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Logic essential in debate about university marketplace

"The real competition between universities is to secure the best and brightest students. What we can expect is real competition to offer students better experiences and better prospective benefits from their educational investments."

Mike Boxall
The Times, page 77
22 April 2011

It is a shame that Mr Spock is not available to apply his Vulcan intellect to the marketisation of university education. We could do with a dose of his cool logic.

Lord Browne of Maddingley, in his review of higher education, and the coalition Government, in its subsequent responses, have placed great store in the power of market forces simultaneously to improve student choice, drive up quality and, in particular, to push down costs and prices (fees). But there is little evidence or logic to support such faith in the invisible hand.

English higher education is certainly becoming more market-like in many respects. This includes the shift from grant funding to reliance on student fees (albeit paid initially by the Exchequer), the entry of new private and overseas providers — 144 in London alone — and the growing range of attractive alternatives to conventional undergraduate courses, such as professional apprenticeships.

These developments are making universities recognise that they have to earn their livelihoods by competing for the custom of empowered students. Much as they may hate it, this is a healthy trend from which well-managed universities will emerge stronger and more resilient.

But we should not assume from this that higher education is, or ever will be, like other customer service markets. For one thing, university education is not like other service transactions. It represents a life-shaping investment in an extended, two-way experience between students and their chosen university. Students want different things from this experience. Whatever their motives, the “sticker price” fees of competing institutions are likely to be the least of students’ decision criteria, partly because differences in course fees carry no immediate cost.

The difference between fees of, say, £7,000 and £9,000 will be felt only many years later, in the duration of fixed-rate, income-contingent loan repayments. Few 18-year-olds can even imagine being 45 or 50, let alone calculate the net present value of loan charges they may have to make at that age. We are unlikely, therefore, to see much price sensitivity in students’ demand for university places.

The other key departure from “true” market forces is the Government’s continued control over the number of subsidised undergraduate places and the apportionment of those places between providers. With the total of available places capped 20 per cent to 30 per cent below the level of qualified student demand, universities are pretty much guaranteed to recruit their allocated quotas, and indeed are fined for exceeding them.

The real competition between universities is therefore not for student numbers, but to secure the best and brightest students. Such students are attracted by the perceived quality of competing experiences and the expected returns to their personal investments, not by distant differences in fee repayment schedules.

So, market forces are unlikely to drive price competition between universities, and we should not be surprised to see most universities clustered around the top end of the permitted fee range. What we can expect is real competition to offer students better experiences and better prospective benefits from their educational investments. And Mr Spock would doubtless have considered that a good thing.

Mike Boxall is a higher education expert at PA Consulting Group.

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