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Clearing up the Mess: What Students Really Need to Know About Fees and Universities

Posted: 18/08/2011 09:08

Tuition fees were abolished last year, but few people seem to have noticed. The cost of higher education is being transferred from the taxpayer to the direct beneficiaries (i.e. graduates) but students no longer have to pay any fees for their university experience. There are expenses incurred as a student, of course, and the Bank of Mummie & Daddy will be called upon as the lender of last resort.

But fees? Students (sorry, graduates) don't have an inkling of them until the small monthly payments start disappearing from their £21,000+ wage packets. After a few years, your student loan deductions begin to look just like another irksome bill, except it isn't as annoying as the electricity bill because it comes straight out of your salary without you doing anything, and you are aware (or at least you should be) that without it you probably wouldn't have as good a salary in the first place.

What about higher costs being a deterrent? The only empirical evidence we have is that the introduction of higher fees in 2006 has not reduced overall demand for university, nor has it curtailed the continuous rise in participation of young people from less affluent backgrounds. So much, so positive.

What can, and miserably does, hold people back is a lack of awareness about the financial support available, much of which goes unclaimed. Get sound provisions in place to deal with this and it will go some way to making an increase in tuition fees fairer and more palatable its detractors. A Sutton Trust report in autumn 2010 highlighted that most teenagers are not aware of the financial aid available. This is something that has been consistently apparent in my own research. Universities know that they need to do a better job in advertising state aid and their own scholarships. Many are making good progress here but it is still rare for institutions to get aid to more than three-quarters of students eligible for it.

In the past few years, a number of organisations have released misleading research about the impact of fees on students, variously claiming that demand for university would fall off a cliff at higher price points. Not only is it embarrassingly bad research, it is politically dangerous. It is misleading to the public and to policymakers. Here is a quick summary of the basic flaws.

First, most surveys have been asking current or former students. This will not give you a realistic market opinion - these respondents are biased having already paid less than half of that amount for their current or former studies. You have to be putting the question to future students. This makes the research criteria and modelling a bit more complicated but, trust me, it is achievable (I can do it with no further mathematical training than a GCSE).

Secondly, surveys have been far too simplistic. When gauging reaction to price you must give survey respondents a range of competitive options to replicate a more realistic purchase decision. Just slapping a series of price tags in front of someone and asking whether they think it is expensive or not, without providing any appropriate context, tells you nothing about decision-making. You

Thirdly, the headline fee for university tuition is only half the story. Behind that are student loans and financial aid. With nearly every institution currently charging the full rate of tuition, bursaries and scholarships are the only way for them to differentiate their offer from competitors. This produces a 'net fee' and must always be considered when modelling such pricing functions. The students who are most likely to be put off by a big headline are those students that would be eligible for financial aid.

This is where smarter pricing and price communication comes in. All the universities want to charge as much as they can but they understand their markets and they do plenty of research, so they have some understanding of what their target students can afford. The catch-22 is that if they pitch their headline fee too low, they send out a message that their 'product' - i.e. the education they offer - is poorer quality than a competitor charging more; however, charging too much will scare off precisely the students they are pitching for.

So that is where discounting - or, in HE terminology, financial support / scholarships / bursaries - comes in and this is where the 'net fee' is produced. The Government has introduced policies to improve communication of the support and discounts available to students, including a £150 million National Scholarship Scheme, and universities are being pushed to improve their own information, advice and guidance (IAG in the jargon).

Today is A-level results day, which means the start of the annual clearing stampede. In May, the universities minister, David Willetts was criticised for suggesting that universities could offer these discounts during clearing, in order to fill up spare capacity. Could that have worked? In a word: 'no'.

Firstly, Offa rules say universities would then also have to give the same discounts to students already on affected courses, resulting in a massive loss of income. Secondly, we considered this situation when I was a management consultant advising universities about tuition fees. We were trying to apply a simpler version of the yield management used by hotels and airlines, who adapt prices to reflect consumer demand.

We concluded that yield management could not work in universities principally because of institutional aversion. Like shadow universities minister, Gareth Thomas, I agree that "you can't treat university like a lastminute.com holiday". We received a lot of push-back from university executives for this exact reason (though then the comparison most often made was with easyJet and Ryanair). It would be unfair for two students to sit next to each other in the same lecture hall, one having paid £9,000 and the other £6,000, for example. And it would mean that students focused too much on the price tag of a course, instead of a myriad of more important factors such as university reputation, employability, facilities, satisfaction, teaching hours etc.

It is those factors that I recommend students concentrate on during the next few weeks. The 'best' options available will disappear in the initial hours and days (perhaps before this even goes to print), but ask yourself - are they really the best? Or are they just the most fashionable? A young person deciding on universities is facing as much a lifestyle choice as an educational or career choice. It is emotional as well as functional.

However, under the new regime of higher costs for university education, students need to consider value a lot more, and that means asking questions about employability and teaching hours. If you're paying much higher fees, you are going to start looking for much higher returns on that investment, which will be paid off further down the line.

But then again, remember that the Government has abolished tuition fees. It would have been better if they had kept them but accepted Lord Browne's central recommendation to remove the fee cap entirely. It ought to be realised that the higher the headline fees the better the situation for poorer students. In such a scenario, universities have more money to spend on financial aid and to improve facilities and teaching for everyone. It would end the absurd middle-class subsidy for university education, paid for by ordinary taxpayers. The current arrangement - described by Simon Jenkins as "a new departure in fiscal socialism" - is undoubtedly a better deal for the poorer students than what we had before, but uncapped fees would have been better.

But don't worry, don't spend too much time reading the newspapers (you can read the Huffington Post, of course), because what you see this October, or next October, or the October after that, will not be too dissimilar to the sorts of things I saw in October 2005.

Above all, don't miss out. It is still probably one of the best things you'll ever do.

 

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