How much will it cost to go to university?

Anyone planning to invest in a university degree must first ask what is the value of higher education?  Its value is relatively subjective and therefore difficult to answer, but it is directly related to cost.

There are several factors that shape price, primarily supply and demand.  Ifdemand increases and there is a shortage of supply, price increase.  Higher education has been significantly oversubscribed in recent years, but that reveals nothing about the quality of the applicants.  Universities are in fierce competition to attract the most talented students, of which there is a shortage.

Another consideration is that of Veblen goods; commodities whose demand increases as the price rises.  For example a designer sweater may essentially identical to a high street equivalent, but its inflated price increases its desirability by inferring status.

Universities will also be incentivised to charge more by the government.  Leading universities have arbitrary Widening Participation (WP) targets upon which some of their funding is contingent.  In its simplest terms, Widening Participation is attracting high achieving students from less advantaged backgrounds.
Any university that charges above the minimum has to commit to spend a proportion of this additional fee income on WP activities.  Charging higher fees will not only bring in more money directly but potentially unlock the additional funding that is linked to WP.

How much will it cost to go to university?  The short answer is more than £6,000.  The University and College Union predicts that every university will have to charge at least £6,863 per year to maintain funding levels.

This suggest that most the Million+ universities will charge somewhere between six and seven thousand, depending on how difficult they are finding it to attract quality applicants.  These universities rarely struggle to meet WP targets, so that consideration is unlikely to shape their price.  But they will have to charge less than the Russell and 1994 Groups to remain competitive.

Oxford and Cambridge have already set their fees at the maximum £9,000.  The rationale for this is simple.  By charging the full fee Oxbridge is inferring that their ‘product’ is of the highest quality.  Oxbridge rarely struggles to attract high quality applicants, so there is a clear lack of supply that is driving demand which is in turn driving price.

The Russell Group has suggested that they will have to charge at least £7000 to maintain current funding levels.  My prediction is that both the Russell and 1994 Groups of universities will charge approximately £8,000, moving all of the top universities towards the higher end of the fee bracket.  These universities will price themselves relative to Oxbridge; charging significantly less could suggest a lack of quality.

Universities can’t discuss prices with each other, this is anti-competitive.  If direct competitors charge less than their rivals it could affect the perceived value of their degrees; erring on the side of caution may inflate the price.  Under the current funding arrangement every single university charges the highest fee possible, the one university that bucked this trend found itself in financial difficulty.

The coalition government expects most universities to charge £6,000 per year.  Sadly all the evidence suggests that, despite the rhetoric, this is highly unlikely.  One suspects the fee debate has a long way to run yet.

The hidden consequences of the Browne Review

Thus far reactions to the Browne Review of the funding of higher education have tended to focus on the headline figure of student fees potentially rising to £9000 per year.  The more nuanced analysis has widened its focus to consider the obvious benefits of the review; a higher earnings repayment threshold (from 16k to 21k per annum) and more generous student loan arrangements for students with less privileged backgrounds, both of which should be welcomed.  Some elements of the review have slipped under the radar, both ostensibly concerned with raising standards.

The Browne Review suggests that along with an increase in the number of places in higher education a minimum qualification cap should be imposed on institutions by the proposed Higher Education Council (this will replace a number of existing bodies such as HEFCE).  Put simply a national minimum entry grade would be imposed that all institutions would have to adhere to.  At first glance the benefits of this seem obvious; those applicants with lower grades will not be allowed into university thus ensuring a higher calibre of student and as a result a higher standard of education.  What this approach does not allow for is the Widening Participation element of regional universities, such as those in the Million+ group.  Much of the intake of these institutions is local, part-time and or mature students who have been in work (and out of education) for a number of years.  As such many of these individuals may not have the traditionally required grades to enter higher education but instead possess years of relevant work experience.  Until further details are published on this minimum tariff it is impossible to estimate the full extent this policy could have on regional universities and retraining for those outside of the traditional 18 to 21 age range.

It should also be noted that the minimum tariff could also have a detrimental impact on Widening Participation as a whole as those unfortunate enough to attend less successful and failing schools may find their A level achievements - fantastic though they may be placed into the context in which they were achieved - not up to the new minimum standard.  The Browne Report suggests an increased emphasis on Widening Participation, though this could leave some universities working at cross purposes – raising entry grades which will slash the number of applicants from non-traditional backgrounds.

The second potential development concerns the funding of arts courses and the willingness of universities to 'expel' students.  Under the current system once a student leaves or is kicked off of their course the university loses funding for that student for every year of study.  Therefore if a student, three years in, chooses to leave their course the university loses the funding for that student for all three years.  Therefore the onus is on universities to keep hold of students, with this imperative increasing with the length of their study.  The changes suggested in the Browne Review would remove government funding for most arts courses (classics, history, sociology, etc) with the costs being met fully by the student.  This removes the risk to the university with regards to potential loss of funding; there will be no government funding to be taken away.

It’s unlikely that universities will suddenly become trigger happy and start removing students from their courses with increased profligacy.  However these changes represent another subtle change in the relation between university and student, with a more business orientated model firmly taking hold.  The proposals also risk a ‘one size fits all’ approach to universities with an out-of-touch, typically ‘traditional’ view that only the brightest, best and more privileged deserve a university education.