The Russell Group claims that Britain faces meltdown if funding cuts are carried out.  Now like our private schools, our universities are an excellent industry, competing well on quality and earning export credits for the UK.   If you described any other industry in those terms, you would struggle to connect it with the word ‘meltdown’.  Firms that offer world-beating services, encouraging customers to move from all over the world to experience it,  tend to do well.

The reason for this paradox is that universities are not able to charge all of their customers anything like the proper going rate for their services, and hence rely on a large, politically vulnerable subsidy.   Terence Kealey – a vice-Chancellor* – identifies the solution when he says in the Guardia:

Universities that take government money are not allowed to charge the fees the market would bear, nor to expand popular departments or courses. These restrictions on the market are self-defeating.

He predicts that an inability to charge will lead to universities discriminating more by ability-on-entry – which would disadvantage poor students, naturally.

The FT goes into more detail. As well as calling for an end to national pay bargaining, and more openness to prospective students as to what they will be offering (hence making it more obvious to the consumer what he/she will be getting), they suggest lifting the cap on student fees, and allowing interest on student loans.

Terence Kealey points out that higher tuition fees have not so far discouraged poor students:

The fear that higher top-up fees will deter students, particularly from poor backgrounds, has been disproved by the increasing demand for places. The demand is rising because students understand that education is not simply a right but an investment.

Such reforms make sense.  As the FT acknowledge they are “politically contentious . . .  they cannot be justified unless universities have demonstrably done all they can to make the market work well.”  The customers are adults, capable of making rational choices. What matters is giving them that choice, a decent funding arrangement so they pay when they can, an industry that can expand supply when demand rises, and above all a better pre-18 years education system so that more people can get in the position to make the choice.

It makes sense to subsidize it a little,  because good educations yield great externalities for all of us.  But most of the benefit is privately enjoyed, and in a time of fiscal strain it makes sense to charge more for it, rather than tax the less educated.

In a tight fiscal situation, money is better prioritised lower down in primary and secondary schooling.  See Time’s Up.

*Hat-tip to Tim, below: worth pointing out that T Kealey is VC of the only private university in the country.


17 thoughts on “Free the market in university education

  1. Just to be clear, Kealey is VC of Buckingham, our only univ outside the current system. That doesn’t make him wrong, but obviously he has a lot to gain from other univs charging higher fees.

    We need to think not only about raising fees at the top end, but cutting them at the bottom. 64% of US undergrads are at community colleges. US CCs make no pretence of doing research, and have very, very low fees. The College of Western Idaho – to take one at random – charges full time students about $3800 a year in fees, which is lower than UK universities charge.

    Broward College, Florida charges $268 for Fl residents and $925 for out of area students for a 48 contact hour course.

    Do we really need all UK univs to aspire to do research? Or to do expensive lab based subjects?

  2. I think those are really good points – I thoroughly agree. Although, how many high quality staff would want the job? Would someone as bright as you want to just teach? I’m curious

    When I was doing my MBA, I had to work with a teacher training college in South Africa. As well as doing the hugely valuable work of training teachers to do an essential job, this college was somehow marked on the basis of how much academic work it produced – on teacher training! It was incredibly artificial. They just wanted to teach trainee teachers.

    Thanks for the info on Kealey – I ought to update the post.

  3. Out of interest government funding* drop when the current system of tuition fees was introduced in 2006?

    I’m a final-year student at the moment, and I’d have no problem if the fees were raised. But I think if there was any genuinely variable fee system – i.e. where universities actually charged different fees, whereas at the moment in practice they all charge the maximum – it’d risk undoing a lot of the work to widen access that’s been done.

    Of course, the NUS doesn’t help by constantly going on about ‘record levels of student debt’, which is at least a little scaremongering and misleading…

    *I know the government pays the tuition fees up front, but are these fees on top of government spending on HE or do they replace some of it?

    1. Hi Jamie

      I think public funding was stagnant all the way through New Labour

      Reflecting their belief that money is better spent younger. But then:

      But, as Figure 2 shows, the introduction of tuition fees in 1998 did begin to put overall higher education expenditure on an upward trajectory that is set to jump sharply as the new system of variable fees comes into force later in 2006.

      SO I think this did boost funding.

      I agree about NUS scaremongering – I’d be really put off.

