HESA

Higher Education Strategy Associates

Category Archives: U.K.

November 11

An Update from England

In 2012, the UK government allowed tuition in English universities to rise from a little over £3,300 to ($5,500) to about £9,000 ($15,300) in a single year.  Well, technically, they de-regulated tuition up to a maximum of £9,000, but since charging less than the maximum would obviously imply that programs weren’t top-quality, pretty much everyone went to the maximum immediately. Actual average tuition jumped to about £8,600 ($14,620).

So, of course, we’ve all been wondering what the effects of this would be.  I’ve looked at the evidence a few times in the past (see here, here, and here), but now the UK University and College Application Service (UCAS) has issued a summary of the effects of fee increases on student demand.  Why UCAS – the body that processes university applications, but by dint of which is also the body that monitors changes in applications and enrolments by things like age, race, income, etc. – chose to answer these questions on a very short Q+A webpage rather than with a report with corroborating evidence is a bit puzzling; nevertheless, the corroborating evidence can be found in the organization’s own annual analyses of demand, available here.

UCAS’ conclusions were as follows: that the fee increase did cause a small one-time reduction of demand.  But the long-term trend of increasing demand continued, and application rates are now at their highest level ever.  Most importantly, and I quote, “In terms of demand, entry, and type of institution, differences by background have reduced over this period”.

Got that?  Not only did a $9,000 increase in tuition, with only loans and no grants to offset the higher fees, not increase educational disparities by race, income, etc., they actually coincided with a narrowing of educational gaps.

(For clarity here, neither I nor UCAS is implying that the narrowing of the gap is caused by the tuition increase; merely that the trend was unaffected by the increase.)

The English fee policy is still ludicrous, of course.  Charging a huge fee when you know that students can’t pay it back is just idiotic (current estimates suggest that 50% of all fee loans will go unpaid, and that 80% of students will receive some loan forgiveness).  But nevertheless, it is very striking evidence about how resilient demand is in the face of tuition increases.  You’d think that governments around the world would take a look at this and say, “hey, most everything people claim about the negative effects of tuition fees on access didn’t happen here.  Why is that, and should our government re-consider our policies in light of it?”  You might also think that governments that don’t do this might be guilty of deliberately ignoring evidence in order to preserve policies which harm the long-term health of universities, in service of crass short-term political objectives.

You might think that – of course, I couldn’t possibly comment.

May 15

Does More Information Really Solve Anything?

One of the great quests in higher education over the past two decades has been to make the sector more “transparent”.  Higher education is a classic example of a “low-information” economy.  Like medicine, consumers have very limited information about the quality of higher education providers, and so “poor performers” cannot easily be identified.  If only there were some way to actually provide individuals with better information, higher education would come closer to the ideal of “perfect information” (a key part of “perfect competition”), and poor performers would come under pressure from declining enrolments.

For many people, the arrival of university league table rankings held a lot of promise.  At last, some data tools with some simple heuristics that could help students make distinctions with respect to quality!  While some people still hold this view, others have become more circumspect, and have come to realize that most rankings simply replicate the existing prestige hierarchy because they rely on metrics like income and research intensity, which tend to be correlated with institutional age and size. Still, many hold out hope for other types of information tools to provide this kind of information.  In Europe, the big white hope is U-Multirank; in the UK it’s the “Key Information Set”, and in Korea it’s the Major Indictors System.  In the US, of course, you see the same phenomenon at work with the White House’s proposed college ratings system.

What unites all of these efforts is a belief that people will respond to information, if the right type of information is put in front of them in a manner they can easily understand/manipulate.  The arguments have tended centre around what kind of information is useful/available, and the right way to display/format the data, but a study out last month from the Higher Education Funding Council for England asked a much more profound question: is it possible that none of this stuff makes any difference at all?

Now, it’s not an empirical study of the use of information tools, so we shouldn’t get *too* excited about it.  Rather, it’s a literature review, but an uncommonly good one, drawing significantly from sources like Daniel Kahneman and Herbert Simon.  The two key findings (and I’m quoting from the press release here, because it’s way more succinct about this than I could be) are:

1) that the decision-making process is complex, personal and nuanced, involving different types of information, messengers and influences over a long time. This challenges the common assumption that people primarily make objective choices following a systematic analysis of all the information available to them at one time, and

2) that greater amounts of information do not necessarily mean that people will be better informed or be able to make better decisions. 

