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'Tuition fees hike' or inflationary catch-up?

Julie Tam

Julie Tam

Assistant Director of Policy
Universities UK

We have seen again today more confusing news headlines referring to 'fee increases for top universities'.

The latest coverage follows the final stages of the Higher Education and Research Bill which includes, among other things, provision for tuition fee levels in England to rise with inflation in future, linked to a university's teaching excellence rating. The Bill is expected to be approved by the Commons and Lords this week.

What the coverage does not make clear, however, is that, under these plans, fees can only ever increase at the most by inflation – no more. There will be no wholesale hike in tuition fees.      

So what do the proposed changes in the Bill mean in practice? The government's original plan was that from 2019-20, English universities rated as gold or silver by the new Teaching Excellence Framework (TEF) could increase their fees in line with inflation. Those rated as bronze would only have been allowed to increase by 50% of this amount. This differentiation has now been delayed until 2020-21 at the earliest until after an independent assessment of the impact and the TEF and whether it is in the public interest.

What happens now?

English universities who participate in the TEF can choose to increase their fees above £9,000 by inflation from 2017-18.  The proposed change does not mean, as suggested by one headline, that inflationary changes will not go ahead. The change does mean, that the government has more time to refine and reflect on how the TEF assesses the performance of universities, before the TEF has the power to link performance to differential fee levels – although the maximum allowable increase in fees will always be strictly limited to inflation.

The inflationary rise for the academic year 2017-18 is limited to 2.8%. There are concerns that this increase could hit students hard or deter those from disadvantaged backgrounds from going to university. There have also been recent concerns that the interest rates graduates pay on their student loans are linked to inflation, and recent movements in inflation mean these rates are very likely to increase in September this year.

It is crucial to remember that student loans are not like conventional commercial loans – paying them back depends on how much a graduate earns, they are 'income-contingent.' Graduates who go on to earn relatively less than those on higher salaries may not pay all their loan, or interest, back. The government forgives the remaining amount of a graduate's loan at the end of a maximum period after repayments fall due. This provides in-built protection for the most vulnerable graduates and is unlike any other commercial loan. Therefore, as Andrew McGettigan argues in a recent blog, the interest rate on a student loan is not a good measure of the cost to a graduate and comparing the interest rates to commercial loans are inherently misleading.

It may also be worth considering that the evidence shows the 2012 increase in fees to £9,000 did not deter young full-time students from applying to university, although the fee increases did impact on mature and part-time students applying.  

Not increasing the fee cap in line with inflation has serious consequences for universities being able to deliver a high-quality learning experience for students.  Since 2012-13, universities have not been able to recover increases in costs caused by inflation, which amounts to a reduction of 8% in fee income per student. While universities have done their best to absorb their increases in costs so far, this is not a sustainable situation as the chart below shows.

Real term value of upper fee cap (2012-13 prices, RPIX)

Without an inflationary increase, the purchasing power of a £9,000 fee continues to decrease over time, leaving universities with ever diminishing resources to support the student experience. It would only be a matter of time before the UK would lose its enviable track record of world-class, high-quality teaching. A survey of over 3,000 students in 2015 showed that a third of students said that should universities be faced with reduced resources, they would be prepared to see tuition fees rise slightly each year, in order to protect the institution's current levels of activity.      

Increasing the fee cap in line with inflation from 2017-18 in no way reverses the loss in fee income per student that has already happened since 2012-13, but it does stop further reductions. It would be incorrect on both counts to say that the inflationary increase in the fee cap is not needed for universities, or that it would be harmful for students.  Allowing universities to increase fees in line with inflation, on the condition of being able to demonstrate high-quality teaching through participation in an effective TEF, is a good way to ensure students continue to receive the high-quality experience they deserve.   

Leave a Comment

Makile Moyana
Makile Moyana says:
4 May 2017 at 09:05

Thank you for this article. Found it very useful and provides an extensive evaluation on impact. As a student governor myself, these are key issues that will impact on strategic direction of academic institutions.

Paul Haigh
Paul Haigh says:
31 May 2017 at 10:44

Good Morning Julie Tam

I believe that your position is to get the best possible deal for students and universities, not reiterating the political stance of the government of the day as you seem to do consistently well. We all know that some student will never have to pay back their loan, but that is not the majority, we know there is a finite time, but that’s 30 years, 2/3rds of the working cycle and longer than a mortgage, the single biggest debt people generally have in their lifetime. On top of this there is the post code lottery, for example, why should an English student pay 27K minimum for a 3 year degree when the same course run in Scotland is free and subsidised in Wales. A survey of 3000 is a ridiculously low sample compared to the student population, what was the demographic of the sample, how many were from disadvantaged backgrounds?

With respect to performance based pay rises, how much time and effort will be spent by universities fudging the figures to achieve the biggest rises, how will this help students in real terms, it will simply do what it is designed to do, make sure education is less and less attractive for the low paid, blue collar background students and turn the UK education system in the US style. THIS IS NOT A SUSTAINABLE LONG TERM OBJECTIVE. In the long term less and less students will come forward as the burden of debt will be too big regardless of the potential extra pay. 

I agree a direct comparison of student loans to bank loans is flawed, but that is not a reason to dismiss the impact of interest rates. Current interest rates far outstrip inflation and salary increases which mean the debt is increasing at a greater rate than the payment schedule and the total coast is significantly increased. In other words the total cost paid is significantly more than that borrowed. i.e. 40,000 GBP at 4% over 15 years is a total payback of 53,000 at 296/ month. It is only a matter of time before student realise that this burden of debt is not sustainable and the associated impacts on post university life, e.g. reduced mortgage capability, higher interest rates due to existing debt burdens, compared to the options enjoyed by school leavers.  

best regards