  4. You ask whether I would teach at a community college, and the answer is no if you mean full time. But I would be delighted to have videos of my lectures (they are all videoed already) being used, either for free or for a nominal charge to LSE. I understand MIT was investigating whether US CC’s could use its lectures like that, and whether that would be effective. My guess is that it could be really good for fairly standard subjects like introductory econ, maths, engineering, although perhaps less so for more heterogeneous subjects like history.

    I would also be willing to give some lectures to a local CC provided that it could fit in with a schedule, and it was something for which I had material prepared already. I have some lectures on the history of business that could be used quite well in a wide range of courses.

    Community Colleges often employ practitioners – for example, lawyers, as teachers in the evening. They get paid, but it is not full time and so it is not a huge amount. I know a Harvard archivist who teaches history at his local CC. For many, it is a way of putting something back, and helping people from non-traditional backgournds who want to get ahead and do something with their lives. That can be tremendously rewarding. But what you need in places like that are people for whom teaching is a vocation, not the subject per se. Being taught by a Nobel Prize winner does not guarantee that you will learn anything, as almost anyone who has ever been taught by one can testify.

    1. I think CC’s sound like an excellent model. I believe Julian’s great first paper on Universities called for more tiering. When only 6% of kids went to Uni, it made more sense to see them as all the same. When 44% do, it is crazy to have the same basic insitutional structure for Oxbridge as for other courses.

  5. Personally I’d be nervous from the point of view of fairness – that even though the evidence to date shows that fees aren’t a major factor in post-18 education decisions, variable fees may force the less well-off into less prestigious courses/universities/careers. Still provided a mechanism was put in place to ensure that access to the best courses wasn’t restricted on the basis of ability to pay (perhaps a post-hoc fees structure, akin to a grad tax) would achieve this. As to whether this will prove politically palatable to anyone is another story altogether…!

    As for CCs and teaching, the UK definitely has an issue with too little quality teaching outside the Russell Group which is exacerbated by quality academics not wanting to get ‘relegated’ to ‘just’ teaching. Tim’s point about part-time posts and syndication of teaching material addresses this well, as an academic I’d go along with that wholeheartedly!

  6. ‘It makes sense to subsidize it a little, because good educations yield great externalities for all of us. But most of the benefit is privately enjoyed, and in a time of fiscal strain it makes sense to charge more for it…..’

    Replace the word education with ‘health service’ or ‘bin collection’. Why is the logic different for university education?

    1. Or Food, or taking a part time course to learn your third language? Should the state pay for everything, whenever there is a tenuous reason to call it an externality?

      Because a university education is (a) something that only the individual can assess the costs and benefits of (b) something that overwhelmingly benefits him or her privately (c) affects them at a time they are otherwise trustted to take adult decisions like join the Army, vote, have kids.

      I think elements of health could be rationally paid for privately. The liposuction I am planning on in 2025, for example. My decision to spend money on a gym membership rather than drink in pubs (yes, I am a saddo).

  7. Or food, indeed. Free School Meals is a recognition of the ‘exteranility’ of having all children in a class at a minimum standard of nutrition.

    Before you get on your sarky horse I was simply asking, as the first step in my total demolition of your argument, whether you felt that the measurement of externality was anything other than a subjective/moral judgment on same, based on hegemonised assumptions about what people have a right to/what benefits the wider population. blah de blah. Clearly, though, the main basis for my demolition of your report will be around the need to see tuition fees/costs within the wider tax framework.

    Back later. Maybe. Depends how sarky you get.

  8. “they suggest lifting the cap on student fees, and allowing interest on student loans.”

    Let’s be clear: the former is a fair way of increasing prices for all students across the board. The latter is directed experssly at the graduates who earn least.

    Therefore the former can be justified, but the latter? It strikes me as hitting those who are already down.

    1. I must admit, it has always been the former I’ve felt most comfortable with. I would rather we kept the interest at below Libor, at least

  9. I think it is imperative that the % rate subsidy remains for those who are earning less than (say) the £15k repayment minimum, to stop the debt escalating.

    Of course, if we built more houses, housing costs would fall, and young grads would have more money left over, and the debt burden would be less of a practical issue.

    It is imperative that we get price competition if the fee cap is to increase – allowing univs to expand would give many an incentive to think about price.

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