Transforming student outcomes through mission-aligned investment: the case for a national graduate-funded endowment

ABSTRACT

This essay, shortlisted for the AHUA Dr Jonathan Nicholls Memorial Essay Prize, addresses recent policy attention on student maintenance funding in the United Kingdom. It proposes the establishment of a graduate-funded endowment in lieu of other measures such as increased parental contributions or the imposition of a graduate tax. After discussing the relationship between maintenance funding and student outcomes, the essay then envisages how voluntary graduate contributions could be pooled into a national endowment, and how this endowment might address access and participatory inequalities relating to student expenditure on housing, energy, food and care. Although presented here only as a broad idea, the essay discusses how this could be achieved through investment in, as well as the incubation of, social enterprises aligned with the endowment’s purpose – to ensure that maintenance costs do not restrict access and impair student outcomes, and to do so in a sustainable and prudential way.

KEYWORDS:

• Student funding
• higher education access
• graduate tax
• maintenance support

Introduction: How to make higher education better?

How do we make higher education better? Quite simply, higher education becomes better when we align it with what is good. In the liberal state, one significant good is equity. Equity requires social justice, and so it perhaps follows that higher education should work towards equity through the means of social justice to be better.

As such, this essay will make the case for a new government-backed endowment that will seek to redress known injustices pertaining to higher education, including access and participation inequalities, as well as adverse effects on surrounding communities. It will seek to explain how this endowment can abate cost-of-living pressures, drive positive social impact, and help students thrive. It will go on to sketch how this endowment could be funded, how it might operate, and what impact it would likely have in context of the current financial climate.

Is the creation of an educational endowment a particularly innovative proposal? No, the Government-backed Educational Endowment Foundation (EEF) is one evident example to the contrary, although this endowment as proposed would serve a distinctly different purpose. Innovation can be just as much about creating something new as it can be about examining old approaches with a new perspective. An endowment is a staid form of funding; the idea of a national cross-institutional, redistributive, and socially aligned endowment is perhaps something new.

The idea, then, is to create such an endowment, and fund it through a discretionary 1% charitable contribution from graduate salaries and capital gains. The intention is that it will reduce financial hardship in two ways: first, by investing in the core assets and services – housing, energy, food, and care to name but a few – necessary to student success; and second, by redistributing a portion of the income generated through these activities to support students, as well as those in surrounding communities, in a socially beneficial and equalising way.

The purpose of this essay is to posit an idea, and as such, it will adopt a narrative form that seeks to contextualise and elucidate, rather than substantiate, this idea. This isn’t to sidestep the necessities of sound policy formation, but rather to suggest that such work is beyond the scope of this essay. Many of the concepts discussed and estimates presented are rough illustrations in need of refinement, and one should only assign them such value. It may also mean that elements of this concept are unworkable in practice, but such is a liberty one can take at this stage.

Definitions

The use of the term ‘students’ is applied broadly to mean all enrolled in study in higher education in the UK, although some funding policies discussed in this essay are specific to England and/or those eligible for Government-backed student loans. Student funding arrangements are a devolved matter for England, Northern Ireland, Scotland and Wales, and both maintenance and tuition funding arrangements differ. The broad principles would still pertain to all four nations as they relate to costs all students incur, and again, emphasis is put on the idea as a concept rather than a workable proposal per se; this paper, however, acknowledges a UK-wide solution would be politically complex.

Particular attention, however, is given to domestic students at greatest risk of facing hardship or where financial realities might impede choice. Following Brexit, most UK residents have no other realistic option but to study in the UK. Except for a select few who might receive financial support elsewhere, living costs can meaningfully inhibit participation and result in discontinuation (Hillman 2021, 11). It could also be said that a state-supported programme should be to the benefit of citizens. The state also has a duty to those granted refuge or who are undertaking study through UK Government-sponsored programmes, and the following proposal should be understood to apply to these groups as well.

