to increase the value of the UK’s education exports.

On the first objective of making British universities more internationally competitive, the route has been highly beneficial, but not necessarily in a way that aligns with broader goals for the country’s higher education sector. Instead of incentivising universities to increase their competitiveness through improving the quality of their teaching, the route has fundamentally altered the key instrumental value of courses. Rather than offering a primarily educational value, the key value of many courses now stems from the visa and opportunity for settlement that come with them. As a 2018 MAC report warned, the Graduate route would completely flip the value of British university courses to international students and what is intended as a “post-study work regime could become a pre-work study regime”.

The government further justified the Graduate route on the basis that it would attract and retain “the brightest and best” talent from around the globe, but as the report laments, there is no commonly understood definition for who the government considers “the brightest and best”. Amidst this definitional ambiguity, one may infer, as the report does, that admission to the most academically selective universities with the best international rankings can be taken as a rough proxy for assessing whether students fall into the category of “brightest and best”. However, the Graduate route has not led to an increase in this type of international student, but of students at the other end of the academic spectrum.

A 2023 MAC report found that the rise in international student numbers following the introduction of the Graduate route “is almost entirely focused on taught Master’s degrees, and the growth has been fastest in less selective and lower cost universities”. Instead of heralding an increase in highly academically talented students to the most competitive courses, the route has proved most lucrative for the lowest academically ranked universities who can offer the very cheapest courses. In the academic year 2021-22, international students studying at UK universities in the top 100 globally ranked universities paid £24,040 in average annual fees for taught postgraduate study, whereas for universities ranked 1000+ average fees paid for taught postgraduate study were significantly lower, at £8,480. It is the latter type of university — lowly ranked, less selective, and with lower fees — that accounts for the majority of international student growth since the route’s introduction.

The dominance of poorly academically ranked students on the Graduate route is then reflected in the underwhelming performance of many international graduates once they enter the British labour market. The lower quartile of non-EU Master’s students, exactly the category that has ballooned since the introduction of the route, “experience minimal wage progression up to 5 years after graduation, suggesting they are more likely to remain in low-skilled jobs post-study”. A fifth of all those who switch from the Graduate route onto a work visa go into social care, one of Britain’s lowest paid professions. Such data led the MAC to conclude that the “route may not be attracting the global talent anticipated, with many students likely entering low-wage roles”. They added that if “the objective is to attract talented students who will subsequently work in high-skilled graduate jobs, then we are sceptical that it adds much to the Skilled Worker route which was already available to switch into after graduation, and we expect that at least a significant fraction of the graduate route will comprise low-wage workers. For these migrants, it is in many ways a bespoke youth mobility scheme”.

So whilst the government’s description of the Graduate route as a means of attracting “the brightest and best” students the world has to offer may conjure the image of a top Ivy League graduate, undecided on whether to continue their studies at Stanford or the LSE, the data shows that the type of student the route is actually attracting is far more likely to be hailing from an Indian university of dubious credentials to undertake a Communications MA at Luton’s University of Bedfordshire.

The final objective the government had for the Graduate route was to help boost the total value of education exports to £35 billion per year, which the route undoubtedly does. In isolation, the objective is of clear merit, yet education has a fundamentally different character than other exports, such as financial services or bottles of Scotch. Most obviously, education is an export which requires the country to first import its customers, which imposes significant externalities on the wider economy. The importation of students exacerbates Britain’s wider housing affordability crisis, with student housing in particular becoming increasingly unaffordable for British students, as rental price growth for student accommodation has increased by more than 8 percent in the 2023/24 academic year. Student migrants also contribute to the dilution of Britain’s capital stock, whilst the report failed to find any evidence that those on the Graduate route would have a significantly positive fiscal impact.

The Graduate route therefore has obvious shortcomings, turning certain British universities into glorified visa mills rather than educational institutions, failing to attract “the brightest and best”, instead acting as an alternative settlement route for low-wage workers, and exacerbating the housing crisis and capital stock dilution. Yet opposition to its scrapping has been fierce, for the simple reason that a whole subsect of Britain’s higher education system is completely reliant upon the route for their continued fiscal viability.

For institutions such as Middlesborough’s Teesside University, one of the lowest ranked universities in the country, the Graduate route has become a centrepiece of their business model. Teesside increased their number of international students by 322 percent between the academic years 2018/19 and 2021/22, and have since joined the more than a dozen other non-London universities in opening a satellite campus in the capital. For otherwise internationally uncompetitive universities like Teesside, the Graduate route has become a fiscal lifeline needed to stay afloat.

But is it worth keeping such universities open? If the only way they can keep international students enrolling is to attach a work visa to the course, it suggests that the actual value of the course is minimal, maybe less than the cost of providing it, and that such universities are only viable when receiving the de-facto subsidy of work permit issuances. Yet this a bizarre economic arrangement; as the MAC’s Alan Manning has noted, a “scheme that gave work rights for stays in UK hotels would be out of the question, but in the context of universities an equivalent scheme is regarded as common sense by many”. Just as a hotel that could not turn a profit without issuing its customers work permits would be allowed to go under, then so too should Britain’s universities.

But the long-term costs of maintaining the Graduate route to artificially keep such institutions afloat are even greater

Such an outcome would by no means be painless. Many economically unviable universities are in some of the country’s most deprived areas and are key anchors of local investment and employment. Shutting down major local economic drivers would run against the government’s broader policy of “levelling-up”, as well as creating many disgruntled out-of-work academics. It would also run contrary to the consensus that has reigned uncontested since Blair of mass university education being an intrinsic good, which led to a constant push for the sector’s expansion.

But the long-term costs of maintaining the Graduate route to artificially keep such institutions afloat are even greater. The Graduate route is yet another example of the government using human quantitative easing to avoid addressing the structural issues within the British economy. The report highlights this trend, arguing that as “in social care, it is the failure to properly fund the sector that has led to an increasing overreliance on immigration”. Instead of taking the initiative and making the difficult decisions now, the government has decided to impose permanent national demographic changes in response to present day funding issues. The fundamental flaws in the university sector’s funding model will remain, leaving some future government to grapple with the issue. Meanwhile, Britain will find itself forever changed, all because a pusillanimous government decided that the likes of Teesside University are just too big to fail.

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