With the UK's cap on tuition fees due to rise to £9,000, Gill Wyness looks at the impact of past fee increases on young people's decisions to go to university.wage differentials, returns to education

Gill Wyness

English

Research Papers in Economics

CentrePiece Summer 2011
The cap on tuition fees will rise to £9,000 in
2012. In the third of our series on policies of the
coalition government, Gill Wyness describes
evidence on the impact of past fee increases on
young people’s decisions to go to university.
Fees and loathing:
the impact of higher
education finance on
university participationCentrePiece Summer 2011
19
T
he question of how to
finance higher education
has been on the agenda of
successive UK governments
since the 1960s. During
that time, the country has moved from a
situation where the taxpayer footed the
entire bill for higher education to a system
where graduates make a contribution to
part of the cost of their education. This
so-called ‘cost-sharing’ has always been a
subject of controversy, with fears that it
would lower participation, particularly
among young people from poor
backgrounds.
The recent announcement that the
tuition fee cap – currently set at £3,300 a
year – will be allowed to rise to £9,000 
a year from 2012 has been met with
opposition from a number of camps,
including the media, the National Union of
Students, parents and the students
themselves who took to the streets in their
masses. But what is the likely outcome of
this almost threefold increase in fees?
Tuition fees were first introduced by
the Labour government in the UK in 1998.
They were payable upfront and means-
tested according to parental income, up to
a maximum of £1,000 per year. Grants
were subsequently abolished (having been
gradually phased out over the 1990s), and
replaced by maintenance loans.
A further major reform in 2006 saw
upfront fees abolished and replaced by a
deferred £3,000 fee – payable by all
regardless of parental income but fully
covered by a fee loan with quite generous
terms. The loan is interest free and only
payable after graduation (at a rate of 9%
of earnings once the graduate is earning
£15,000 or more), and all loans are
written off after 25 years. Grants were
also increased at this time (having been
reintroduced in 2004) and maintenance
loans extended.
Despite the fevered debate that has
surrounded tuition fees, to date there has
been very little investigation of their
impact on participation. Our research used
information on higher education finance
and participation between 1992 and 2007
– a period in which many reforms of
higher education finance took place – to
analyse the impact of tuition fees, grants
and loans on participation (Dearden et al,
2010).
Our results show that increases in
tuition fees have a small but significant
impact on participation of 3.3 percentage
points per £1,000 increase. But the
negative effect of fees can be offset by
increases in loans and grants, which have
small positive impacts on participation of
around 2 percentage points each.
So what can this tell us about the
forthcoming increase in tuition fees?
Unfortunately, the answer is not
straightforward. Our research looked at
relatively small increases in fees – between
zero and £1,000; and between £1,000
and £3,000 – while the reforms could see
fees rise to as much as £9,000 per year.
It is unlikely that our results would still
hold when applied to these substantial
increases. But our results do indicate that
fee increases have a negative effect on
participation, contradicting recent media
speculation that higher education is a
‘Giffen good’, which people paradoxically
consume more of as the price rises.
The results also indicate that there is
an important role for grants and loans in
encouraging young people to go to
university – so the government’s continued
investment in the grant and loan system 
is welcome. 
We have also looked at the likely
distributional impact of the 2012 reforms
on graduates, students, universities and
the taxpayer (Chowdry, Dearden and
Wyness, 2010). In this study, we used
lifetime earnings simulations for future
graduates created by researchers at the
Institute for Fiscal Studies (IFS). These
earnings profiles allow us to look at the
impact of reforms on the distribution of
graduates, by calculating graduates’ fee
and maintenance loan repayment
schedules under the new system.
Figure 1 shows the lifetime fee and
maintenance loan repayments of
graduates from different parts of the
income distribution, comparing
repayments under the current system to
repayments under the new system. In each
case, we assume that graduates take out a
fee and maintenance loan for each of 
the three years of their studies – with the
fee loan assumed to be £7,500 under the
new system.
The major
influence on
whether young
people go to
university is not
the fees that they
face but their
prior educational
attainmentWe use the £7,500 figure for
illustrative purposes, though given
substantial cuts to the universities
teaching budget, many universities would
have to charge at least this amount to
break even. Indeed, the majority of
universities have chosen to charge close
to £9,000 per year.
As Figure 1 shows, the new system is
progressive: graduates who do well in the
labour market – those at the top of the
lifetime earnings distribution – repay
significantly more over their lifetimes
than those at the bottom of the earnings
distribution.
In both the current and new 
system, the repayment arrangements
protect low-earning graduates, many of
whom will repay only a small proportion
of their loan before it is written off. Low-
earning graduates will actually be better
off under the new system, largely
because the earnings threshold above
which graduates have to start repaying
their loans will be increased to £21,000
under the new system.
But will young people bear this in
mind when deciding whether or not to
participate in higher education? Or will
the prospect of graduating from
university with fee and maintenance loan
debts of as much as £40,000 dissuade
CentrePiece Summer 2011
20
Figure 2:
University participation by socio-economic position and UCAS points achieved (2004/05)
100
80
60
40
20
0
301+ 181-300 1-180 None
■ Richest   ■ 2nd   ■ 3rd   ■ 4th   ■ Poorest 
UCAS points
P
e
r
c
e
n
t
a
g
e
 
