£5,000-a-year fees will not hit demand, UUK claims

Increasing the cap on undergraduate tuition fees to £5,000 a year would have no impact on student demand for higher education, according to a report by the vice-chancellors' representative body, Universities UK.

But such a cap might not be enough to create a market for degree courses, as most universities would simply raise their fees to the new maximum, it claims.

The report, Changing Landscapes: Future Scenarios for Variable Tuition Fees, is designed to kick-start the long-awaited and politically sensitive debate on undergraduate fees, ahead of a parliamentary review of the subject later this year.

It offers eight different scenarios, all based on an increased fee of either £5,000 or £7,000, which could be in place by 2013.

The UUK said that vice-chancellors from across the sector had been interviewed to assess their attitudes to fees.

Their estimates of what was a long-term sustainable figure ranged from £4,500 to £8,000, and the fees they felt could be realistically charged without affecting student demand varied from £6,000 to £10,000.

Under the scenarios for a £5,000 fee, the study says there would be no impact on student numbers, regardless of when students were made to pay and whether or not loans were means-tested.

By contrast, a jump to £7,000 would affect demand in all but one of the scenarios. In the most extreme example, student numbers would be forced down by as much as 100,000 by 2016, the report says.

There was recognition from the report's authors that its modelling made some large assumptions.

Tim Wilsdon, vice-president of the economics consultancy CRA International, which wrote the report for UUK, said he was "particularly uneasy" about the suggestion that the scenario in which a £7,000 fee was paid upfront, albeit on a means-tested basis, would have no adverse effect on demand.

He added that were a £7,000 fee introduced, demand would be dependent on parental income. As a result, the impact of the fee would vary across different types of institution, causing a genuine market to open up as universities differentiated themselves by price.

This did not happen with the introduction of variable fees capped at £3,000, and would not necessarily happen with a £5,000 fee, he said.

"In that situation, it doesn't make sense for all institutions to raise their tuition fee to the cap," Mr Wilsdon added.

The report looks at the impact of different fee models on university income. Rick Trainor, president of UUK and principal of King's College London, said income had to increase if the UK higher education sector was to maintain its international reputation.

The report also assesses the likely impact on student debt of each scenario. In the most severe example, this would rise 83 per cent from an average of £17,794 in 2011 to £32,557 in 2016.

john.gill@tsleducation.com

SCENARIOS FOR INCREASING UNDERGRADUATE TUITION FEES

Scenario one

Deferred payment, zero real interest rate (current income-contingent loan), £5,000 fee

Total students in 2016: 432,309 (no change in demand)

Fee income: £7.1 billion (up from £4.2 billion in 2011)

Expenditure on bursaries: £1.9 billion (up from £1 billion in 2011)

Average student debt: £26,412 (up from £17,248 in 2011)

Total government subsidy (cost to the Government of student fee loans): .8 per cent (up from 26.9 per cent in 2011)

Scenario two

Deferred payment, zero real interest rate (current income-contingent loan), £7,000 fee

Total students: 402,431

Fee income: £8.7 billion

Expenditure on bursaries: £2.5 billion

Average student debt: £32,462

Total government subsidy: 30.3 per cent

Scenario three

Upfront payment, means-tested support, £5,000 fee

Total students: 432,309

Fee income: £7.1 billion

Expenditure on bursaries: £1.9 billion

Average student debt: £21,829

Total government subsidy: 25.9 per cent

Scenario four

Upfront payment, means-tested support, £7,000 fee

Total students: 432,309

Fee income: £9.5 billion

Expenditure on bursaries: £2.7 billion

Average student debt: £23,342

Total government subsidy: 26.3 per cent

Scenario five

Deferred payment, real interest rate (no means-testing), £5,000 fee

Total students: 432,309

Fee income: £7.1 billion

Expenditure on bursaries: £1.9 billion

Average student debt: £28,570

Total government subsidy: 13 per cent

Scenario six

Deferred payment, real interest rate (no means-testing), £7,000 fee

Total students: 402,431

Fee income: £8.7 billion

Expenditure on bursaries: £2.4 billion

Average student debt: £32,557

Total government subsidy: 17.1 per cent

Scenario seven

Capped interest-free loans of £3,000, topped up by private loans with real interest rate, £5,000 fee

Total students: 432,309

Fee income: £7.1 billion

Expenditure on bursaries: £1.9 billion

Average student debt: £,437

Total government subsidy: 12.7 per cent

Scenario eight

Capped interest-free loans of £3,000, topped up by private loans with real interest rate, £7,000 fee

Total students: 332,606

Fee income: £7 billion

Expenditure on bursaries: £1.8 billion

Average student debt: £32,045

Total government subsidy: 16.5 per cent.