Now, because HEFCE and the UK government are among those people that believe deeply in the “better data leads to better universities via competition model” the study doesn’t actually say “guys, your approach implies some pretty whopping and likely incorrect assumptions” – but the report implies it pretty strongly.

It’s very much worth a read, if for no other reason than to remind oneself that even the best-designed, most well-meaning “interventions”, won’t necessarily have the intended effects.

March 18

How ICRs can Become Graduate Taxes: The Case of England

As noted yesterday, graduate taxes and income-contingent loans have many similar features.  They both defer payments until after graduation, and they are usually payable as a percentage of marginal income above a given threshold.  In England right now, the payment scheme on ICR loans is that students pay 9% of whatever income they earn over £21,000 (roughly C$38,000).  The difference between the two is that with a loan you have a set amount to pay, and when it’s paid you’re finished.  With a graduate tax there is no principal, so you just keeping paying that fraction of your income for as long as the tax lasts.

That sounds like a simple and clear delineation, right?  Well, here’s a twist: what if the loan were so big that you had no practical chance of ever paying it off at the set repayment rate?  What would the difference between an ICR and a grad tax be then?  The answer is: practically nothing – and that’s exactly where England finds itself right now.

Let’s step back a bit: in 2010, the UK government decided to let institutions charge tuition up to £9000.  They also decided to allow students to borrow this amount for tuition (plus more, again, for living expenses) under the repayment scheme described above.  When they did this, they were under the misapprehension that universities might actually try to compete for students on price, and hence assumed an average tuition of about £7000.  Rather predictably, average tuition shot straight to £8500.  As a result, it’s quite common for students to be borrowing £12-13,000 per year, or £36-39,000 for a degree (that’s C$66-72,000 – yes, really).

Crazy, right?  Cue all the “intolerable debt burden” stuff.  But wait: these loans aren’t like the ones we’re used to.  Repayment is based on your income rather than size of debt – no graduate is ever required to pay more than 9% of their income over £21,000 in any given year, so the burden in any given year is pretty limited.  And – here’s the kicker – the loan gets forgiven after 30 years.  So, if you don’t finish paying, your obligation disappears without you having any debt overhang. Exactly like a Graduate Tax.

How many won’t pay it off?  Well, these things are difficult to predict, but even over 30 years, paying 9% of your income over $38,000 isn’t likely to completely pay off very many of these loans.  The government’s own financial forecasts are that 35-40% of the total net present value of the loans will have to be forgiven (others put it 8-10% higher).  At a rough estimate, that probably means 70 to 80% of all borrowers will see some loan forgiveness.

At this point you start to wonder if debt numbers really matter in this system.  Forget ICR: for most people, the current system is simply one in which government transfers billions of pounds in 2014 to institutions using student loans as a kind of voucher system, then turns a portion of those loans into student grants in 2044 via loan forgiveness.  In the meantime, graduates pay a 9% surtax on income over £21,000.

Altogether, a very wacky system.  Not a model for anyone, really.

November 21

The Canadian Style of University Management

I recently met someone who had just moved to Canada from the UK, to take up a decanal position here.  He mentioned that, since his move, the two things that had most shocked him were: 1) how little power he has in Canada, compared to the UK; and, 2) just how much bureaucracy there is here.  He relayed this to me by explaining the difference in hiring procedures between the two countries, which I reproduce below, in tabular form:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

* Indicates a step where a negative vote or decision can send the process back to an earlier stage.

As he was telling me this, I thought about how much of our university decision-making systems seem to have evolved to prevent things from being managed efficiently.  This can be defended on grounds of co-management or collegial governance – values that many hold dear, and which have often served the system well.  But there’s a cost to it.  Multiply that table hundreds of times every year, and across every institution, and you get a sense of how big that cost is.

It also occurred to me: in Canada, I always hear professors arguing that they’re overburdened with committee work, and deans arguing that they have responsibility, but no power with which to make decisions.  Moving to a more UK-like system would solve both problems.  But, in the end, it’s not clear that professors’ dislike of committee meetings is sufficiently great enough to ever allow that to happen.

January 31

UK Tuition Hikes Revisited

To recap: in 2012, average English tuition fees rose by 158% to roughly £8500, with no corresponding increase in grants.  As we’ve seen previously, this resulted in a fall in English applications of about 8%.  The effect was not evenly distributed among all groups: among 18 year-olds, the drop was 1-2% (depending on what base you use), whilst among applicants over 19, the decrease was 15-20%.

