If we were to briefly indulge in the idea that higher education was a pure public good, we could deduce that demand for higher education should depend on; the quality of teaching, course content, available resources and overall experience. However, evidence in the real market demonstrates that the demand for higher education is heavily dependant on two variables; price and status.
A supporter of students would say that higher education has unfairly shifted from being a public good to a private good, where going to university is both excludable and rival. This can at least partially be attributed to the Conservative government creating a market for higher education. The University College London Students’ Union argues that the government is attempting to run universities like businesses and treat students like cash cows (UCL, 2018). This belief may have stemmed from the initial increase in tuition fees in 2012 from £3,000 to £6,000, with an upper tier of £9,000; and further intensified by the announcement that, in 2017 fees were susceptible to go up even more to £9,250.
Despite government predictions, all universities increased their fees to £9,000 in 2012. Students are now making their consumption decisions based upon status and reputation as opposed to quality of the good they consume. Therefore, elucidating the impression that there is asymmetric information within the higher education market between students and universities. Students are not easily able to determine how high the quality of education is at particular university; as a result, students are forced to make a decision prior to enrolling on their course. Universities are attempting to close the information gap between universities and students, by investing in advertising or associating themselves with a particular group which hold a reputable status.
‘Teaching Excellence Framework’ publishes league tables which rank universities in large, by their scores in the National Student Survey (NSS). Elite universities such as Oxford and Cambridge have successfully boycotted the NSS and typically do not require such exposure as they are of such a high calibre within the Russell Group. Other universities pay substantial amounts to take part within this survey and UCL Students’ Union argues that the goal of this, is to encourage competition between universities, with plans over the next few years to link it to funding by applying differential fees either by course or university (UCL, 2018).
I will attempt to understand the implications of status and lowering the fee cap among universities; particularly focusing on the University of Warwick. If higher education followed the laws of supply and demand, it would be easy to conclude that lowering the fee cap would increase demand among students; however, if this was the case, why has no institution put it into practice?
The University of Warwick was founded in 1965 as a part of a government initiative to expand access to higher education and is particularly well known for its Maths, Economics, Business, Accounting and Finance courses. It is also a member of the Russell Group, which within itself has a number of elitist universities, such as Oxford, Cambridge and LSE.
Warwick students also average top A-level grades; in 2018, new entrants averaged 478 UCAS points, currently sitting in 8th place in The Complete University Guide’s League Table (Guide, 2017). It consistently ranks top 10 in all major domestic rankings of universities. In 2016, Warwick gave offers to 5 in 6 undergraduate applicants (UCAS, 2016), and an intake of 5,026 undergraduates out of 37,268 applicants yielding 7.4 applicants per place (Warwick, 2016).
Despite its commendable positions in domestic rankings, Warwick has notable weaknesses which should not be dismissed. Firstly, Warwick does not have any courses available in Clearing, along with the likes of Oxford, Cambridge, Imperial, UCL, LSE and St. Andrews. One may argue that this is to signal to prospective students that it is a highly competitive university and to some extent build upon the perception that Warwick’s higher education is highly sought after and excludable.
It also charges £9,250 per academic year to its students, which builds upon the previous idea that Warwick is of a high calibre/status and is priced as such. This notion is further reinforced with its association to the Russell Group.
Furthermore, Warwick claims that students can full advantage of a tranquil campus university environment as well as a more bustling surrounding such as the city of Coventry (Warwick, 2018). However, the University of Warwick is over 3 miles away from its nearest train station, Coventry, which is over an hour walk away should students choose not to take a bus.
As previously mentioned, Warwick belongs to the Russell Group. The Russell Group is a 24 member, research intense group of universities. In 2015-16, 417,000 / 532,300 undergraduates and 192,500 postgraduates were studying at a Russell Group university. According to the group it attracts 39% of academic staff and 34% of students from a non-UK nationality (Russell, 2018). Ultimately, belonging to this group, Warwick becomes attractive to consumers. This is down to the fact that a university degree has evolved into a ‘positional good’, whereby if a graduate owns that degree from a highly ranked university, it enhances their position in society, but this same enhancement may not be down to the graduate’s actual skills and knowledge.
Warwick benefits from the Russell Group due to the nature of the higher education market. Demand for high quality degrees is inelastic and is determined by status; because the Russell Group has such a high reputation, Warwick is able to reap the benefits from being a part of it. Students are more inclined to consume a higher quality degree, so, in turn this results in a higher number of applications, entrants and most importantly for the university, revenue.
The University of Warwick also benefits from being a part of the Russell Group as it receives funding from the government. In 2010, members received approximately two-thirds of all university research grant and contract income in the United Kingdom (Russell, 2018).
There is a perception among society and consumers of education that the 24 members in the Russell Group are the ‘top’ 24, out of the current 130 universities in the UK. However, university league tables illustrate a different narrative, for example, St. Andrews has consistently been ranked above Russell Group universities such as the University of Warwick in many domestic league tables, however, it is not a member itself (Guide, 2017). Warwick benefits from this misconception as it is receiving the same price for supplying an education which may not be comparable to other universities disassociated with the Russell Group. This begs the question, how important is reputation and association to a group when demanding higher education if there are institutions such as St. Andrews statistically doing better? Perhaps St. Andrews has successfully closed the information gap between itself and prospective students, and do not rely on a group to market themselves.
