Setting universities free

Think tank: Institute of Economic Affairs

Author(s): Peter Ainsworth; Tom McKenzie

October 28, 2022

This report from UK think tank the IEA looks at how to deliver a sustainable student funding system.

The provision of a higher education to a student is a service like few others. For the service to deliver value requires the active participation of the recipient. Even then, the range of possible outcomes – whether measured as personal or career development – is very wide. Given high inflation the decision to freeze tuition fees until 2024–5 will erode the real value of university income. The Russell Group forecasts this will cause significant losses and severe financial problems for the sector and a number of vice-chancellors have called for the freedom to set much higher tuition fees. The moral hazards of a system where institutions are paid on sale (enrolment) rather than performance (outcomes) has resulted in abuses of the system such as the recruitment of unsuitable students, an explosion in the number of unconditional offers and the launch of courses with poor economic value. Deregulating tuition fees, with any premium over the state loan amount covered by private sector income-contingent lending, increases sector resources while addressing the current system’s moral hazards leading to a long-term sustainable settlement of the university funding problem.