Browne makes good start; could do better

Sept. 8, 2010 - PRLog -- On the day that the OECD reported that the UK was slipping down the graduate league, leaks of the draft Browne Review suggest that he has recognised UK universities need more money.  But without an alternative to students or the government putting up the cash, the Browne Review won’t pass the test of time; further improvement is needed.

In a late submission to the Browne Review, Peter Ainsworth, Managing Director of EM Applications, a consultancy firm with expertise in Asset-Liability Modelling, suggests a radical solution to the university funding problem. It points out that, from an asset-liability perspective, students and pensioners are in matching but opposing situations: students have no capital but can expect a future income stream, while pensioners have capital but no income stream.  The solution? Pension investors providing the funds to pay for students to attend university in exchange for a share of their future income.

EM Application’s proposal, described as “FAIR” for “Funding with Affordable Income based Repayment”, builds on Milton Friedman’s view that asking students to take out loans to pay for their education is inappropriate because, although on average graduates earn more than non-graduates, the dispersion of incomes is wide and many students will not earn enough to justify the debt.

Friedman noted that a student’s decision to go to university is similar to a company making a risky investment. Just as a company would typically finance such an investment by issuing shares, so Friedman suggested that students could pay for their education by agreeing to pay a share of their future income.

For any given university the commitments made by students could be transferred to pension investors, who would pay in proportion to the amount they expected that university’s students to earn.  Uniquely among the submissions to the Browne Review, this system would directly align a university’s interests with the career success of its graduates, creating a powerful motivator for improved educational programmes.

As these are private agreements between student and university, they would also be applicable to students from other countries, enabling foreign students to afford a UK education and allowing for the expansion of the higher education sector, bringing jobs and earnings into the country.  Most crucially, at a time when the UK Government is short of cash, FAIR would raise income for the higher education sector while reducing the burden on the state’s finances.

Peter Ainsworth, Managing Director of EM Applications, said:  “Neither an increase in tuition fees nor a graduate tax can satisfactorily reduce the burden on government while encouraging the sector’s growth. The FAIR scheme would tie the obligation to pay directly to the benefit gained from attending University. By raising funding from pension investors FAIR would save costs for the government while ensuring that access to university is not restricted to the wealthy. The fact that it would also align universities’ income with what they deliver for their students has the potential to transform higher education in the UK to make it a world beater.”

EM Application’s report “An Equitable Approach to the Private Sector Funding of University Tuition Fees” is available at www.emapplications.com/fair.

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Contacts
For a copy of the report, or for interview requests, please contact Andrea Krug, tel. 07740 245 867, emapplications@krugcomms.com or Peter Ainsworth, Managing Director, EM Applications Ltd, peter.ainsworth@emapplications.com.

Notes to Editors
About EM Applications
EM Applications (www.emapplications.com) is a leading supplier of investment risk solutions to asset managers and securities firms. Asset managers rely on EM Applications’ systems to monitor and operate long-only, long-short, hedge and fund of funds strategies. Securities firms use EM Applications’ systems in proprietary trading and derivatives and to support the services they deliver to their clients. By delivering portfolio risk analytics to the fund manager’s desk in the form of a dynamic Excel workbook, EMA’s risk system is uniquely well suited to helping asset managers fully integrate risk analysis into their investment process.

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EM Applications is a leading supplier of investment risk solutions to asset managers and securities firms.