If the fee cap was lowered for some or all universities; the University of Warwick would respond depending on which specific universities participated in lowering their fees. If perhaps all, except Russell Group universities lowered their fees to their marginal cost, £6,000, intuitively Warwick would not lower theirs. If they did, they would discredit themselves within the Russell Group and be regarded as lesser in comparison to the other members. While in the short run, many students may flock to consume a Russell Group university degree for £6,000, in the long run Warwick’s reputation would be damaged, triggering a greater impact than the short term monetary gain.
If instead all universities lowered their fees to £6,000, I am of the belief that Warwick would also lower their fees. Students would immediately recognise that Warwick is not the highest ranking university in the UK for it to charge fees of £9,250, when universities of the same calibre or higher are charging £6,000.
If Warwick was to lower its fees as a result of other universities doing the same; Warwick would have to make cost savings decisions, as a decrease in annual revenue would be inevitable. In 2016/17, the
University of Warwick turned over £591 million, £109.4 million of this came from 11,823 UK/EU Students (Warwick, 2016). Warwick states that, the University’s total income increased 3.0% from the previous year, from £573.6m to £591.0 m. The majority of this increase is in relation to an increase in tuition fee income as a result of higher numbers of students across the University in 2016/17 with much of this change coming from Home and EU undergraduate student numbers (Warwick, 2016).
If tuition fees had dropped to £6,000 in 2016, turnover from UK/EU Students would have been £70.9 million, reducing overall turnover by 6.5%, to £552.5 million. This calculation is only valid, under the assumption that demand is perfectly inelastic and the number of prospective students remains at the same level after a reduction in the price of higher education.
As a result of the lowered tuition fees, Warwick may be inclined to cut costs to offset the the impact of the drop in tuition fees. Especially considering that the University targets an average annual surplus in excess of 5% of income in order to generate sufficient cash to maintain and enhance their capital infrastructure. The 2016/17 figure of a surplus figure of 7.0% of income is in line with that ambition ensuring that the University remains on a stable financial footing. While the cut in tuition fees would not effect the universities ability to operate and cover all their costs, considering the surplus was £41.5million and the loss in revenue from a cut in fees is £38.5million, leaving them still in a surplus of £2 million. Why might Warwick still consider cutting costs?
Warwick reasons that the above-budget surplus is required to be reinvested promptly in priority student and academic initiatives. They go on to argue that, the requirement for universities to generate surpluses for reinvestment remains poorly understood outside of the sector but it is nevertheless essential that sufficient surpluses are delivered to underpin sustainable growth in a highly competitive global environment (Warwick, 2016).
This begs the question, where would Warwick cut costs or alternatively raise 5% of their revenue to invest back into academic and student facing services? In 2016, Warwick spent £237.6 million on staff wages, considering this was 43% of total expenditure (£553.1 million), it would be sensible to start there. The following table illustrates the salaries of emoluments of higher paid staff at the University of Warwick.
The salaries of higher paid staff are evidently, a large cost for the university. One way to reduce expenditure on salaries would be to find cheaper substitutes. This could be achieved by hiring more P.H.D Students who are looking to go into teaching in their field of study. This could be existing postgraduates who are leading seminars as a way to earn money during their P.H.D or newly graduated postgraduates. The average starting salary in the UK for University Lecturers is between £33,943 to £41,709 (Prospects, 2018). This is obviously a significant difference, even to the lower tier in the table of £100,000; but will the university be paying for the same quality of teaching if they hire P.H.D Graduates?
While a definitive conclusion cannot be drawn for every P.H.D graduate, Kendall and Schussler conducted a study on the importance of instructor type at university; directly comparing professors with graduate teaching assistants (GTA). Undergraduates in this study perceived professors as being more structured, confident, in control, organized, experienced, knowledgeable, distant, formal, strict, serious, hard, boring, out of touch, and respected than GTAs. Conversely, GTA’s were perceived as more uncertain, hesitant, nervous, relaxed, laid-back, engaging, interactive, relatable, understanding, and able to personalize teaching than professors. Overall, undergraduates seem to perceive professors as having more knowledge and authority over the curriculum, but enjoy the instructional style of GTA’s (Kendall & Schussler, 2012).
From this we can conclude that graduate teaching assistants are not perfect substitutes for professors, however there is potential for GTA’s to work as there were many positive perceptions of them, the most important being that they enjoy their instructional style. It would not be out of reach for Warwick to practice this with certain departments that are not as popular within its institution. This may include courses such as Education (ranked 72nd nationwide) or Psychology (ranked 35th nationwide) (Guardian, 2018). Should this substitution maintain Warwick’s position in rankings and keep student satisfaction high, the university could look to expand this to other departments. This would cut costs, uphold Warwick’s reputation and justify the cut in fees.
The incentives that universities respond to closely mirror that of a competitive firm, and allude to the overall impression that higher education has become an exploitable good within society. In understanding the nature of the higher education market, it can be concluded that universities that are members of the Russell Group can generate more revenue than other universities which are not associated with the group. Warwick in particular may not benefit as much from NSS rankings, as it does from being a member of the Russell Group, considering other universities have successfully boycotted the NSS and are still perceived as some of the best universities in the UK.
If the fee cap was lowered, Warwick’s response would be circumstantial, this is mainly due to its association with the Russell Group. As it operates similarly to all other members, such as not providing courses in Clearing and charging £9,250 to UK/EU students it would only lower its fees if the other members did too. Lowering their fees would significantly impact Warwick’s target of a 5% budget surplus and would incentives the institution to cut costs as a result. Universities do have the option to drop their fees voluntarily, however, much like a competitive firm, they run the risk of losing revenue and their reputation, which is so highly valued in this market.