Co-op takeover: Co-operatives on campus

By Pete Jefferys

Student finance has dominated headlines over the last year due to the coalition’s plans for higher education funding. The result, a system that places the majority of the burden for funding on graduates rather than the state has been much debated. My own view is that the great risks are in perception and emphasis – the perception that university is too expensive which may put off applicants from less wealthy families and the emphasis on higher education as a market, rather than as a social good. The huge rise in fees will put off many good applicants from lower and middle income families and places a mortgage style burden on young people (before they can even consider getting out a mortgage).

Whilst clearly the vast increase in the cap on tuition fees means that the majority of graduates will be paying more, it is also important that graduates understand how this debt will be paid (only on earnings over 21K) and how much will be paid (time limit of 25 years). Aside from the reality, graduates will crucially feel heavily indebted and this could shape future financial choices: jobs, mortgages, pensions. It’s important that graduates understand the new system, its implications and how they can best manage their money during university and the subsequent years.

In 2009 the Co-operative Party brought out a pamphlet entitled ‘Co-operatives on Campus’. In it, recommendations were made for improving the effectiveness and accountability of student unions through mutual and co-operative principles. We will continue to work on these ideas with Co-operative Party Youth – it is vital that student bodies are fully accountable and serving students’ interests. I want to focus though on one particular recommendation from the pamphlet which is an idea that I believe could make a real difference within the tangled web of student finance: university credit unions.

Credit unions are member-owned financial mutuals, which provide financial services such as loans and current accounts and are often centred on particular cities, boroughs or professions. The sector has seen excellent growth in recent years, providing financial products to all members of communities across the country, including those who are often excluded from mainstream lenders.

There is a case, though, that credit unions could play a greater role within universities. In the US, there are some well established College Credit Unions – such as this excellent example at Harvard. The model can be flexible, but most would be institutions that serve students, lecturers, staff and the community providing local financial services and affordable lending. The advantage of financial mutuals is that all surpluses are put towards member benefits, rather than creamed off for shareholders. This means that they can offer highly competitive rates and often outperform mainstream lenders.

How does this relate to the issues around student finance? Not only could university credit unions be a source of student saving, but crucially they could also provide financial education for members. At Harvard, the credit union runs classes on sound financial management. The benefits would not just be for students, but for staff and the community. University credit unions could even provide small targeted loans for particular items – such as computer equipment – again following the US model.

Given the seismic shifts in student finance it is important that students have decent and clear financial education and understand what mutual finance has to offer. Embedding this through university credit unions could be a neat solution to that problem. Flexibility should also be the key in terms of set-up, in some areas the best approach may be to expand existing credit union support and in others new credit unions may be appropriate.

Whilst practicalities have still to be developed, the principle is clear: students need greater exposure to financial education and to non-mainstream financial services that may better serve both their interests and those of their community. Given the government’s draconian cuts to higher education funding and the greater burden of debt taken on by students, the pressure for new ideas will only grow stronger.