Contextual factors affecting student maintenance funding

Public investment in higher education, be it in the form of teaching or research, confers significant social, political and economic advantages to the state (Department for Education 2019, 63–65). As a reflection of this, of the forty-one countries included on the 2023 OECD report of tertiary education spend, government funding eclipses private contributions in thirty-four of them (OECD 2023; 2023 figures relating to teaching costs).

The UK is not one of the thirty-four. The UK Government’s inversion of this public-funded model marked the beginning the age of debt-fuelled student growth. Without this, participation might not be what it is today, but initial optimism about debt repayment has yielded to measures that reduce debt forgiveness liabilities.

The UK is now facing the possibility of a recession, which – if past recessions are to act as an indicator – may increase demand for higher education (Ryan 2010). The result will be more aggregate debt, held by those in households less able to help and facing less advantageous employment conditions upon graduation.

The necessity for the UK Government to act is evident, and three emergent principles are shaping policy direction: first, curtail costs by freezing the fee loan; second, abate the expectation that maintenance loans will fully cover living costs (Weale 2022); and third, shift emphasis away from the costly three-year residential model. The trade-off, then, for measures that frustrate access, such as number controls, appear to have become other measures that frustrate access, such as diminished student choice and an erosion in institutional cost-of-living support (Weston 2023).

Granted, university is an expensive option for higher education, and perhaps it would be prudent to build a strong, low-cost sub-degree offer for vocational credentialing. Although there are different structures for and attitudes towards higher education in the US, data analysis recently published by John Fink and Davis Jenkins (2022) at Columbia University demonstrates that sub-degree qualifications can still confer a significant earnings advantage. Translating this to policy direction in England, this ambition is evident in the aims of the recently introduced Lifelong Loan Entitlement, which provides loans for sub-degree courses (Levels 4 and 5) both within and beyond university settings (Bolton and Lewis 2023).

Those holding positions of significant corporate and political leadership, however, tend to be degree-educated, so the legitimate question arises whether this policy direction will improve opportunity or further entrench outcomes inequalities. As expensive as it may be, degree-level university education works towards maximally open futures and tends to pay off in the long run (Britton et al. 2020). Because of the positional advantages borne by ‘full’ degrees, there will still be an appetite for university-based higher education, including by those opting for a lower cost first-step closer to home. Returning to the US, about one-sixth of Americans holding sub-degree qualifications progress to complete a degree (Fink and Jenkins 2016). This can take the form of the typical residential model, with all the expenses that pathway entails. Although this ratio may be lower in the UK, the ‘step-up’ model is already in use for nursing.

Regardless of the pathway or duration, the demands of study reduce one’s ability to offset day-to-day living costs through paid work, although, out of necessity, many students will work to the detriment of their experience (Stephenson 2023). The current maintenance loan is arguably insufficient for students facing significant inflationary pressures (Weale 2022), so if the Government is truly committed to levelling up the educational outcomes for specific underrepresented groups, such as mature caregivers facing socioeconomic disadvantage, then either maintenance funding must significantly increase or more will need to be done to make costs genuinely affordable.

If the source for additional funding is general taxation, then that funding will be set at odds against the NHS, support for the vulnerable, alleviating inflationary cost pressures, and economic development. While some spend relating to higher education is nested within the NHS and other central and devolved governmental departments, would an increase in departmental spend in any of these areas translate into a sustained step-change in maintenance support? Perhaps not.

If the source is additional parental contributions above and beyond those already expected through maintenance loan means-testing, then, starting from 2026, more would be demanded of those who have weathered the financial crisis, the pandemic, a retraction in affordable housing, and the present cost-of-living crisis. If the Government adopts this approach, then it will likely result in greater pressure from parents on their children to live at home and commute to a local option, which may impair outcomes (Office for Students 2020 ) and lead to geographic inequalities. This approach also ignores the reality faced by mature candidates and care leavers, as they rarely have parental support.

Could the source, then, be additional support at an institutional level? If so, the one-off hardship disbursement of £20 million made by the Office for Students in December 2020 would have been unnecessary. While institutions could further increase international postgraduate intakes, drive alumni gifting, and more aggressively commercialise their research, unless this largesse was redistributed, then the academy stands to be divided into the cans and the can-nots when it comes to domestic student support.

