Debunking the ‘value for money’ myth in higher education

Does the university system in England provide good value for money? It’s a question that select committee inquiries, the National Audit Office, and assorted thinktanks have failed to answer satisfactorily. Now, the whole issue is going to be picked over yet again by the review of post-18 education and funding. The problem is that all these discussions have been based on myths and half-truths about how the current system works. Unsurprisingly, they have then failed to come up with an answer that truly reflects the diversity of the costs and benefits of the university education system.

“Students are customers for universities”

The first myth is the assumption that students are customers of universities. While they do share some similarities with consumers of other services, their experience is different in a number of fundamental ways. For a start, they do not hand over any money to their university. Instead, they contract with the Student Loans Company to pay tuition fees on their behalf in exchange for a 30-year tithe on their future earnings. There is no contract between the student-customer and the university, and it is unclear what any such contract would be for. Would they be buying an excellent three-year student experience; a quality-assured degree; or the promise of higher earnings? This lack of clarity about what students are buying means that it is impossible to say whether they are getting value for money.

“Students pay £9K for their degree”

The second myth is that students pay £9,250 for each year of their degree course. The actual cost is quite different for every student. Depending on the jobs that they take up, the final cost can be anything between zero and £100,000 – and nobody knows the exact figure until 30 years after they graduate.

Whatever the final total, it has only the most indirect relationship to the £9,250 a year initially paid to the student’s university on their behalf. If you don’t know the cost of the service provided until many years later, you cannot make any judgement about whether it is good value for money.

“Tuition fees pay for teaching”

A further myth is that tuition fees pay for teaching and that dividing £9,250 by the number of teaching hours in a year provides a cost per lecture. This is entirely misleading as it does not take into account the other essential costs and overheads of providing an undergraduate education. These include study facilities, libraries, IT systems, assessments and exams, quality assurance arrangements, not to mention student counselling and support services.

As well as funding the costs of teaching, whether direct or indirect, tuition fees must also cover a whole range of other activities that, before 2012, were financed by separate funding allocations. These include the costs of widening participation (equal to at least £1,000 of the £9,250 fee), estates-related costs, cross-subsidies for research, administration and governance, and the need to generate reasonable financial surpluses. If we agree that these need to be funded, then they must be part of any value for money assessment of student education.

“Taxpayers are subsidising students”

Another higher education myth is that taxpayers are paying 45 per cent of students’ debts. It is accepted that the amount that most graduates will pay back will not cover the full amount of their accumulated fees and interest. The estimated 30-year shortfall, based on assumptions and projections about future graduate earnings plus interest, is calculated in the so-called RAB (resource accounting and budgeting) charge. This is commonly claimed to be a taxpayer subsidy, but it is nothing of the sort. Now that tuition fees have largely been substituted for the range of financial support previously provided by the government, the RAB gap should be seen as a way of sharing the total costs of university education between graduates and the state.

A better way?

What these four myths tell us is that value for money in higher education cannot be assessed in the same way as other customer-supplier transactions. The conventional questions about who is paying whom for what do not work when measuring the value of the higher education system.

Instead, we should recognise that the economics of higher education have to be assessed in a way that reflects the interplay of multiple public, private and institutional interests. The questions that matter in judging the balance of costs and value are complex. They are about the relationships between the many different groups with interests in the system – students, universities, government, employers and society – and how the costs and benefits of the system should be shared between them. These are difficult questions, but if the post-18 review is going to tell us anything useful about the value of universities, it needs to address them rather than simply perpetuating old myths and misrepresentations.

Mike Boxall is a higher education expert at PA Consulting Group.