University Fees in England

Posted: April 8, 2011 in Misc.
Tags: , , , , , ,

One of BBC’s top stories today is a survey of English Universities where half of those who responded said they’ll charge the maximum £9000/year fees for all their courses while a total 65% saying they’ll charge the full amount for most or all of their courses.

Part 1. Wasn’t this expected?

The top English Universities – Oxford, Cambridge, et al – compete for students globally. Hence, when government announced the funding cuts and offered them a chance to make up for the deficit, everyone expected them to lap it up. The funds would help them maintain & grow their high standards and compete globally for students, scholars and professors. This, the government had expected. After all, when they said that the £9000 fees would be exceptional and not a norm, it was these top few universities that they had in mind.

However, this is where government policy ended and marketing took over. Price of a product/service is a powerful market signal of quality. So, when the Oxbridges raised their fees to the maximum limit, it became imperative for universities at the next rung of ladder to price themselves at the same level lest they send out a signal of inferior quality.

And given that the hierarchy of universities is less a discrete ladder and more a continuous waterfall, it was only to be expected that a wide cross-section of universities would go for this maximum fees for as many courses as they can. Thus, a basic marketing principle screwed government’s expectation that this high fees (triple of the previous number) would be an exception.

Part 2. Did the government really not expect this simple outcome of its policy?

In short – the government did expect this possibility. The current government, however insular & obstinate they may be, are still not stupid. However – and I’m giving them some extra credit for brains here – I assume they’ve also thought a step ahead and included the effect that this pricing will have on demand.

S-D Graph England University Fees

Using a simple, linear demand curve, it is evident that there would be a noticeable drop in demand if the price was increased by majority of courses. Thus, even though marketing compulsions made most universities hike the fees to maximum, the government is hoping that a big drop in applications would force all but the very best of universities to reduce their fees to more reasonable levels.

This would quickly restore the fee structures across the universities to what the government had expected and dampen a lot of opposition to the fee hikes.

Part 3. So is this talk of maximum fee increases across the country mere hot air

As much we would like it to be, it may not turn out that way. Thing is, this is education we are talking about and it may not be as linearly price sensitive as the government would like it to be. If the demand curve takes a different shape, the outcome could be very different for fees and government’s popularity.

Alt S-D Graph England University Fees

Add in that other policy bit on University fees – students don’t have to pay fees up front but only in installments once they start earning more than £21,000 a year in salary – and suddenly, it seems that the demand curve is much more likely to be like this one than the earlier one. Which could mean trouble for the government.

The drop in demand with a demand curve shaped like this will be much smaller allowing a lot more universities to charge the maximum fees. This not only defeats government’s defence that very few universities & courses will charge the maximum fees, but will also create a bigger problem when these students graduate and join the job market.

Acc to this report, in 2006 the median graduate starting salary in UK was £22,953 with the average being £18,501. Last year, the average salary itself was expected to be £25,000, well above the 21K threshold, acc. to this BBC report. Put them both together and it’s clear that unless the economy nose dives badly, a significant majority of candidates will be earning above the threshold and thus have debts of upwards of £40,000. I wonder how much consumption-led boost can then these indebted grads provide. Doesn’t look pretty to me!

I thought that from the current economic crises, one thing that the governments would have learnt is to reduce the total indebtedness – both public and private. This Con-Dem government seems to have learnt a different lesson though – reduce government deficit and help increase surplus for as many rich individuals and corporations as possible. The middle classes & poor? The government seems to have assumed they anyway can’t provide much boost to the economy so they can be allowed to wallow in deficits, debts and dropping standards of living.

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