So, this brings us to the graduate tax, a fifty-year old policy leitmotif that if given serious political attention, would likely face a hostile push-back from those most impacted – powerful professionals including barristers, senior civil servants and doctors – and would easily be evaded by those with the means to seek education elsewhere. It lacks political legs for sound reasons, but more consideration should perhaps be given to the rationale as articulated the 1968 article ‘A Graduate Tax’, which is discussed in the next section.

The rationale for graduate funding support

The idea of a graduate tax predates Howard Glennerster, Stephen Merrett and Gail Wilson’s (1968) influential article, published in volume one, issue one of the Higher Education Review, but it provides an authoritative account of the reasoning behind the proposal. In summary, graduates tend to come disproportionally from socioeconomically advantaged backgrounds, create further socioeconomic and social inequality by undertaking study and therefore, the onus for funding should be located in that unequal advantage and not in general taxation. Although they demonstrate just how complex such an arrangement would be, and how uncertain it would be that the revenue generated in a palatable arrangement would cover costs, they conclude that there is perhaps an element of fairness latent in the proposal.

The idea lives on; a more contemporary account of the idea can be found in a paper published by the Higher Education Policy Institute (HEPI) and authored by former University of Central Lancashire deputy vice-chancellor, Alan Roff (Roff 2021). He proposes a measure of cost sharing between state funding and graduate lifelong ‘contributions’, but also suggests that what is in effect a graduate tax should be retrospectively applied to those who studied before 2012.

It remains unlikely that the Conservatives will adopt this approach, and if anything, they will maintain the status quo as funding extends into the Lifelong Loan Entitlement. Labour’s position is less known, but again, it is unlikely they will undertake a substantial and potentially disruptive overhaul of higher education funding without first commissioning a new review (Morgan 2022).

But here is a less radical variant to consider: what if graduates were asked to contribute? And what if that contribution sat alongside and augmented, rather than replaced, the current funding model – a funding model that despite its problems, has not weakened interest in higher education?

And what if this contribution was charitable and eligible for Gift Aid or employer matching? And what if those in receipt of capital gains opted to acknowledge the role higher education plays in wealth creation, in an entirely voluntary way? The UK, after all, is culturally philanthropic, ranking highly in the world for the rate of charitable financial giftmaking (Charities Aid Foundation 2019). In 2022, philanthropy contributed over £1.5bn to higher education, gifted by over 170,000 donors (Beney, Miller, and Motion 2023).

To this end, let’s entertain an imaginary scenario. Those who graduated before the introduction of student fees would be asked to contribute something nominal, perhaps 1% of their salary per month. Employers or HMRC could make it as easy as ticking a box to opt-in. Let’s say of those, about 80% are average earners, 2% are high earners, and the rest earn the kind of salary you’d expect in senior management. For those earning an average £40,000 per year, after tax, their annual contribution would be somewhere in the region of £375 after Gift Aid. Those earning a more senior level of pay, something in the region of £70,000, would contribute £600, and those 2% on C-suite pay, something like £200,000, would contribute £1,375.

For the sake of simplicity, we’ll look at the non-loan holding graduate work population, which is defined as the population aged 35–65 in the United Kingdom multiplied by those understood to hold tertiary educational qualifications equivalent to a Batchelor’s degree (26.4%, OECD 2022) and are in full-time work (∼70%, ONS 2022). In the UK, this is somewhere in the region of 4.5 million people.

If this cohort fully opted into the scheme, the total raised per year would sit at £1.8 billion before any contributions others might make. The 2011 Million+ report, which proposed a similar 1% approach, puts this closer to £3 billion in today’s money, calculated on the assumption that graduates would pay tax for 40 years after graduation (Tatlow 2011). It is inconceivable, however, that many of those actively paying loans would support further deductions, so the estimated amount is probably somewhere in the right region – again, though, this is strictly illustrative.

