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.