Tuition fees need to be freer
Today sees tuition fees rise to £9,535, up by a lowly £285 since 2017. This is a state-sponsored steal from universities.
Since tuition fees were introduced and frozen in 1997, following the Dearing Report’s conclusion, they were capped at £1,000 (£1,975 in real terms). This rose over the years to their stand-still in 2017 at £9,250. According to data from Unit Expenditure per Student (UEpS) data and university cost inflation estimates used by bodies like the Office for Students (OfS) or Universities UK, we find that the real cost of higher education is actually £15,000 a year on average. Costs will obviously differ according to courses, institutions, and locations (an academic in a lab in Kensington will cost more than the same in Newport).
The blanket student fee policy is likewise baffling - the cost of studying incredibly strenuous, cutting edge, and high-quality degrees such as engineering, medicine, and physics is going to cost a university much more to facilitate and administer than degrees with lower returns such as photography and religious studies (with apologies to friends in the church). To put this into perspective, it is like charging the same for a tomahawk steak as a side-salad - if a restaurant won’t do it, why should higher education expect to?
We can see the evidence for this damage in two ways. In the first instance, the cross-subsidisation from international, uncapped student fees for various courses. King’s College London charges UK medical students the standard £9,250 per year, whereas foreign students are charged £48,600 per year. For religious studies, foreign students are charged £27,100 a year.
The second instance is how many places on courses are offered, owing to the constraints on resources and lower inputs - looking at “free” degrees by Scots for Scots, a Parliamentary report found: “for the previous academic year, the unofficial ‘cap’ had led to only 55% of university applications from Scottish students being offered a place at Scottish universities, compared to 74% of English students at Scottish universities”. This means that ‘funded’ places, where prices are funded directly through grants as part of a policy, narrow the offerings for the students they are intended to reach. We can thus surmise that the flat-fee policy narrows accessibility, and thus limits potential human capital growth, undermining higher education.
The freezing of tuition fees has been a disaster for the sector too. As readers of ASI blogs and reports will know, we are not fans of price controls for good reason - they lead to scarcity and poor incentives amongst suppliers. By freezing tuition fees we encounter three separate issues:
Real cost loss - Rents, capital expenditure, salaries, and student expectations are not the same as they were in 2017, when the last serious freeze occurred. Indeed, they are much higher and have a lot of catching up to do. There are growing concerns in the sector, with course modules, maintenance, and bursaries being cut, whilst debt piles grow.
Reliance on uncapped foreign income - Foreign student numbers have increased substantially since 2000, according to Higher Education Statistical Agency data. In 2003, there were just shy of 300,000 foreign students in the UK, by 2023, this figure had risen to 730,000 - more than double. This can be attributed to the need to cross-subsidise domestic students. Massive influxes of foreign students has negative outcomes on universities, with staff allocations not rising in line with the number of students (leading to larger class sizes and lower quality teaching), and reports of “ethnic clustering” which poorly affects wider diverse class sizes and teaching staff. Foreign fees make up about half of total tuition income for the UK.
Larger future risks - With a mounting debt pile and students being put off university because of poor salaries and wages following graduation, there is an outsized concern for university’s finances. Baroness Smith, the Higher Education minister, has voiced the government’s concerns over this, and hinted that coming with a begging bowl to the taxpayer may not be an option if foreign students stop wanting a British degree. Without a change to the funding arrangements for core students, such as changes to loan payment structures and fees, the current pricing mechanism could spell doom for much of the higher education system.
How do we fix this problem? The best option is, of course, to abolish the price cap and allow the Invisible Hand of the price mechanism to properly allocate talent, resources, and investments. As Madsen Pirie has recommended in his Overton Window paper, businesses should be able to pay for the degrees of students on a contractual basis, so the graduate would have to work for at least 5 years after graduation.
Likewise, a claw-back system from government or loan-providers if a degree has poor graduate outcomes would function well in incentivising providers to continue high-quality education, and disincentivise lower quality candidates. A return to polytechnics and technical colleges could be welcomed, however, during the ongoing deindustrialisation of the UK, the return on investment per person requires further research.
Concerns will be raised about affordability - which is entirely valid. These can be rectified through a more aggressive philanthropic approach by universities to fund bursaries and scholarships, whether fulfilled by foundations, charities, university funding allocation, companies, or alumni associations. It is clear, however, that the mantra of “education, education, education” has not been enough to raise productivity in the UK (seeing as it has been effectively frozen in place since 2007).
The UK has much to give in terms of higher education. So set it free - abolish the price cap.