Returning to our imaginary scenario, let’s say that the British population were feeling particularly generous and opted to gift an amount equivalent to 1% of that paid as capital gains tax, which is roughly £15 billion (OBR 2023–2 figures). This would increase this amount by £150 million. These figures are based on total participation, which is, of course, imaginary – and some choose to evade their capital gains tax liabilities altogether. But let’s say the idea is well-received by the public and 10% opt in to each scheme. That would raise £195 million per year in total, possibly more if employers matched giving or donated fixed amounts. This may still be overly optimistic – Trinity College Cambridge requests that older alumni gift £185 per year (2023) – but again, this scenario is strictly illustrative.

Endowment vs. distributive fund

According to data published by the Student Loans Company, the total loaned to students in receipt of full-time higher education maintenance payments amounted to £7.6 billion in England alone, distributed to 1.1 million students (Bolton 2023). Returning to our theoretical system of national graduate beneficence, each student would be roughly £18 per academic month better off if the endowment collected £195 million and re-distributed in the form of a maintenance grant that would sit alongside the maintenance loan.

It's also worth highlighting that this is a present snapshot of how this plan would work. Over time, there would be more graduates on lower incomes who hold debt for the majority of their working life. If we adjust the simplified model to exclude those except for the very wealthy, then full participation would only generate something like £115 million a year – or £11 million in a more realistic scenario.

This is why a straightforward distributive fund model will not work. But what if the aggregate contribution could be used to enrich an endowment that invests in such a way that abates living costs relating to higher education and extends services essential to student success?

The relationship between the endowment and the Government

Although the funding source and scope of this new endowment would be significantly different, it makes sense to start with a brief description of the Educational Endowment Foundation (EEF). In 2011, the EEF was established by the Sutton Trust in partnership with Impetus, a charity that specialises in private equity-led philanthropy, as a research and evidence-informed guidance body tasked with improving the outcomes of disadvantaged children. The Department for Education awarded the EEF a £125 million founding grant, which according to their 2021 annual report has been used to generate a further £100 million of project funding (EEF 2022).

The EEF forms part of the Government’s What Works Network alongside Transforming Access and Student Outcomes in Higher Education (TASO), a similar body that improves practice through research and evidence-informed guidance, but in the tertiary education sector. TASO is an independent charity funded through a 4-year Office for Students grant of £4.5 million (Office for Students 2023). To bring this summary to a point, these quasi-autonomous yet governmentally aligned charities exist, the links with higher education are already present and it is already understood how private equity can extend philanthropic activity.

Endowments function best at scale. For example, Harvard’s endowment of £45 billion generated £1.5 billion last year (Harvard 2023, adjusted from USD). Oxford’s endowment of £6.36 billion distributed just under £200 million in 2021 (Oxford 2023). The issue with endowments, however, is they tend to create their own gravity, with wealthy institutions better able to generate wealth, leaving less wealthy institutions less able to compete and drive forward quality. For example, in 2021/22, the University of East London, serving a highly deprived population, only generated £15,000 in donations and endowment income (HESA 2023), highlighting the unequal contribution endowments can have if isolated to specific institutions.

A national endowment would not only achieve this scale, but also facilitate a redistributive, cross-institutional approach. The endowment could also adopt what are referred to as mission-aligned investment strategies, where the investments themselves could underpin activity beneficial to students. This will be discussed in more detail in the next section.

Mission and impact

As mentioned before, the core mission of the endowment would be to ensure that living costs do not impede access, participation and completion. The difficulty of achieving this through an increase in maintenance loan support or through other means has already been discussed.

This could be achieved through targeted investment in social enterprises, directed narrowly so that this investment reduces costs associated with study. Most universities do already work with social enterprises, but the relationship tends to be where the university lends expertise or space to the social enterprise or looks to the social enterprise to provide employment or entrepreneurial opportunities for their students. Less common is interest in partnering for services like affordable housing or support for addressing financial exclusion (SERIO 2016), which the endowment could develop with investment funding.

It is also commonplace for endowments to invest in real estate (Cadre 2020). Pension funds, which can follow similar investment patterns to endowments, have also invested in the renewable energy sector (Della Croce et al. 2011). This may mean that the endowment could own tangible, long-term assets, including mixed-use developments and renewable energy infrastructure, which it could then leverage to the benefit of students.

