Group of Eight     |      13 October 2014

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The Group of Eight is working overtime making the case that fee deregulation would be “good”, won’t really affect students much –  what, with income contingent loans, they’ll hardly notice – and won’t have a deleterious impact on participation by people from low SES backgrounds.  This latest note is based principally on a study by Canadian higher education analyst Alex Usher.  Usher was recently in Australia and, while not “alarmist” , neither was he insouciant about the likely impact of the passage of the government’s higher education package:

HECS will still insulate students from the main financial consequences of the new fees, and so, as in Britain, they will likely absorb the higher fees with very little effect on enrolment. As a result, institutions will push the fee levels quite high because they can do so without fear of losing students (the exception will be students who learn at a distance – which is a more significant chunk of the student body in Australia than it is in most other OECD countries). The likelihood is that they will get quite close to the international student level – and they will do so at nearly all institutions.

The real question is: what will institutions do with that money? The likelihood is that every penny of the extra $5,000 – $10,000 per year students will be asked to pay will be ploughed back into research for prestige reasons. It won’t be the access disaster some are predicting, but it’s a bad deal for students nonetheless.

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HECS and participation

Following the introduction of HECS, and changes to the system in the 1990s and again in 2005, several studies examined the impact of tuition fees on participation in higher education.  In particular, studies looked at the impact of fees on participation by people from low SES backgrounds.  In short, the literature finds that the reintroduction of tuition fees in 1989, and changes in 1997 and 2005, did not have a lasting impact on participation in general or by low SES students in particular.  Studies have found that income-contingent loans largely take fees out the equation: since fees can be deferred, they do not present a barrier to access.  Further, research finds that the persistent under-representation of low SES people in higher education is explained by limited opportunities at school as well as beliefs about the value of higher education, more than concerns about the cost.*

European Commission study of nine countries

There is similar evidence from other countries that fees do not reduce higher education participation. A study of changes in higher education financing (including higher student fees) in nine countries, carried out for the European Commission by Canadian higher education expert Alex Usher found little evidence of changes in demand resulting from changes to fees. One of Usher’s headline findings was that ‘rises in fees seemingly have no detectable negative effect on aggregate demand and enrolment’, unless the change is ‘exceptionally large’. Usher says that students remain willing to invest in higher education because of the ‘high level of personal benefits’.**

Comparison of trends in enrolments over time in different countries shows that ‘access to higher education is increasing everywhere’ and that changes in fees have ‘seemingly very little influence on the rate of increase’.

Usher’s study also found that changes in fees had ‘little to no effect on the proportion of students drawn from lower socio-economic backgrounds’.  Usher found that, ‘available data suggest that changes in fees (i) have no effect with respect to the gender composition of the student body (female numbers rose faster than male ones in all nine countries), (ii) have little to no effect on the proportion of students drawn from lower socio-economic backgrounds, and (iii) have little to no effect on the ethnic composition of the student body’.

Even in England (where fees were introduced in 1998, trebled in 2006 and trebled again in 2012), the data show an upward trend in participation that is not affected by changing fees.  For all social groups across the income distribution, participation rates ‘grew steadily’ from 2004 to 2013.  When fees changed, there was a slight rise before and a slight drop afterwards, before the trend resumed.  Usher attributes this to ‘government’s habit of announcing policy changes eighteen months in advance’, and resulting falls in deferrals the year before fee increases.

More importantly, over the period 2004 to 2013, the participation gap between top and bottom income groups narrowed slightly.  This is a marked contrast to earlier trends, before England introduced university fees.

Blanden and Machin (2004) found that the gap in participation rates between the top and bottom income groups widened from 14 percentage points in 1981 to 37 points in 1999, as enrolments grew massively.  Blanden and Machin draw the obvious conclusion that this expansion in (wholly taxpayer funded) higher education ‘disproportionately benefited children from relatively rich families’.***

The further trebling of fees in England in 2012 caused a drop in demand in the first year.  However, the effect was ‘neither especially large, nor enduring’.  Offers had fully recovered by 2013, while applications were on the way back.  By 2014 (beyond the scope of Usher’s study), application rates in England were at record levels.  Applications from 18 year olds from disadvantaged backgrounds were also at record levels.****

In his recommendations, Usher advises an integrated approach to university funding and student aid.  He points to the positive role played by income-contingent loans in England (a loan system based on Australia’s).  An income-contingent loan system means that fees can bring more resources into the system, expanding opportunities and improving quality.  Deferring payment removes barriers to students, and limiting repayments to a set percentage of graduates’ income means that loans cannot be a disproportionate burden on graduates.

* Andrews (1999), Aungles et al (2002), Cardak and Ryan (2006), James (2002)

** Usher, Alex (2014), Do changes in cost-sharing have an impact on the behaviour of students and higher education institutions, Vol 1. Comparative Report, European Commission

*** Jo Blanden and Stephen Machin (2004), ‘Educational inequality and the expansion of UK higher education’, Scottish Journal of Political Economy, 51(2), 230-249

**** UCAS applications data, January 2014, http://www.ucas.com/news–events/news/2014/uk–application–rates–country–regionsex–age–and–background–2014–cycle–january