Time for a rethink on tuition fees policy

David Willetts has added to the confusion surrounding university fees with a proposal to allow higher education institutions to admit extra home (UK and EU) students if they pay ‘full’ fees (i.e. the fees currently charged to non-EU overseas students) upfront, and thus do not add to public sector spending.

In principle this doesn’t sound an altogether bad idea in that it could potentially bring new money into higher education and increase the number of students in the system. It will however make the fee options facing UK and EU students even more complicated. The way things are going, the cost of taking a degree will be even less transparent for potential students than working out the cheapest railway ticket to Edinburgh.

A quick recap: because the government could not bring itself to accept the Browne Review’s proposals to take the cap off home/EU student fees, it is being forced to maintain a quota of places for each higher education institution. This is to keep control of public spending on subsidised student loans for fees, which are predictably clustering around the upper limit of £9k per year – although with some unexpected variations amongst second-tier providers. Another aspect of government policy is the requirement for all higher education providers aiming to charge fees of more than £6k to devote a significant proportion of their extra fee income to encouraging wider participation. In many cases this will mean discounting headline fees by having a system of bursaries and scholarships which will differ from university to university. A further complication has been added by an earlier Willetts suggestion that unfilled quota places could be auctioned off in a kind of reverse auction where universities could expand their quotas by bidding lower than competitors.

How potential students will make sense of this, and of the further complexity of working out the likelihood of them ever having to repay the loans they take out, remains a mystery.

Mr Willetts has already had to issue a ‘clarification’ to answer the critics of his latest brainwave. In response to the fear that extra non-quota places will provide a way for dim but rich kids to get into elite universities, he has had to say that the same entrance standards – UCAS points – will be applied to all students. But then that raises the spectre of two students with similar qualifications being charged different fees for the same course.

This already happens with overseas students, of course, and creates great resentment. In the past when non-European students have complained to me that they get no extra service or facilities for their much higher fees it has been possible to defuse some of their unhappiness by pointing to the government subsidy on home fees. This is no longer going to be the case and I anticipate greater problems with placating overseas students under the new fee regime – their complaints would be amplified under Mr Willetts’ proposals.

The fact is that UK full-cost university fees are often pretty poor value for money. Overseas undergraduates (and postgraduates) massively subsidise UK higher education and their fees are often more than twice what it costs to deliver their education. These costs of delivery are themselves considerably inflated by the employment conditions of university staff, cross-subsidy of research and a web of complicated regulations.

To impose a similar fee regime on this new group of non-quota UK students may provoke a degree of consumer resistance which Mr Willetts does not anticipate.

All-in-all, the government’s fees policy is a mess. Is it really too late to go back to the drawing-board on all this? Nick Clegg, for one, would surely welcome a rethink.

Len Shackleton is an Editorial and Research Fellow at the IEA and Professor of Economics at the University of Buckingham. He was previously Dean of the Royal Docks Business School at the University of East London and prior to that was Dean of the Westminster Business School. He has also taught at Queen Mary, University of London and worked as an economist in the Civil Service. His research interests are primarily in the economics of labour markets. He has worked with many think tanks, most closely with the Institute of Economic Affairs, where he is an Economics Fellow. He edits the journal Economic Affairs, which is co-published by the IEA and the University of Buckingham.

2 thoughts on “Time for a rethink on tuition fees policy”

  1. Posted 14/05/2011 at 19:54 | Permalink

    So university funding is a total mess? Agreed. The problem, though, is not the cap on fees. Removing such a cap would not lead to a ‘market’ in HE as some appear to want. The reality is that such a market already exists. It is though a market in which the currency is academic ability (i.e. A-level grades) rather than pounds sterling. If you then introduce a totally new market, one based on wealth, then the question becomes, how can you have two markets operating in parallel with different currencies? Which one takes priority?

