By Omer Ali

I watched the recent demonstrations against the increase in tuition fees in the UK with a mixture of perplexity and amusement. Students passionately resisted a policy that is, as I contend in this piece, unambiguously beneficial for them as well as for almost all parties involved. Indeed, students will benefit from access to better-resourced institutions, and this access will, in fact, be widened. Universities will be incentivized to provide more valuable degrees by an ability to charge variable fees, while the government will be able to ease its budget constraint by decreasing the support it currently provides to cash-strapped universities.

The debate on higher education funding usually revolves around issues of access. However, another important aspect to consider is the effect of funding arrangements on the quality of institutions of higher education. One’s opinion on the reforms is likely to be determined by how much weight they give either dimension. If one were solely concerned about access, then their ideal policy would be to abolish tuition fees all together (and in the extreme case, abolish entrance requirements, e.g. french universities where only a Baccalauréat is required). On the other hand, if one were solely concerned about quality, then they would advocate a policy that maximizes the amount of funds raised from entering students leaving institutions unregulated in their admission policies.

Clearly, the ideal policy lies somewhere in between the extremes. In this article, I argue that the current regime in the UK lies closer to a situation of unhindered access, and that a move towards more funding for universities is beneficial in both dimensions: quality as well as access.

Raising the cap on tuition fees gives universities access to more resources. With the current proposal to raise the tuition fee cap to £9,000, universities that choose to charge this limit will more than offset any withdrawal of government funding. As I demonstrate below, there is ample evidence that more resources translate into better academic institutions.

The Sutton Trust, founded in 1997 with the aim of “promoting social mobility through education”, published a study in 2003 comparing university endowments in the UK and US. It found that UK universities lag far behind their US counterparts in terms of self-financing through endowments. The following paragraph summarizes their findings:

“The differences between the UK and the US could not be more stark. Only Oxford and Cambridge can be compared with the best endowed US universities: either Oxford or Cambridge (with endowments of £2 billion each) would come 15th in the US list, while no other UK university would come in the top 150. Only 5 UK universities have endowments worth at least £100 million, compared with 207 US universities. The average top 500 US university has about fifteen times the endowment of the average top 100 UK university.”

Indeed comparing the endowment per student of two elite universities in each country further highlights this gulf. Yale’s endowment generates about £30,000 per student annually, while Imperial College generates a measly £240.

According to this study, the ranking in 2003 of the top 5 universities corresponds exactly with the size of their endowments. This is not conclusive evidence of a causal relationship between performance and resources, but the correlation is striking.

Indeed, this access to sizeable resources is probably the source of the consistent dominance of US universities in academics. There are more than three times as many US Nobel laureates as there are British ones and this proportion is even more skewed for prizes awarded more recently. In the Times World Universities Ranking 2011, only 3 UK universities make it into the top 20, compared with 15 US universities. The latest QS World Rankings paint a similar picture with 4 UK universities in the top 20 compared with 13 US universities. That Oxford and Cambridge are the only UK universities that consistently do well in these rankings is further evidence that funding plays a crucial role in the performance of universities.

However, these figures should not be a cause for despair, but rather a portrayal of the possibilities. These large endowments were only generated within the 20 years leading up to 2003, when the report was published, with the largest increase occurring between 1995 and 2003. In 1983, Harvard was the only university with an endowment over $1 billion, whereas by 2003 there were 39.
Lifting the cap on tuition fees will improve the quality of UK universities through another avenue: by allowing them to compete and charge more for more valuable degrees. The current regulated market does not allow sufficient variance in fees; an undergraduate degree at Oxbridge costs almost the same as one in an institution ranked near the bottom of the league tables, whereas the value of the degrees vary widely.

Variance in fees is evident in the unregulated market for international students and postgraduate courses. In both of these markets, more valuable courses command a higher price: an MBA from Cambridge costs £36,000, while one from the University of Lincoln costs £6,386.

Universities are not being paid the fair price for the goods they provide. “Increasing university income from home and overseas students: what impact for social mobility?” a report published by the Centre for Economic Policy in September 2010, compares the level of fees for UK/EU students and those for overseas students noting that “the scale of [overseas] fees [is] of the order of three to five times the amount of current annual fees paid for by home undergraduates – once current Government contributions to fees are taken into account.” Even after taking into account the funding universities receive from the government to subsidize UK/EU students, they are still getting much less than they do from overseas students. The report goes on to say that the level of overseas fees correlates with the ranking of universities, providing further evidence that more valuable courses would command higher fees.

Indeed this fact is acceptable when applied to other markets. We rarely see protests about designer goods being more expensive than the regular variety. Even though two goods fall under the category of ‘handbags’, Louis Vuitton is able to charge more for the one it produces because consumers value theirs over their competitors’. This is analogous to the market for education. Why should we force a degree from Oxbridge to cost the same as one from a lowly institution, simply because both fall under the category of ‘education’? Treating education as a regular good will surely raise concerns about access. As I will argue below, these concerns are misplaced and indeed access can remain unhindered as fees increase.

