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Dr Alistair Brown | Associate lecturer in English Literature; researching video games and literature

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How Will the Recession Affect Students?

Thursday, February 05, 2009

In the credit crunch era, the financial plans of everyone - from large corporations to public amenities to individuals - have to be reassessed. But there seems to have been relatively little in the press about how the recession will impact upon students or recent graduates, other than the obvious issue that jobs will be hard to come by when students leave university. Partly, perhaps, this is due to the fact that the recent Research Assessment Exercise has captured the attention of universities wondering how much they will receive for research, and so universities and press have been less focused on the other side of the research-teaching coin.

So, with the substantial disclaimer that I am by no means an expert on this subject, here are some of my own thoughts on how the recession might affect higher education. Most of these points are particular for England or the United Kingdom, but may apply elsewhere also.

  • The first, and most empirically certain thing to note, is that student loans have their interest rates for each year tied to the Retail Price Index as it stands in March. Over recent years, this has hovered around 3 percent. However, as of December 2008, this fell below 1 percent, with the downward trend set to continue. It is likely that come March, interest rates on student loans will be minimal, allowing those students who are in well-paid jobs to repay their loans at a faster rate. However, if RPI falls below zero, so that we have deflation in March, does this mean that the Student Loans Company will start actually paying students loans off? The terms and conditions of the loans state only that "the Government has to keep the value of what is owed in line with the general rate of inflation. They do this by working out the rate of inflation each year as defined by the Retail Prices Index (RPI) and fixing the interest charged to that rate...The new interest rate is based on the Retail Price Index for the previous March." There is no indication of what happens when the RPI falls below zero - something probably not imagined in the heady days of the economic boom when loans were introduced - and there are probably some worried faces running around the Department for Innovation, Universities and Skills trying to find a loophole to ensure students repay loans at some positive rate of interest.

  • In a recession, one might expect students to hold off from incurring large debts, and favour finding immediate jobs ahead of further study. However, the reverse appears to be the case. With lower-skilled jobs on the decline in a recession (jobs in manufacturing or retail, for example), it is best for students leaving school to head to university in the hopes that economic prospects will have improved in three years, and knowing that at least the student loans offer a guaranteed (if minimal!) level of financial support. The Times Higher Education reports today that the government's restriction on university numbers is limiting the number of places available for increasing numbers of applicants.

  • The flip side to this is fewer foreign students will apply to universities abroad. The Higher Education Policy Institute recently warned that if China were to fall into recession, the effect on this vital funding stream would be "cataclysmic." Though the drying up of foreign students will affect universities globally, Britain may oddly see the recession work in its favour to offset the losses, because of the plummet in the value of the pound. However, HEPI suggested that this might mean students opt for one year courses and choose to pay up front, rather than facing the the full three years at uncertain exchange rates.

  • More difficult to predict is the effect the recession will have on any plans to lift the cap on top-up fees (set at £3000 plus inflation), and move to a system of full fees. The review on lifting the tution fee cap was due in 2009, but this has now been put off until 2010, after a likely general election. Universities would like the bar to be set at between £6000 to £7000. MP Ian Gibson, former chair of the Commons Science and Technology Select Committee, has argued against lifting the cap, saying that this would be incompatible with the Prime Minister's plan to ride out the recession by investing in green science research and skills. It would also surely be contradictory for the government to condemn excessive borrowing whilst allowing a new generation of students to start life owing £20 000 for tuition, plus any additional loans they need to support themselves. Furthermore, assuming the system stays the same with the government paying for students up-front, with students then repaying the loans once in work, the government would be required to put a large amount of capital into higher education, without guarantees that it would be paid back quickly, if the economy continues to run slowly. The stalling of tuition fee rises by the recession is, however, only a short term effect; longer term it is quite clear that UK higher education is moving towards the privatised, full-fee model of the United States, and will eventually do so under a Labour or Conservative government.

So there we have it. The layman's thoughts on how the credit crunch will affect current and future students. Clearly, the sector - like all others - faces a rocky and uncertain time, though if the government does see investment in research and technology as the light at the end of the tunnel of recession, universities might ultimately come out well on the research side of things. The people one has to be most worried about are new graduates. Vacancies for graduates have dropped 17 percent in the six months since summer 2008, particularly (and not surprisingly) in the financial sector. As if it were not already competitive as a result of the expansion of higher education, new graduates can expect to struggle for survival in the harshest economic environment in two decades.


Update 13th February 2008


Following the above post, The Guardian Education has just reported a big rise in undergraduate applications. Applications are up 7.8%, with

signs that the recession is affecting people's choice of degree, breeding a new generation of economists and mathematicians. The number of applications for economics degrees increased by 15.7% to a total of 44,750. Applications for maths rose 10.4% and for politics 16.7%.


There has also been an increase in public sector training degrees, hardly surprising since the public sector offers greater job security and, given the present need for investment from the public purse, probably increasing numbers of jobs also:

Applications for nursing rose by 16.7%, education degrees by 10.7% and teacher training by 3.7%. It is thought that people are opting for "safer" jobs outside business and commerce.


Not surprisingly:

There was a 7.6% decline in applications for building degrees as the construction industry slows, though there were modest rises in business degree applicants.

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Posted by Alistair at 11:43 am

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