But of course, it’s never best to rely on one year of data, especially when the government announced the change a year and a half in advance; notably, some people will move up the start of their studies to take advantage of lower fees before the hike.  This is essentially what happened in the UK after both the 1998 and the 2005 tuition hikes – a jump in enrolments before the hike, then a fall immediately after the hike, followed by a rebound in the second year after the change as the system returned to equilibrium.

As data released yesterday by UCAS  shows, this is exactly what happened this year.

Application rates by Country, 18 year-olds 2007-2013

 

 

 

 

 

 

 

 

 

 

 

 

It’s not entirely clear what’s happened to over-18 admissions since the effective application deadline for mature students has not yet passed; however, initial indications are that application rates continued to fall for the over-25s, but improved, somewhat, for the 19-25 group.

A point of note is the fate of students from the lowest socio-economic strata.  These are the students which one would have expected to be most vulnerable to exclusion by higher fees.  In the first year after the hike, there were no disproportionate drops for poorer students – their application rates fell at about the same rate as all other income groups.  So how did they do?

Application Rates from lowest income quintile, by country, 2007-13

 

 

 

 

 

 

 

 

 

 

 

 

This chart is interesting for two reasons.  First, it shows that application rates from the lowest income quintile are now at an all-time high.  In fact, if we were to go back to the time when students in this quintile had full tuition waivers (2005), we would see that application rates are up 65% since that time.  Second, it shows the difference between England (where tuition is on average £8500) and Scotland (where tuition is £0).  The free-tuition jurisdiction has lower participation from low-income students (13% vs 19.5%), and it also has seen slower growth in participation (4.8% vs. 6.7%).

Again, these are the actual effects of a tuition hike of $9000 with no offsetting increase in student grants.  Send ‘em to your favourite student leader, plaster them to Pierre Duchesne’s head – there’s a prize for the first person who can read these and still make a coherent argument for why a Quebec-style tuition increase would have any effect at all on access.


January 21

The Effect of Tripling Tuition Fees: UK Latest

As most of you know, UK tuition fees more or less tripled this past year. The initial applicant/enrolment data from a couple of months ago (which I covered, here) indicated that applications fell by about 8%, but also that the drop came almost entirely from older students (among traditional-aged students, the drop was just 1%).  Worrying, but not apocalyptic.

Last week, two new interesting pieces of data were released.  The first was application data by race; though Black and Asian (i.e. Indian & Pakistani) students were often thought most vulnerable to changes in fees, data suggests they were actually less affected by tuition fee increases than were Whites.  This year, applications from Whites were down almost 9%, compared to 2.7% for Blacks, and 4.4% for Asians.  With respect to accepted applicants (see here for more information), the picture is essentially the same, except Blacks actually register a slight increase.  Part of the explanation is likely that mature students – the ones most affected by the tuition hike – are just a lot likelier to be White than Black or Asian.  Regardless, it’s not the nightmare outcome many predicted a year ago.

UK domestic applications by race (2007=100).

 

 

 

 

 

 

 

 

 

 

 

 

The other new data is on institutional enrolments.  If you’ve read any English higher ed news in the last 72 hours, you’ve probably seen headlines about “wild fluctuations” in applications and enrolments.  This seems overdone to me.  Yes, the decision to make students pay more did change applicants’ behavior.  But the average university in England always gets about six times more applicants than it has space for, so even if applicant numbers drop by 20% (which they did at a dozen or so universities), keeping accepted applicants (and, hence, paying customers) at roughly the same level isn’t difficult, as long as you tweak your admissions formula slightly so as to get a better yield.  Anyone with major fluctuations in new enrolments simply blew their yield calculation.

The University of East Anglia, for instance, saw a 14% drop in applications, but still had an entering class 1% bigger than the previous year.  Others were simply less lucky, or less astute, in calibrating their yields. Bradford, for instance, saw an 18% drop in acceptances, even though applications only fell 4%.

But the big question: did schools that raised their fees to the full £9000 do better or worse than those who kept their fees somewhat below that cap?  Well, for the 117 public universities with over 1000 applications per year for which I could find both enrolment and fee data, the results can be seen below.  There’s nothing obvious which indicates that higher fees make students go bargain-hunting, and that’s is probably why many institutions are thinking about raising their fees again, next year.

