The flat-rate fee fuels inequality

Differential fees are one way of achieving broader participation, argues Wendy Piatt

Margaret Hodge's refusal to rule out any funding options at last week's select committee revived speculation about differential fees. The reason this debate is so irrepressible is the logic underpinning differential fees is so compelling. It is the flat-rate fee that is the anomaly in the post-16 learning market.

A large swath of students - overseas and part-time in higher education, adult learners in further education - have been subject to a wide spectrum of fees for years. Differences in costs and rates of returns according to degree subject are clearly documented. Medicine costs the tax-payer more than modern languages and yields a higher return to the individual. Subjects such as law and economics are less costly but are among the most lucrative investments.

Fees for Australian courses broadly reflect these differences within three price bands (with the maximum for most home students not exceeding £3,000) and could easily be modified to incorporate higher fees for more popular courses and more generous government subsidies for others. Such a model could be an attractive interim measure for the UK, providing a period of adjustment to a more competitive market.

But measuring the "value" and quality of higher education provision is a process fraught with contention. Recent research has confirmed what many suspected. Oxbridge graduates earn about 8 per cent more than counterparts in old universities and 12 per cent more than the alumni of the post-1992 institutions.

Ironically, the top social groups are the chief beneficiaries of this cap on fees as they are obstinately overrepresented at elite universities. The current £1,075 a year is a bargain for many parents who have paid much higher private-school fees. Surely those who not only come from relatively affluent backgrounds but are also likely to earn considerably more than the average should make a greater financial contribution?

One of the key objections to the prospect of higher fees at elite universities is that they would entrench inequality by deterring poorer students. Preventing this perverse outcome - by imposing a ceiling on charges and obliging universities to provide a number of bursaries or soft loans for at least the differential between standard rate and their higher fee - should be a priority.

US institutions are not being purely altruistic when they bestow generous financial-aid packages on applicants. The reputation and market value of institutions is clearly enhanced by high-quality students from all walks of life.

The UK system has certainly not been very successful in encouraging those from non-traditional backgrounds to apply to the Russell Group. Support packages targeted at this group may be a more effective incentive.

Of course, it is feasible that students may choose a cheaper alternative at a post-1992 institution because it is better value for money. Price differentials would prompt a rigorous reassessment of the value of a course as higher fees would have to be clearly justified. Greater competition may also make universities more responsive to student needs.

A more flexible market would help newer universities to compete, particularly when the cap on student numbers is removed. But they still would not be abandoned to the vagaries of the market. To ensure that the whole sector benefits from differential fees, universities should pay a percentage of any top-up fee into a central funding pot. The money could be redistributed to less prosperous institutions according to a range of criteria.

Far from jeopardising universities with a good record in attracting non-traditional students, a differential-fee system could release and redistribute more funds to promote the goal of widening participation.

Wendy Piatt is a research fellow at the Institute for Public Policy Research.