The real costs of free university: Lessons from the UK

Gill Wyness, Richard Murphy, Judith Scott-Clayton 20 October 2017

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The question of who should pay for higher education continues to be hotly debated across the world, and in recent months the movement towards free university has gained momentum. Earlier this year, New York became the first US state to offer all but its wealthiest residents free college tuition. Meanwhile, the UK Labour Party pledged to abolish fees entirely in their 2017 manifesto, with Andrew Adonis, the original architect of fees in England, adding to calls for their abolition.

Proponents of the free university movement are typically motivated by concerns about rising inequality in higher education access and falling enrolments. Fees are seen as a financial barrier which could particularly exclude young people from disadvantaged backgrounds. Yet, these same concerns also preoccupy those in favour of fees; they argue that fees inject more money into the sector, allowing universities to expand to accommodate more marginal students, and generate money to support them (Barr 2013).

A key question, therefore, is whether it is possible to charge relatively high tuition fees and also protect enrolments, access and university quality, or whether tuition fees stand in the way of these goals. In a recent paper (Murphy et al. 2017a) and report (Murphy et al. 2017b), we examine this question in the context of the English higher education system which has, in the two decades since 1998, moved from a no-fee, low-aid university system to one in which tuition fees, at £9,000 per year, are among the highest in the world.

Research questions and design

Rigorously assessing the causal impacts of the 1998 and subsequent reforms is not straightforward; the changes involved not just increases in fees, but corresponding changes to repayment and student aid, with different groups affected in different ways. A small body of work has examined the English reforms in relation to specific dimensions such as inequality (Blanden and Machin 2013) or the fiscal implications (Dearden et al. 2008). Causal studies have focused on a particular element of a single reform, such as maintenance grant changes (Dearden et al. 2014) or bursaries (Murphy and Wyness 2015), typically finding that UK students (like those in the US) are responsive to prices.

We build on these studies by examining the broad arc of the consequences of the introduction of fees over time, in a holistic and descriptive way. We construct measures of enrolments, access and quality, and track them over the time period pre and post tuition fees.

Who was impacted by the reforms, and how?

It is important to understand that the English reforms were not just about increasing tuition fees. Certainly, that was one element of the reforms – the first tuition fee, introduced in 1998, was just £1,000 per year and was means-tested so that only the richest students paid. This paved the way for two subsequent sets of reforms. In 2006, tuition fees rose to £3,000 per year, but the major change here was that these fees were no longer charged ‘up-front’. Students could take out an interest-free, income-contingent loan, which was to be repaid upon graduation, but only by those working and earning over £10,000 per year. In 2012, fees were increased to £9,000 per year, again backed by an income-contingent loan with slightly different terms (mainly, the repayment threshold rose to £21,000 per year, and a real interest rate was added).  

But as well these increases in fees, the reforms increased students’ liquidity. This is described in Figure 1, which shows net liquidity available to students via income contingent loans, and means-tested grants during each of the different fee regimes.

Figure 1 Net liquidity (grants + maintenance loans up-front fees) by parental income and fee regime

Source: Authors’ calculations using data from Student Loans Company, 1991-2015.

It is clear from Figure 1 that, particularly in the case of the 2006 reforms, the amount of cash students could receive to support living expenses while enrolled rose almost as dramatically as tuition fees did. Indeed, current students can now borrow as much as £8,000 per year to live on (to be repaid in the same way as the fee loan described above); a significant improvement from the pre-fee era, when only around £5,000 per year was available to the poorest students, and only around £2,000 to the best off.  

How did enrolment, equity, and quality change after the reforms?

The goal of our study is to understand how these reforms to tuition fees and student aid, beginning in 1998, impacted enrolments, access, and quality.

First, we consider whether enrolment increased in the years following the tuition fee introduction and subsequent increases. Drawing upon data from the national Quarterly Labour Force survey, we find that enrolment rates among traditionally aged students (those entering university immediately after school, aged 19/20) have more than doubled since 1998, rising from around 16% in the years just prior to the changes to around 35% in 2015. We find that enrolment rates among older age groups have also approximately doubled since the pre-reform period.

