English Tuition Fees Rise - But It's Nowhere Near Enough Income To Solve Universities' Financial Crisis

8th November 2024

UK education secretary Bridget Phillipson has announced that university tuition fees in England are set to rise next academic year, with the maximum fee increasing by £285 to £9,535. This will be the first increase in university education for domestic undergraduate students since 2017, when fees were raised to £9,250.

The additional income is sorely needed. Data from the Institute for Fiscal Studies shows that the money spent on undergraduates' education has been declining in real terms. On average, £9,600 was allocated per UK undergraduate student in 2023-24, compared to almost £12,000 in 2012-13. On the other hand, other educational stages - early years and primary education - have seen real term increases since 2012.

Had fees been linked to inflation since their raise to £9,000 in 2012, they would have reached nearly £15,000 by now.

At some point, fewer resources translate into lower quality. Universities have continually been asked to do more with less.

As such, they have adapted to the conditions of the market by increasing recruitment of international students, whose annual fees often exceed £20,000. This was a rational response to domestic capped prices. But recent visa restrictions and shifting international policies have affected this strategy.

Financial struggles
At the same time, continually rising operational costs due to inflation, staff salaries and increased pension payments have, as of November 2024, led to over 70 UK universities announcing staff restructuring and redundancies. Next year's increase in employer national insurance contributions will raise costs further.

In the academic year 2022-23, a third of higher education providers had ready funds to last them less than 100 days. A similar number brought in less money than they spent over the year.

The next survival step is likely institutional mergers and closures. But these are steps that are often poorly received politically - and with good reason.

Universities are anchoring institutions in the towns and cities where they are located. They are often among an area's largest employers and contribute to local economies by bringing students and their spending to local shops and services. A university closure would have huge potential economic ramifications for an area. Avoiding this is a key concern for any government.

Current and prospective students are unlikely to be enthusiastic about increased fees, minor as they are. Perhaps better news is that maintenance loans are also set to increase by 3.1%, adding an extra £400 per year to maximum loan amounts. This means students can borrow more to cover their living costs.

However, maintenance loans have also not kept up with inflation. Accommodation costs have increased drastically and consume a large proportion of the maintenance budget, especially for those in university cities such as Bristol, Leeds and Nottingham where rent prices exceed £7,500 a year.

This leaves very little to live on even if a student qualifies for the highest maintenance loan available for those studying outside London. This was £10,227 in 2024-25 and will rise to £10,544 in 2025-26.

Student debt
Average student debt - calculated as three years' worth of fees and three years' average maintenance loans - would rise, by my calculation, from £49,000 to £51,000 under the proposed changes.

The government currently forecasts that 65% of students starting a course in 2023-24 will repay their loan in full. If fees rise but monthly repayments stay the same, and no further changes are made, fewer students will repay their loans in full.

Perhaps the greatest danger of rising tuition fees, now and in the future, is that higher lifetime debt repayments will put people from disadvantaged backgrounds off going into higher education.

With a lower repayment threshold and (since 2022) a 40-year repayment period, some students from disadvantaged backgrounds may be put off by the risk of carrying debt for most of their working lives, as some evidence suggests may have already happened since the introduction of tuition fee loans. They may baulk at a reduction of their disposable income and possibly limited opportunities for upward mobility. The psychological impact of the fees might be much more adverse than the financial impact.

However, graduating continues to have a substantial earnings benefit. This is not only for those from traditional university-going, wealthier backgrounds, but also for students from disadvantaged groups with the lowest earnings.

The value of education, including going to university in particular, has been shown time and time again to have strong positive effects on earnings.

The uncomfortable truth is that an additional £285 on tuition fees in September 2025 is little more than a temporary solution until a longer-term, urgently needed, plan is put in place. This is something the government is promising will be announced in the coming months.

The choice of policy options for such a long-term plan remains the same as before. The government could increase tuition fees further and link them to inflation directly. It could increase direct grants to universities through more taxation. It could loosen migration policy to encourage higher overseas fee-paying students. Or do some combination of the above.

In the modern developed world, a healthy supply of graduate labour and a thriving higher education sector are vital for a prosperous and growing developed economy. The government's announcement is a start in safeguarding both, but much bigger decisions will need to be taken in the near future if the higher education sector is to get back to a firm financial footing.

Author
Franz Buscha
Professor of Economics, University of Westminster

Note
This article is from The Conversation web site To read it with links to more information go HERE

More
What counts as an asset?
The government's new approach to debt includes certain financial investments as assets, provided they generate returns above the government's borrowing costs.

One important example of what is now considered an asset is the government's student loans book. These loans - on which interest is linked to the retail price index (a measure that tracks the change in the cost of a fixed basket of goods and services in the UK) - are expected to generate significant returns over decades.

Repayments on student loans begin at different thresholds, with average repayment periods of around 31 years. A £9,250 student loan taken out in 2013, for example, will peak in value in the 2040s as repayments accumulate.

While the government borrows at relatively low rates, graduates repay their student loans at higher rates. This generates a profit that effectively strengthens the government’s balance sheet under the new fiscal rules.

But there is a moral dilemma here. Students are charged interest on their loans from day one, which compounds like credit card debt. The government doesn’t pay interest in that way on its own borrowings.

The government has also just announced fresh increases in English tuition fees and maintenance loans from September 2025. So, for the average student, that’s £700 more to pay in the next academic year alone. This adds £2 billion to the government’s student loan book before compounding.

Author
Chris Parry
Principal Lecturer in Finance, Cardiff Metropolitan University