Filipa Sá uses the variation in the level of university fees between England and Scotland over time to measure the effect of fees on university applications, course choice and attendance. She finds that applications decrease by about 1.6% for a £1,000 increase in fees and courses that lead to lower salaries and lower employment rates after graduation are more sensitive to changes in fees.
The cost of a degree is an important determinant of the decision to apply to university. In the UK, there have been significant changes in tuition fee policy in recent years, with substantial variation across countries. Before 1998, the cost of a university degree was entirely supported by the government. Since then, students in England have been asked to pay an increasingly larger share of the cost of higher education. In 2006, tuition fees in England went up from about £1,000 to £3,000 per year. In 2012, tuition fees tripled again to £9,000 per year, amidst intense student protests.
At the same time, tuition fees in Scotland moved in the opposite direction. In 2001, the Scottish government used its devolved powers and replaced upfront tuition fees of £1,000 per year with an endowment scheme, which required students to pay a lump sum of £2,000 after graduation. In 2007, the Scottish government went one step further and removed fees altogether.
This disparity in tuition fees across the two countries has had dramatic implications for student debt. The average amount of debt of an English graduate on entry into repayment (including both tuition and maintenance loans) has been increasing steadily over time and stood at just over £21,000 in 2015. This is about the same level as the average annual salary of an English graduate six months after graduation and is expected to rise even further once students who pay fees at £9,000 start repaying their loans in 2016. By contrast, the level of student debt in Scotland is much lower (at £9,440), because students do not have to pay fees and only borrow to cover maintenance costs.
In a recent article, I use variation in the level of fees over time and across UK countries to measure the effect of fees on university applications, course choice and attendance. I focus on two reforms: the replacement of upfront fees in Scotland with an endowment scheme in 2001 and the increase in fees in England in 2012. I find that applications decrease by about 1.6% for a £1,000 increase in fees. This implies that the recent increase in fees in England, which increased the cost of a degree from about £10,000 to over £24,000, would have reduced applications by approximately 22%.
Interestingly, not all courses are the same. Applications to courses that lead to lower salaries and lower employment rates after graduation are found to be more sensitive to changes in fees. In 2012, applications to STEM subjects, which offer better employment prospects (Table 1), fell by about 15%. This compares with a reduction of 27% for non-STEM subjects. It seems that students are responding strategically to the increase in fees by choosing courses that offer better employment opportunities.
Table 1: Average salaries and employment rates by subject for graduates in 2011/12
Subject | Average salary (£) | Average employment rate (%) |
Medicine and dentistry | 28,988 | 92 |
Engineering and technology | 24,028 | 63 |
Mathematical and computer sciences | 21,922 | 57 |
Architecture, building and planning | 21,451 | 69 |
Subjects allied to medicine | 20,728 | 66 |
Business and admin. studies | 19,804 | 60 |
Social studies | 19,765 | 50 |
Education | 19,403 | 64 |
Physical sciences | 19,123 | 43 |
Veterinary science and agricultural and related studies | 19,090 | 60 |
Law | 17,926 | 35 |
Historical and philosophical studies | 17,323 | 40 |
Languages | 17,266 | 45 |
Biological sciences | 17,021 | 42 |
Mass communications and documentation | 16,581 | 55 |
Creative arts and design | 16,051 | 48 |
Source: HESA Destinations of Leavers of Higher Education survey.
Note: Average salaries calculated for workers age 20 to 30 in full-time paid employment (including self-employment) earning less than £60,000 per year six months after graduation. Employment rate is the share of the population of graduates in full-time paid employment six months after graduation.
To analyse whether students from disadvantaged backgrounds are especially hurt by higher fees, I look at the effect of the 2012 increase in fees on attendance. I find that the number of white first-year undergraduates decreased by 28%. The effect is smaller for minority ethnic groups and for students from local authorities with low rates of participation in higher education. This suggests that the provision of student loans and fair access agreements may be reducing credit constraints and inequality in access to higher education.