Managed properly, social enterprises generate a return for their investors (Bugg-Levine, Kogut, and Kulatilaka 2012), as do real estate and energy holdings. The point here is not that the endowment would comprehensively invest in this way, but it could be one beneficial part of a portfolio-led approach that generates the annual distributable amount common to endowments.

Returning to our more realistic scenario, graduates contribute £195 million a year. This lasts for ten years. Let’s also somewhat discount the rate of return Oxford is able to secure (3%, Oxford 2023) to 2%, because this endowment will accept weaker performance through partial investment in social enterprises. In year one, this would generate a modest distributable amount of just under £4 million, minus operating expenses. In ten years, however, this would grow to £40 million.

As mentioned earlier, as graduates who did not take loans pass through the system, the amount generated through graduate contributions would likely diminish proportionately – again, it would be unlikely someone actively paying loans would opt to contribute beyond that. Although of course an individual could choose to opt in at any point, graduates would be asked to contribute at the point their loans were cleared. For a period, the endowment would benefit from those on 30 year terms, who will start to be absolved of remaining debt in 2042 while in the prime of their careers, but then those on 40 year terms would grow as a proportion of the graduate pool.

Let’s say endowment growth flattens out in 15 years and any gains thereafter are incremental. In that time, this approach would have generated an endowment worth £2.9 billion, resulting in something like £60 million per year in distributable funds. This, of course, is not going to obviate the need for maintenance loans nor institutional support, but it would be able to sustainably finance targeted interventions at the most acute end of need, while – again – investing in such a way that brings living costs down.

What follows are examples of how this approach could be operationalised across three of the most significant living costs students face in study. Central to this idea is that the endowment’s distributions could seed fund test initiatives at one or a small cluster of institutions facing acute need, as well as help fund (or invest in) a roll-out of interventions known to be working at a larger, cross-institutional scale. Again, though, it must be stressed that these are strictly illustrative of how social enterprises can benefit both students and surrounding communities and warrant far more attention and depth than is given here.

Housing and energy

According to the 2022 National Student Money Survey, rent and energy bills account for nearly half of a student’s monthly expenditure (Brown 2022). Unless a student works for pay or receives private support, what they can afford is fixed to the upper limit of the maintenance loan, currently £12,667 for those living away from home in London or £9,706 elsewhere (Gov.uk 2023a; 2022/3 Academic Year).

The most affordable housing option is typically university-owned residences, unless a student can secure a room in an HMO. In London and through the university, a small single room without an en suite toilet costs in the region of £7,200 per year (UCL 2023), leaving a student with £18 per term-time day to cover all other expenses. A comparable room outside of London (taking Sheffield and Manchester as representative examples) can range between £3,500 to £4,500 (University of Sheffield 2023; University of Manchester 2023), but because the loanable amount is lower, the daily budget remains the same. To demonstrate the impact housing costs have on eroding the value of the loan amount, a return bus journey represents nearly 15% of a student’s remaining daily budget.

In contrast, in London, the average council property costs £109 per week (2020/1 figures), almost half that of the most affordable option for purpose-built student accommodation. In Bristol, this drops to £80, and in the North East, £75 (Department for Levelling Up, Housing and Communities 2022). If someone in the North East were to pay for student accommodation in line with council rents, then they would be £4 a day better off, and in London, £10 a day.

Council housing is affordable because local authorities, or in some cases social enterprises, own the housing and aren’t driven by revenue-generative pressures. Conversely, in 2019/2020 individual universities made upwards of £16.5 million in profit on their residences (Barradale 2021), and private purpose-built student housing companies secure far more.

How this endowment could act would be to invest in developments that operate something closer to the social enterprise model, creating a meaningfully affordable offer in the market for those that need it. This would also help support surrounding communities by alleviating student demand on affordable private housing.

