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Tuition fees, focus on value, not price

paul Woodgates | university business | 11 august 2016

The criticism of universities including Durham, Royal Holloway and Kent for publishing fee levels of £9,250 before approval for an increase in the cap from the current level of £9,000 has been stinging. But in fact their actions are entirely consistent with the policy drivers operating on universities.

The Government has been clear that it wants to give potential students the information they need to make well-informed choices about their futures. In that context, it is surely preferable that a university is transparent with potential applicants and explains that a course starting in 2017 will, in all probability, cost £9,250 per year not £9,000, rather than hiding that fact. Indeed, failure to point out the costs to applicants may fall foul of Competition and Markets Authority rules.

Clearly universities should be - and to varying levels have been - clear that the rise is dependent on Parliamentary approval. But subject to that, Durham, Royal Holloway, Kent and many others are free to charge the higher fee because they have already met the quality criteria necessary to apply the increase minimal for 2017 admission.

The issue does, however, highlight the problem of regulating a sector late in the day. Many students make decisions about where they want to apply and what they want to study in the first year of their A-levels. Legislating now to change fees that will apply in little more than a year merely introduces doubt into their minds – surely not the government’s intention from a system that was intended to enable them to behave more like discerning consumers. Doubts now emerging about whether annual inflationary increases will apply to existing students will only accentuate the uncertainty.

It also raises the problem that the focus on fees is not meeting the aim of recent reforms – to create a market for students based on competition around a regulated price.  In all likelihood, most universities will behave just as they did when fees went up to £9,000 in 2012 – thinking of the new higher fee not as a cap but as a target. They will see it as a badge that demonstrates that what they offer is top of the range not a second class product that needs to be sold at a discount. The fee is not, it seems, acting as a market price at all.

And students appear to agree with them – there is little evidence that higher fees deter them from applying or that it is an important element in how they decide where to apply. The reality is that the level of the fee makes very little difference to a student – certainly much less than the rate of interest on their loan or the income threshold at which they start making repayments.

While the level of the fee determines the size of a student’s loan, it makes no difference at all to the size of the repayments he or she will make once they start earning. It does make a difference to how long they will make those repayments for, but that may not matter much to the average 18 year old applicant. And more important still is the fact that a large proportion of the loans now being taken out (no one actually knows how large) will never be repaid in full, with any outstanding amount being written off after 25 years. For any student who in the final reckoning does not repay the full amount, the implication of a bigger loan is simply that a bigger amount will be written off at the end.

So if the price makes little difference to students, universities are not competing on the level of the fee. But they are still operating in a competitive market, just one that differentiates on characteristics other than price. The most important factor for a student who chooses to go to university is that it will take three years, more if they want to go on to postgraduate study. In effect they are making a choice to commit their time, enthusiasm, and emotional energy – as well as future loan repayments – to a university degree when there are other options available. They will do that if they perceive the lifetime benefits from doing so offer a sensible return on that investment. That return is not just about greater future earnings potential (important as that will be for many) but also about the credentials that a degree will give them, the transferable skills that university study provides, and the personal, social and cultural development that higher education should bring.

The challenge is for universities to demonstrate to applicants how they can provide those benefits to students. They need to show clearly how what they offer stacks up against the other options. While league tables, the Teaching Evaluation Framework and measures of contact hours will no doubt continue to influence student decisions, these can never be more than very imperfect proxies for the lifetime benefits a student is looking to achieve.

Students will make rational decisions on the information they have available. The challenge for universities is to provide an attractive and clear offer to potential students that reassures them of the value that studying at their institution will provide. 

Paul Woodgates leads PA Consulting Group’s higher education team 

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