Tuition fees ‘to soar despite warnings’

Despite all the government warnings, the clear signs are that the great majority of universities in England will raise fees above £6,000 – with most going straight to the £9,000 maximum.

Oxford and Cambridge were the first to put their heads above the parapet this week.

But others will follow over the next few weeks as universities set their fee levels for the 2012-13 academic year.

There are several reasons why universities say it makes no sense for them to stick to the £6,000 level.

The first is just brass tacks. Universities estimate that, on average, they need to charge at least £7,500 just to maintain their current income levels.

This is because the government is cutting teaching grant by 80% over the next few years.

Some universities say their “standstill fee” is even higher if they are to compensate for losses in research and capital funding too.

The second reason is that the maximum fee of £9,000 will inevitably become a badge of quality.

No university wants to risk being perceived as second-rate by charging less than others.

The few who did so when the fee cap was raised to £3,000 quickly regretted being out of line.

Indeed, as the NUS President, Aaron Porter, regretfully told an audience of university advisers this week: “Price will be set as a proxy for academic league table standings”.

And it appears that students may take the same view as their vice-chancellors.

Addressing the same audience, Professor Julia King, vice-chancellor of Aston University, said student representatives at her university’s council had argued fees needed to be set at £9,000 or they would object the university was planning to spend less on them than other universities.

There is also anecdotal evidence that students feel it may harm their employment prospects if they are seen as coming from a university with a £6,000 price tag, rather than a £9,000 one.

We have all got used to rating things by their price. There is a sense that “you get what you pay for”, whether it is mobile phones or university courses.

Professor King echoed the views of many other university leaders I have spoken to when she said “there is not going to be any real competition on price”.

The government should not be too surprised that universities will not stick to the £6,000.

At a meeting this week between the Deputy Prime Minister, Nick Clegg, and vice-chancellors it emerged that the Treasury has modelled its future spending on average fees of £7,500.

And this is where it becomes interesting. On the Treasury model, the cost of funding student loans would be £3.6bn.

But if average fees are more like £8,000 or even £8,500 the Treasury will be out of pocket.

Vice-chancellors were told the government could not allow this to happen and the Treasury would claw back any excess spending on student loans from university teaching grants.

This is the background to the rather desperate warnings from government this week that universities charging above £6,000 could be fined or forced to cut their fees if they fail to admit more students from poorer homes.

But are these warnings just bluster?

It will be two or three years down the road before the independent regulator, Offa, can decide if a university is failing to fulfil the “access agreement” imposed as a condition of exceeding fees of £6,000.

Like a struggling teacher threatening to send recalcitrant pupils to the head teachers’ office, the government also threatened universities with unspecified further punishment if they are found to be “clustering charges at the upper end of what is legally permissible”.

In the guidance letter to Offa, Business Secretary Vince Cable, said the government would consider taking new powers through legislation to ensure there is “differentiation” in fee levels.

However, despite this sabre-rattling, vice-chancellors I spoke to doubted whether Offa has the teeth to impose a reduction in fees.

They also seriously doubted whether the government could take such powers over autonomous institutions.

Finally, there is another reason why universities will see little reason to keep fees down.

This is the result of an anomaly in the repayment arrangements for graduates which means that they will pay back at the same rate, whatever level of fees they have paid whilst undergraduates.

This is counter-intuitive so needs some explaining. Under the new system graduates start to repay their loans once they are earning over £21,000. They will pay 9% of their salary above this level.

So, for example, a graduate on £30,000 a year will pay 9% of £9,000 (the amount they earn above £21,000). That comes to about £16 a week.

They will pay £16 a week whether they have a tuition loan of £27,000 (three years at £9,000 each) or £18,000 (three years at £6,000).

The only difference for those with the bigger loan is that they will have to keep paying for longer before they eventually repay their full debt.

In the example above, graduates are likely to be paying back for at least 10 years, maybe longer.

Indeed, as we know, the government expects that about a third of graduates will never pay off any debt and another third will only repay a proportion of it.

So, if you are a 17-year-old choosing between a £6,000 university and a £9,000 university, there is really little incentive to choose on the basis of price.

It will make no difference to your outgoings until you are approaching middle age.

So, one way and another, it is a one-way bet that from September 2012 the great majority of students in England will be paying close to £9,000 a year for their courses.

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