Average Institutional Change in Applications and Acceptances among UK Institutions, by Minimum Tuition Fee, 2011 to 2012.

 

 

 

 

 

 

 

 

 

 

 

 

July 16

Initial Effects of a $9000 Tuition Hike

It’s been nearly two years since the U.K. government announced radical new tuition plans. From a little under 3300 GBP/year, the government allowed institutions to raise fees up to 9000 GBP. Loans rose to compensate, but grants did not. “Top” universities – essentially, any institution with pretensions to graduate education – all hiked their fees to the maximum; others, sometimes in response to some frankly weird government incentives, kept them a bit lower. Average tuition paid by U.K. students rose to 8,527 GBP – a jump of 158%. In Canadian dollars, that’s a jump of $8300 (exchange rate) to $10,000 (Big Mac Index PPP rate) per year.

This is a perfect – really, perfect – natural experiment for the effects of a tuition fee hike. The increase in loans means students face no additional liquidity constraint, i.e., they had exactly the same amount of cash-in-hand as before; meanwhile the net price is rising dollar-for-dollar with tuition because there are no offsetting grants to speak of. We also have great counter-factuals, because tuition in Northern Ireland, Wales and Scotland did not experience a similar increase in fees.

So, what were the outcomes of this experience?

We’ve known for a while that applications fell as a result of the hike. But thanks to a new report from the University and Colleges Admission Service, we now know much about the composition of the effects.

· The differential effects were almost entirely age-driven. Among 18 year-olds, the drop in applications was one percent – two percent if you measure against trend. Amongst over-19s, the drop is 15-20%. (This is pure Human Capital Theory, by the way – there’s a reason Becker got the Nobel.)
· There were no differential effects by family background. Amazing but true.
· There was no change in the pattern of applications by tuition fee – those institutions that kept prices low did not see a rush of new applications, nor did higher-tuition institutions see a fall in low-income applicants.
· There was no change in the pattern of applications by expected returns – programs with low post-graduate incomes saw no fall in applications.

This is going to bust a lot of sacred cows. On the left, people are simply going to have to deal with the fact that tuition increases just don’t have the huge scary effects everyone thinks they do – in fact, among traditional-aged students, the effect is close to zero. But there are problems for the right, too. Student insensitivity to price means that a lot of the rhetoric about higher fees bringing “market discipline” to students (in terms of course choice) and institutions has to be discarded.

Wouldn’t you love to hear some Quebec student leaders explain this one away? Evidence is so inconvenient.

March 01

The Economics of Non-Traditional Degree Programs

There was an interesting report out of the U.K.’s University and College Union (roughly the equivalent of our CAUT) last week, describing how the number of English degree programs (which, confusingly for us, are called “courses” over there) has fallen by a quarter in the last six years. The back-and-forth in the media between talking heads on this story was quite amusing, with a leftish union rallying around the banner of “choice” and a right-wing government claiming that the raw number of students and graduates matters more. Any old rhetorical port in a storm, I guess.

But it’s interesting to take a quick look at the stats behind this story:

2006 2012
Total Degree Courses 70,052 51,116
Total “Primary” Degree Courses 7,002 6,024

 

Now “primary” degrees are what we might call “traditional,” single-subject degrees – history, physics, etc. Those are down by about 14%, and – despite what you may believe if you’ve been reading Stefan Collini in the Times Literary Supplement over the last couple of years – it’s down slightly more in the STEM fields than in humanities or social sciences.

But let’s focus on that massive gap between total courses and primary courses. In 2006, primary programs only made up one-tenth of all programs – the other nine-tenths were joint programs between disciplines, interdisciplinary programs and specialized programs nestled within a single discipline (e.g., urban history, development economics, etc). And these were cut at twice the rate of primary programs, meaning that 95% of all courses axed were non-primary.

There are two reasons for this, I think. The first is obviously political – precisely because these programs are by nature small and have few staff associated with them, they are easy pickings come budget time. But the second is more straightforwardly economic. The cost/benefit of these programs is much worse than commonly realized.

This is one of the better points made by Clayton Christensen in his book The Innovative University. On paper, the costs of these programs look trivial: you borrow staff from “real” departments, maybe hire an administrator part-time – what could be cheaper? But the real costs lie in the graduation requirements: students must take particular courses, some of which may have very low enrolments. And, of course, when you’re paying professors $150,000 per year and your income depends on enrolments, low-enrolment courses really hurt the bottom line.