Next, we consider whether socioeconomic gaps in enrolment declined after the 1998 reforms. Here, we also find a positive story. Our analysis shows that enrolment of young people from the lowest income families has increased at the fastest rate between 1997 and 2015 (in fact, the enrolment rate has approximately doubled since 1997 to 20% in 2015), and that the participation gap between groups has narrowed slightly – though it still remains considerable, at around 20 percentage points between students from the top- and bottom-earning households (see Figure 2). These findings are consistent with Blanden and Machin (2013), who find that the socioeconomic gap in university attainment rose during the 1980s and 1990s, but then stabilised in the years just after the reform.

Figure 2 Percentage of 18/19 year-olds enrolled in university, by parental income

Source:  Authors calculations using Secure Lab: SN6727 Quarterly Labour Force Survey, 1992-2016: Secure Access data.

Finally, we study the impact of fees on university quality, which we proxy with funding per higher education student (consisting of funding council money for teaching, plus tuition revenue). Figure 3 shows how the university sector’s finances looked in the years of massification in the 1980s and 1990s – as student numbers increased, so funding per head fell, reflecting the state’s unwillingness to maintain funding. However, we can also see that since the introduction of fees, resources per full-time equivalent student have increased dramatically, undergoing an almost 50% increase since the historical low of 1999. This finding highlights one of the key challenges facing a state-funded, expanding higher education system – namely, insufficient resources. But it also implies that collecting money through tuition fees can alleviate this problem.

Figure 3 Average funding per full-time equivalent student

Sources: Statistics for 1961-2002 are taken from Carpentier (2004) and Statistics for 2002-2014 taken from Higher Education Information Database for Institutions All figures expressed in constant 2015 pounds sterling. authors’ calculations. FTE enrolments used in the computation contain all student types (full-time, part-time, postgraduate, undergraduate, UK, EU, overseas); funding per head is for all students and comprises teaching grants and tuition fee income (the latter for all student types listed above).

Summary and discussion

Our analysis shows that, since England’s move from a free higher education system to a high-fee, high-aid system, university enrolment has increased substantially. And perhaps surprisingly, students from the poorest backgrounds have experienced the fastest increases in participation, with the gap between rich and poor students stabilising, or even slightly declining since the reforms. But perhaps the most notable finding has been the dramatic recovery in university funding per head since the introduction of fees.

There are several key features of the English system that have helped to protect enrolments and access.

First, no student has had to pay anything upfront. Since 2006, tuition fees have been completely covered by a government loan. Second, all students can access large amounts of liquidity to support themselves through university. Loans for living costs have risen each year, and the poorest students can now access over £8,000 per year in aid, compared to less than £5,000 per year in the period immediately before tuition fees. Key to this is the UK’s income-contingent loan system, which enables students to safely borrow against their future incomes. Such heavily insured loans are not readily available in other countries like the US, making tuition fees a greater burden for their students.

No model is without its challenges. But the English experience suggests that making university completely free can actually come at a cost.

References

Barr, N A (ed) (2013), Shaping Higher Education: 50 years after Robbins, London School of Economics

Blanden, J and S Machin (2013), “Educational Inequality and The Expansion of United Kingdom Higher Education”, Scottish Journal of Political Economy 60: 597-598.

Dearden, L, E Fitzsimons, A Goodman and G Kaplan (2008), “Higher Education Funding Policy”, Economic Journal 118(526): F100-F125,

Dearden, L, E Fitzsimons and G Wyness (2014), “Money for nothing: Estimating the impact of student aid on participation in higher education”, Economics of Education Review 43: 66-78

Murphy, R, J Scott-Clayton and G Wyness (2017a), “The end of free college in England: Implications for quality, enrolments, and equity”, NBER Working Paper No. 23888.

Murphy, R, J Scott-Clayton and G Wyness (2017a), “Lessons from the end of free college in England”, Brookings Evidence Speaks Reports.

Murphy, R and G Wyness (2015), “Testing Means-Tested Aid”, CEP Discussion Paper No. 1396.

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Topics:  Education

Tags:  Tuition fees, higher education, university fees, college fees

Senior Lecturer in Economics, UCL

Assistant professor, University of Texas at Austin

Associate Professor of Economics and Education, Columbia University

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