Thus far, I have argued that giving universities more funding will increase the quality of the education they provide. Next, I will argue that increasing the cap on tuition fees will not adversely affect access, but will, in fact, place the government and universities in a better position to tackle the woeful shortfall of less privileged students in elite institutions.
It is commonly assumed that increasing the cap on tuition fees will adversely affect access. In “Responding to the new landscape for university access”, published in December 2010, the Sutton Trust states the following:

“The Trust has made known its concerns that the increases in tuition fees to offset large university budget cuts in England is likely to deter future students from low and middle income backgrounds entering higher education, and the most prestigious universities in particular.”

This statement stems from a survey conducted by the trust that found that a substantial hike in fees (increasing fees to close to £10,000) would deter a large number of pupils from going to university. Despite this finding, studies have found that the main determinant of university attendance is scholastic achievement prior to enrolment. In the same document, the trust concedes “data on the university enrolment of children entitled to Free School Meals […] re-iterates the important point that the biggest factor determining the numbers of non-privileged pupils at university is the attainment of children during school”.

This is confirmed by research conducted by Nicholas Barr, professor at the London School of Economics. He shows that from the pool of students whose parents are professionals, 96% of those that do well in A-levels go on to university. The figure for students whose parents are not professionals (lower level managerial, administrative positions and manual work) is 94%. The difference is, you will agree, negligible.

To palliate any adverse effects on access, the document identifies outreach activities as the most important policy intervention. They go on to say that “this makes university outreach work even more important over the coming years […] universities will be expected to support outreach from the extra income generated from higher fees – with commitments to outreach outlined in new access agreements with the Office for Fair Access”. This remains a recommendation and may not translate into law. However, improving access through lobbying and advocacy for such policies seems, to me at least, a better outlet for students’ energies than the demonstrations we have seen recently.

Scholarships are not encouraged by the trust as a policy intervention, providing further support to the argument that financial considerations are not the primary hurdle between able students and higher education.

“Access agreements up to now have revealed that the vast majority of fee income has been used by universities to support bursaries and scholarships rather than proven outreach schemes – despite evidence that financial help has up to now had limited impact on student behaviour.”

Aimhigher, the government funded outreach program to increase aspirations for those from less privileged backgrounds will be discontinued. Now, the universities themselves will be expected to do outreach work. In theory, extra resources from fees can be channeled into initiatives that improve access. In their response to Lord Browne’s review, the Sutton Trust devotes a substantial portion to the delineation of initiatives to improve access. Except for a provision to waive first year fees for those least well off, none of their policies involved subsidizing students.

Furthermore, it is puzzling that students who claim to care about access for the less privileged would protest in defense of the current regime. The situation today is far from ideal. Defending the status quo belies an aversion to change rather than a concern for the less well off. According to Education Secretary, Michael Gove, of the 80,000 least privileged pupils, those who had been on Free School Meals, just 45 made it to Oxbridge.

That universities are able to raise more funds from overseas students has, naturally, translated into more active recruitment. The Center for Economic Policy report documents that between 1994 and 2008, the numbers of UK/EU students and overseas students rose by 31% and 122% respectively. Furthermore in the effort to attract them, overseas students regularly receive less demanding offer conditions. This phenomenon does not bode well for those advocating better access for home students from less privileged backgrounds.
Indeed, increasing tuition fees is not a real retardant for social mobility. Decreasing them is unlikely to address the problem either. Required to improve access are policies that specifically target those students least likely to attend university.

I concede that higher fees may deter prospective students, although in reality, undergraduate education in the UK is practically free at the point of access. The Student Loans Company gives educational loans with preferential interest rates and with conditions so favourable for students that they could be considered as grants. Indeed, they are not loans in the traditional sense. Upon graduation, should students attain a level of annual income above £21,000, their repayments begin to be deducted at a gentle rate in line with their income. These loans should play no part in the decision to attend university in the same way that National Insurance Contributions don’t influence one’s decision to get a job. In the event that students do not attain this level of annual income, then repayments are simply never made. The loan then becomes, effectively, a grant.

It may be argued that many prospective students do not know this information, and that they are deterred by the ‘perceived’ costs. If this is indeed the case, then the problem is the following: how do we make prospective students aware of the fact that undergraduate education is – practically – free at the point of access? The current regime, a system that yields mediocre universities dependent on the government for sustenance, is not satisfactory. Devising policies that increase aspirations and inform students of the options available to them is more likely to benefit the educational system as a whole.

Omer Ali is an economist based at the University of Warwick and writes on economics, politics and world affairs. He is a former editor of the Voice Magazine. His “Devil’s Advocate” column appears every other Thursday.