The endowment could also invest in the renewable energy potential in such a development, bringing energy costs down through the installation of solar panels and wind turbines, selling any unspent energy back to the grid to generate further revenue, which could then be disbursed in the form of energy credits for students and staff on lower pay grades in private housing.

Food

Food is the second highest cost to students not residing at home. There is an emergence of food co-ops on university campuses (Sustain 2023), and student unions, such as UCL’s, already run not-for-profit concessions (UCL Student Union 2023). Additionally, there are a number of social enterprise ‘social supermarkets’ that help those on limited means afford groceries (Nott 2022), as well as social enterprise cafes that offer pay-what-you-can choices.

The endowment could support these social enterprises and endeavours either through investment or through distributions, creating both low-cost access to nutritional food, but also employment opportunities for students and the wider community.

Care

Childcare costs are a significant barrier to participation. A portion of costs can be met through the Childcare Grant and other similar schemes, which in England covers up to £183.75 per week for a single child, or £315 for more than one child (Gov.uk 2023b). While children over three years old are entitled to up to 30 h free childcare in addition to this allowance, a parent of a two year old can expect to pay around £300 per week (Money Helper 2023). One London university, for example, charges students and staff £320 per week for the use of their nursery. A university in Sheffield charges £270. The difference left outstanding after the Childcare Grant would consume about 40% of an undergraduate maintenance loan, and there is presently no postgraduate maintenance loan in England.

As before, social enterprises exist that cross-subsidise nursery fees for those less able to pay by those in stronger financial positions (Staton 2022). Some social enterprise nurseries also adopt a cooperative worker-run model, offsetting costs for workers with children at the nursery, and some are part-funded through seeking out third-party grants (Jervis 2012). The endowment could, again, invest in such social enterprises.

Other services

Although these will not be discussed further, social enterprises also provide low-cost mental health support, fitness opportunities, life skills training, dental care, legal support and access to technology. Although most universities and/or their associated student unions offer a strong, free-to-use portfolio in most of the above, some services are heavily oversubscribed or closed to postgraduate students from low-income households. Again, investment or distributions could be leveraged to extend these services.

Conclusion: impact to higher education institutions

Could this national endowment really transform higher education for the better? Transform is a bold claim, but it can help make it more sustainable and more humane. It can also make it more just, by redistributing a greater share of the wealth created through participation to those in greater need of support to succeed.

It can also transform the relationship between philanthropy and higher education. Too often wealthy institutions disproportionately attract philanthropic wealth, creating institutional inequalities that doubly-disadvantage those supporting marginalised cohorts. Although some coordination would be needed between the devolved educational bodies to make this a truly national redistributive effort, the strong links between higher education and the Government, as well as the precedents set by the EEF and other similar charities, demonstrate how a national philanthropic approach to higher education support could work.

By focussing investment and spend in and through social enterprises, it would also help advance higher education as a civic force. The marketisation of higher education has driven a profit-oriented, debt-funded uplift in the cost of goods and services, not only for students but for surrounding communities. One cannot blame universities for this – they are increasingly asked to do more with less – but some pushback would only be to the benefit of all, particularly if it minimises the anxiety, budgetary pressure and attrition that come with hardship.

Although only presented here as an idea, this proposal gives substance to the formal promise that anyone can choose and thrive in the institution best matching their potential. If poverty is a meaningful impediment, then the question arises if the system is just. If not, the question becomes whether social justice would make it better, and I hope I have demonstrated how it would and how it could be possible. The proposal will end here, leaving certain aspects of this idea, including governance (including related costs), regulation and funding criteria, unaddressed. I will, however, propose a name: the National Student Endowment, to drive home the idea students are endowed with their own talents and potential, and as such, it is in our national interest to support.

Acknowledgements

The author acknowledges the AHUA who invited essays on the theme of making higher education better, a fitting and touching commemoration of the legacy of Dr Jonathan Nicholls. This was written in response to that invitation.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Additional information

Notes on contributors

Lydia Dye-Stonebridge

Lydia Dye-Stonebridge has worked in academic publishing, local government and higher education policy. She is currently pursuing an MA in Philosophy of Education at the Institute of Education, University College London.