These results seem to suggest that policymakers should reduce tuition fees in order to increase the number of university graduates. Such a policy was one of the main pledges of the Labour party during the 2015 election campaign. Unfortunately, things are not so clear-cut. A reduction in tuition fees would mean that a larger share of the cost of higher education would have to be funded from general taxation. This could mean that a low-skilled worker would be asked to contribute towards the cost of a degree of a future hedge fund manager. The current situation is arguably more equitable as a large share of the cost is paid by those who benefit the most from a degree – the graduates themselves.
Filipa Sá is Senior Lecturer in Economics at King’s College.
(Featured image credit: UCL Occupation CC BY-SA 2.0)
How do you qualify and quantify those who benefit from a graduate’s degree?
Are we disregarding the country’s increased GDP as a result of having a more qualified nation? Are we disregarding the fact that you and I are posting our thoughts on the graduate-invented internet, using graduate-invented computers / tablets, or the teachers and lecturers who had a degree to teach the graduate, or the graduate doctors and nurses who delivered that graduate as a baby – and I could go on ad infinitum. It’s just lazy argument to even attempt to suggest it’s only or mainly the individual that benefits from education.
Similarly, if we’re talking of hedge fund managers, shouldn’t we also point out the hedge fund managers and offshore private equity companies who subsequently buy the student loans book at a massive publicly funded discounts? Or the fact that our young people will spend their lives in debt to these companies and every single payment takes money out of our economy and into some offshore account where it won’t be used to stimulate our economy, contribute towards employment, subsequent tax revenues and spending on state services?
Goodness me, since when did endebting an entire generation of youngsters lead to anything good? Since when did increasing inequality lead to anything positive? If you think that it’s just an individual that benefits, then I would suggest that us graduates who got our degrees free should pay a graduate tax now – surely that would be fair? No? Only in favour when it’s someone else that has to pay? Hmmm…..funny that!
V interesting post. How do you explain your modelled reductions with the data claiming actual increases. Is the latter just wrong or are you saying without fees there would have been actual increases (if the funds were made available to pay for them)?
Just to say that the changes in Scotland in 2001 were quite complex, which I think affects how far conclusions can be drawn about fee effects specifically from the 2001 Scottish changes.
Pre-2001 – Fees were fully payable up front, but in full only by top third by income; partially for next third and not at all for lower income third
Post 2001 – (a) there was a move from upfront fees to a deferred system (b) a graduate endowment of £2000 was introduced for those doing a degree, but not if doing an HN (large minority of Scottish students, though not so many in HEIs – mainly FECs) and also not if a mature student, who were exempt as a category – just under 50% of Scottish HE students (all types of HE) were exempt from the endowment and (b) a new bursary of up to £2,000 was introduced for low income young students.
So it depended very much on income, age and type of HE precisely what the effect was for any particular student and there was no general change across the student population as a whole; while the change at low incomes involved bursary as well as fees. It would be worth considering how that might affect the conclusions which can be drawn from the Scottish data.
On the Scottish £9,440 average final loan, it’s worth being aware that the Scottish final debt average – while definitely lower than than that for England – is pulled down by the larger % of Scottish students on shorter HN courses lasting 1 or 2 years. Also, the most recent SLC figure doesn’t reflect a sharp rise in student borrowing in Scotland from 2013-14 (it doubled over a couple of years), partly due to cuts to grants. The SLC’s final debt figure for England appears to be a good proxy for three years’ average borrowing. I reckon the typical final debt figure for a standard 4 year degree in Scotland will be nearer £19,000 and will be higher again for low income students who – as in England from 2016 – are already the highest borrowers in Scotland.
Hope that’s more helpful than not. Please feel free to get in touch.
What is the percentage of graduates who become hedge fund managers?
Perhaps low-skilled workers wouldn’t mind their taxes paying for doctors, nurses, allied health professionals, teachers, human rights activists, artists, children’s book writers, film and TV makers, etc etc all of whom might arguably enrich the lives of low-skilled workers?