So this U.K. data doesn’t necessarily suggest wild cutting (the number of academic staff actually increased by about 5% over this period). Rather, it suggests an attempt at pruning marginal programs. No doubt the results are not always pretty; but it’s an example Canadian institutions need to start considering for themselves.

January 31

U.K. Tuition Fees: Early Results Are In

Unless you’ve been in a cave for the last 18 months, you’ve probably heard that the U.K. government is overhauling policies on student fees and government support in England and Wales (Scotland has its own arrangements). Public support for arts and social science students was eliminated, institutional grants were cut by 41% and, most strikingly, the limit on tuition fees was raised from £3,350/year to £9,000/year.

Since announcing the broad outlines of the policy fifteen months ago, the Cameron government has gone through some fairly bizarre twists and turns on certain details of the funding and tuition policies. At the end of the day, though, the final average tuition for the coming year came to £8,354, or about a 150% increase from last year.

For those of us who watch tuition fees for a living, this was a big experiment. Data from the competitive environment of the United States tends to show that even small changes in tuition fees can have significant effects on institutional enrolment, though usually through shifts from one institution to another rather than on aggregate enrolment. Large across-the-board tuition increases which affect the minimum price for all forms of higher education, on the other hand, presumably have more severe effects. But these are rarer and harder to observe, so this one-time “big-bang” in the UK seems like an ideal opportunity to examine the pure effects of a tuition hike.

Well, final application data was released yesterday.  Among 18 year-olds, this £5,000 (roughly $8,000) tuition increase has lowered applicant levels by just 3.6%, or about 8,000 students. Among older students – who tend to have less time to earn back their investments in higher education – the effect was significantly larger (on the order of 11%). Now, even a single student turned away for financial reasons is too many. But if an $8,000 net tuition increase only generates a net impact of less than 3% on traditional-aged students, and only 7% overall, that strongly suggests that tuition fees are not, on their own, a major deterrent to study.

So the next time someone suggest that the $250 tuition fee increase your institution is planning might have major effects on enrolment, there’s a simple reply. Such an increase would be 1/32nd of what was introduced in England and Wales. Assuming linear effects, a $250 increase might therefore be expected to reduce overall enrolments by between 0.2% and 0.25%. On an incoming class of, say, 3,000 undergraduates, that’s between six and eight students. We’d guess it’s not beyond anyone’s wit to design some student aid to offset that kind of effect.

U.K. tuition policy isn’t something we’d endorse, but clearly it’s not as harmful as some would lead us to believe, either. Real life’s just not that simple.

September 19

International Student Recruitment: Not as Good as We Think We Are

One of the most startling things about Canada’s recent success in attracting international students is how easy it has all been. Australia and the U.K. took decades to build up their position in international higher education, and in the former case it took decades of government-backed investment in developing overseas networks. Our recent extraordinary spurt of growth in international higher education – particularly in the Indian market – came in the space of about five years in a comparatively uncoordinated way.

So are Canadians just brilliant at this stuff or are there other factors at work?

I’d argue for the latter. Consider that in recent years the Americans have been imposing ludicrous visa regimes, the U.K. has been making menacing noises about rejecting international students and Australia’s image has been tarnished by events that have highlighted problems of racism and student security. We’ve therefore reaped the benefits without making any serious investments ourselves. We didn’t hit a triple; we were born on third base.

But this situation isn’t going to last forever. Universities around the developed world are heading for big trouble financially, and they are all going to be spending more time trying to tap the foreign student market. And in the developing world, institutions are improving all the time and improving their value position vis-à-vis our own. Competition is going to increase, and it’s not clear how well placed we are to win.

At HESA, we’ve developed the Global Student Survey to examine the views of students in various exporting countries about education in general and international education in particular. Our India survey, available for purchase as of today, shows some of the obvious vulnerabilities that Canadian institutions have, and the value proposition and the rising competition from Indian institutions are clearly there.

More importantly, our national brand in education is a problem. We rank well behind the U.S. and U.K. as a destination in Indian students’ minds, and even Singapore and the U.A.E. peg above us in some categories. And whereas Indian students describe American, British and Singaporean higher education in terms that are generic synonyms for excellence, Canada gets described like this:

phrases Indian students associate with Canada

 

Forget the temporarily rosy enrolment statistics: we have a problem here. We ignore it at our peril.

Page 1 of 212