a
t
t
e
n
d
i
n
g
 
u
n
i
v
e
r
s
i
t
y
 
a
t
 
a
g
e
 
1
8
/
1
9
Figure 1:
Maintenance and fee loan repayments
£30,000
£25,000
£20,000
£15,000
£10,000
£5,000
0
123456789 1 0
■ Current system   
■ New system
Decile of graduate lifetime earnings distribution
(from lowest earners to highest earners)
R
e
p
a
y
m
e
n
t
 
There is an important role
for grants and loans in
encouraging young people 
to go to universityCentrePiece Summer 2011
21
bright young people, particularly those
from poor backgrounds who may be
particularly debt-averse?
An IFS study of participation in higher
education by young people from different
backgrounds suggests not (Chowdry,
Crawford et al, 2010). Figure 2 shows the
proportion of young people who
participate in university, comparing those
from different backgrounds (measured by
socio-economic position) but with the
same A-level scores.
Young people with 301 or more
UCAS points (three good A-levels) have a
high probability of going to university,
regardless of their background. In
2004/05, roughly nine out of ten young
people with those results participated in
higher education at age 18/19, with
those from poorer backgrounds just as
likely to participate as those from richer
backgrounds. Meanwhile, young people
with no UCAS points have a very low
probability of going to university
regardless of their socio-economic
background. 
This research clearly shows that while
tuition fees, grants and loans may have a
small impact on participation, the major
factor in whether young people will go to
university is not the fees that they face,
but their prior educational attainment.
This is where background does matter
since young people from poor
backgrounds are extremely unlikely to
achieve the necessary A-level results to
obtain a place at university. Only 3% of
young people from the poorest
backgrounds achieved 301 or more UCAS
points in 2004 compared with 25% of
young people from the richest
backgrounds. 
Of course, it may be that young
people have decided not to go to
university anyway, perhaps put off by
tuition fees, and therefore put less effort
into achieving high A-level scores.
Nevertheless, the evidence to date
strongly suggests that higher education
finance has had a limited role to play in
participation. But given the substantial
increase in tuition fees from 2012, we
cannot be confident that this will
continue to be the case.
Gill Wyness is a research officer in CEP’s
education and skills programme.
Further reading
Haroon Chowdry, Lorraine Dearden and Gill
Wyness (2010) ‘Higher Education Reforms:
Progressive but Complicated with an
Unwelcome Incentive‘, Institute for Fiscal
Studies (IFS) Briefing Notes No. 113
(http://www.ifs.org.uk/publications/5366)
Haroon Chowdry, Claire Crawford, Lorraine
Dearden,Alissa Goodman and Anna Vignoles
(2010) ‘Widening Participation in Higher
Education:Analysis using Linked
Administrative Data’, IFS Working Paper 
No.W10/04 (http://www.ifs.org.uk/
publications/4951)
Lorraine Dearden, Emla Fitzsimons and Gill
Wyness (2010) ‘The Impact of Higher
Education Finance on University
Participation’, Department for Business,
Innovation and Skills Research Paper No. 11
(http://dera.ioe.ac.uk/479/)
Low-earning
graduates 
will be better 
off under the
new system
of higher
education
funding

Fees and loathing: higher education finance and university participation

http://cep.lse.ac.uk/pubs/download/cp343.pdf

Fees and loathing: higher education finance and university participation

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