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Hard Choices for UK Universities – Home or Overseas Students? 

As UK Universities replace this year’s graduates with next year’s intake, will Vice Chancellors want to fill their places with higher-fee foreign students? Here Nick Hillman considers the impact of the capped fee and urges a change of policy. 

In recent years, the underlying financial model for English universities has changed rapidly.

Twenty years ago, the Blair Government’s 2003 higher education white paper anticipated more  students, both UK and international. It envisaged improved access to higher education for disadvantaged British students and for people in other countries keen to study in the UK.

Broadly speaking, this stance has been copied by every government since. In the past few years, student number caps have been removed on home students from England and bold targets for international students have been set.

But since inflation has rocketed, a major problem has developed. The university funding model has clammed up. Fees for home students have been fixed in cash terms whereas fees for international students have continued to grow.

As a result, the idea of home and international students increasing hand-in-hand is breaking down. It is now so much more attractive financially for universities to recruit international students than home students that the international applicants sometimes displace home students.

To understand why, you need to remember that, until recently, universities either made a small surplus or broke even financially on home students while simultaneously making a cash surplus from international students’ fees – with any spare revenue typically being reinvested in university-based research.

But the £9,000 tuition fee cap that the Coalition so controversially introduced in England has not kept up with inflation, rising just once (by a mere £250) in 2017. In UK higher education – policy, practice and debate during HEPI’s first 20 years, published this week by HEPI, the think tank I lead, it is shown that universities today lose significant sums on educating home students: ‘Universities have now lost the equivalent of around £3 billion from their annual income for teaching from the inflation effects of just the 18-months from August 2021. It is a genuine crisis.’

No large organisation can go on forever expanding its loss-making activities. So it has become less viable to recruit ever greater numbers of home students, and – problematically – this is happening just as the number of school leavers is growing fast.

So if your son or daughter fails to get on the university course they have long had their heart set on, the underlying financial model is increasingly likely to be the cause.

Meanwhile, demand from abroad for UK higher education remains strong, especially at our older and more prestigious institutions, with international students more than paying their way. If you are a vice-chancellor, a finance director or a head of admissions, you have an unenviable decision to make. Do you cap or even reduce the number of loss-making UK students while continuing to expand those surplus-producing international students? Sometimes, the answer has to be yes. The most extreme case of what can happen when universities are limited in their room for manoeuvre is in Scotland. Earlier this year, one Labour Member of the Scottish Parliament complained, ‘We now have hundreds of ordinary young Scots applying to our top universities who in reality have no chance of getting in’.

There are a number of possible solutions but they are generally unpalatable. Universities could reduce their losses on home students by “piling ‘em high and selling ‘em cheap”, cramming in home students, worsening staff:student ratios, reducing contact hours and letting campuses deteriorate.

Alternatively, they could seek to recruit as many international students as they can and use the extra fee income to subsidise home students. But many of our older universities are already huge and cannot easily grow: UCL has almost 45,000 students while the University of Manchester has over 40,000. Many cities have a shortage of student beds already.

At the very top end, the concept of an Oxbridge college would become meaningless if they were expected to grow so much that they were no longer able to offer a collegial environment.

So what is to be done? In the House of Lords earlier this month on 10 July, the former Universities Minister Lord (Jo) Johnson of Marylebone made one modest but attractive proposal: universities that can prove excellence in teaching should be allowed to raise their fees in line with inflation. He explained that by May this year inflation had eroded the value of the fee now capped at £9,250 to just £6,020 in 2012 money. (You can read the full speech here.

Back in 2003, when HEPI was established, Tony Blair was willing to risk his parliamentary majority to triple tuition fees to £3,000. Surely today’s leaders are not so timid as to refuse even a modest rise in the £9,000 fee cap to make up for recent inflation? That would stem the losses on home students and make the funding system we have more viable once again.

Nick Hillman is Director of the think tank, the Higher Education Policy Institute, which is currently celebrating its twentieth birthday. Before taking up this post he served as special adviser in the Department for Business, Innovation and Skills, from 2010 to 2013, when David Willetts (now Lord Willetts) was Minister for Universities and Science. He co-authored the Politeia paper Tax Credits: Do They Add Up? with David Willetts.