    The problem with removing the tuition fee cap is that it is irrelevant. Writing off student debt after thirty years and linking the annual repayments to graduate income rather than interest rates or outstanding debt means that students will always be insulated from the effects of any rise in fees, or the removal of any cap. The Coalition’s tuition fee policy is therefore a graduate tax in all but name.

    Consequently there is no financial incentive for students to choose the cheapest courses, or to limit their debt, because their financial liability is set by their income, which is dependent on their graduate career, which depends on the quality of their degree/university. Thus, the better their university, the better their job, and the higher their net income. This will be true regardless of the fees charged. Higher fees only result in longer repayment periods. But as the average student will have over £40k of ‘debt’ and will need to earn over £50k pa just to pay off the accrued interest each year, the reality is that few students will ever clear their ‘debt’. Most ‘debt’ will be written off.

    The corollary to this is that there is then no incentive for universities to limit their fees in order to attract either more students, or better students. If students have no incentive to use price differentiation to determine their choice of university, universities cannot use the price mechanism to attract new students.

    As for David Willetts’ proposal to allow students to buy places, this just does not compute. If such students still need to satisfy the same entrance standards (i.e. UCAS points) then they would qualify anyway. All universities are legally bound to accept any student who meets their conditional offer. The only exception will be those courses that are oversubscribed with suitable candidates. These will inevitably be those courses at the best universities that require 3 grade As at A-level. Do we really want the rich buying places at Oxbridge when they fail to get a place via the legitimate route? They may have 3 grade As at A-level, but they will still be either depriving a better candidate of a place, or lowering the academic standard at the institution, or both.

  2. Posted 15/05/2011 at 17:11 | Permalink

    Question: why is the cost of tuition at a university so much greater than the cost of educating a pupil at a state school? Why should this be the case when the latter involves longer academic terms, smaller class sizes and more contact hours per student? In contrast the average university academic only has about 200 hours of teaching duties per year.

    Part of the reason (as Len Shackleton notes above) is that universities wish to use the extra revenue to cross-subsidize research. This would be no bad thing, for it would at least enable them (should they wish – which they currently don’t) to provide continued employment on permanent contracts for their most talented research staff instead of dispensing with them at an unseemly young age. Unfortunately, most of these fees are going instead towards inflating the salaries of existing tenured staff.

    One of the recent growth trends which has gone largely unreported has been the massive increase in the number of professorial posts in our universities over the last fifteen years. In many departments there are now more professors than there are senior lecturers, or junior lecturers, or in some cases junior and senior lecturers combined. The pyramid is becoming inverted.

    Doubtless some will attribute this growth in ‘managers’ (for that is what many professors really are) to the (supposed) natural tendencies of the public sector for bureaucracy and inefficiency. But as James Stanfield has rightly pointed out on this site on 19th April this year, all universities are in effect private, not public. It is precisely this independence that allows them to act with impunity and without accountability.

    It is now blatantly obvious that the principal mission of universities is no longer to deliver high quality education; it is income generation. But with no shareholders to placate, any increase in revenues can only be distributed internally. In short, universities have become self-serving vehicles for monetary resource allocation with a privileged minority sharing the spoils.

    This in itself would not be totally disastrous if those receiving the spoils were all truly worthy of them, and if the growth in income led directly to an improvement in the calibre of the academics being employed. Unfortunately meritocracy and universities are at best now casual bedfellows. For while undergraduate entry to most universities is still (David Willetts’ recent proposal not withstanding) fairly meritocratic, appointments to academic positions are often far less so. In fact the appointments of many junior research and academic staff are often done in such a partial and opaque manner that the process would probably make an MP blush. You see, it is not just A-level grades and classes of degrees that have been dumbed down over the years. There has been a similar deterioration in the intellectual quality of our university academics, too many of whom rise unchallenged through the hierarchy of their own mediocre alma mater, or are the beneficiaries of cronyism. But where is the outcry? If you want a real market in HE, this is where you need to start.

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