The introduction of top-up fees would be a gamble but would it pay off? Claire Sanders looks at models for differential fees.
A decision to introduce top-up fees in the next parliament would be a political gamble that paid off only if poor students and universities benefited.
In recent years, there has been proposed a range of models for charging higher - or differential - fees. They range from highly centralised models aimed at redistributing funds among students to free-market models aimed at liberating universities.
All models rely on an understanding with the government that it will not claw back money through diminishing the funding council grant. Current estimates are that differential fees could raise some £600 million a year for universities.
Ministers have taken notice of two papers, one put forward by David Robertson, professor of public policy and education at Liverpool John Moores University, the other by the Institute for Public Policy Research.
In a lecture to the Social Market Foundation in April, Professor Robertson argued that two-year foundation degrees should be cheaper than three-year honours degrees. His approach turns the traditional argument about top-up fees on its head.
He said: "My focus is to start at the bottom and talk about lower, not higher, fees. It allows the government to stress the benefits to poor students of a differential fee system."
Professor Robertson is working on a report for the Higher Education Funding Council for England, Intermediate Qualifications in Higher Education : An International Assessment , to be published in September. "The foundation degree is key to widening participation in higher education and to workforce development. But it will only work if it is priced to succeed," he said.
He argues that the equivalent associate degree in the US worked because it was relatively cheap - only a few per cent as expensive as some four-year degrees at elite US universities. But foundation degrees in the UK cost the same pro-rata as honours degrees.
"They need to be differentiated in terms of qualification, institution and, above all, rate of return. A student studying hairdressing in Grimsby should not be paying the same as an Oxford law student - one has far higher earning potential than the other," he said.
Last December, the IPPR published the most detailed model to date of a differentiated fee system, Opportunity for Whom? , and at its heart was a redistribution of funds from higher to further education.
The report recommends raising the tuition fee to £2,150 in the short term, bringing the fee nearer to the cost of teaching, but for the long term it recommends differential fees.
"A differential fee system would be the most effective way of raising considerable funds that could then be redistributed throughout the sector from more prestigious to new universities and from higher education to the learning and skills sector," the report says.
Wendy Piatt, research fellow at the IPPR and co-author of the report, said:
"There is so much potential revenue locked up in the British university system. It needs to be released in an incremental way."
The IPPR report argues: "If the principle that fee levels should be based on ability to pay and future earnings, then universities should at least be allowed to charge different rates for different courses."
Referring to the Australian system, in which there is a closer match between the cost of a course and the fee charged to students, the IPPR report says: "The Australian system could be modified to incorporate higher fees for more popular courses and those with higher returns but not necessarily higher costs.
"This modest system, which does not allow differentiation between institutions, would be more acceptable to those who fear that full-market fees would entrench the current hierarchy of institutions and perpetuate elitism."
The IPPR supports differential fees and argues that differentiation would not disadvantage new universities. It says: "If Oxford raised the fees for law significantly higher than Oxford Brookes, it would be compelled to justify the difference; the potential customer would be more inclined to question whether the more expensive course really was value for money."
The IPPR devotes a considerable section of its report to how differential fees would be redistributed. One of its long-term recommendations is the merging of the Learning and Skills Council and the Higher Education Funding Council for England. The report says: "Perhaps the most important role of a merged funding council would be the redistribution of funds following the introduction of a differential fee system."
It advocates a model first proposed by Gareth Williams, professor of educational administration at the Institute of Education, in London, in 2000. "Under this arrangement, universities would be required to pay a fixed percentage of any premium they charge into a central funding body. The money would then be redistributed to less prosperous institutions," the IPPR says.
"The model would replicate the current system within universities where departments pay a levy on externally generated income to help fund the core costs of the institution and subsidise worthy departments that do not have the same capacity to raise additional income."
The central funding body would also be responsible for overseeing maintenance support.
The chancellor has already made it clear that he is willing to provide money in next week's spending review to extend the piloted educational maintenance allowance to all disadvantaged 16 to 19-year-olds. The IPPR recommends that higher educational maintenance allowances be introduced.
"As this would be based on one model - the educational maintenance allowance - for all those entitled to support in the learning and skills sector and higher education, the administrative ease and lower delivery costs would be a considerable improvement on the present fragmented regime," the report says.
The IPPR also makes a number of other key recommendations, principally that income-contingent loans be available to further as well as higher education students, that market rates of interest be levied on loans (with exemptions for low-income students) and that students have a choice between paying fees upfront or as postgraduates.
Nick Barr, an economist at the London School of Economics, whose extensive work on student support has backed higher interest rates on loans, said:
"Raising the interest rate on student loans to the level of the government's cost of borrowing would save about £800 million per year."
He added: "Forcing students to pay fees upfront clearly creates problems. No sensible person who has thought about this gives it any credence."
The IPPR report does not say how much money would be raised by differential fees. This was last calculated by David Greenaway and Michelle Haynes of Nottingham University in their report for the Russell Group universities.
Professor Greenaway is updating this work, but in 2000 he estimated that setting fees in line with the cost differentials used by Hefce, with £1,000 as the base and fees ranging up to £4,500, would generate additional funding of £600 million a year.
The Greenaway report argues that up to 60 per cent of students in elite universities in the US benefit from scholarships. The report acknowledges that loans would have to be available in the UK while universities built up scholarship funds.
The report says: "The Barr-Crawford income-contingent loan scheme has the potential to meet all the objectives of an efficient and just regime. It is repaid only when the graduate can afford to do so, and over a long period."
At the free-market end of the modelling, Warwick University economist Andrew Oswald argues that universities should be free to charge students up to £7,000 a year for a course.
He said: "It costs about £5,000 to deliver a course. Universities need the extra £2,000 for scholarship schemes and because they are going bust. Universities charging higher fees could give up their government grant, which would then go to new universities."
He said he did not believe that government loans were crucial to the system.
Roger Brown, principal of Southampton Institute, warned against a lack of planning. "Universities need to think through all the consequences of differential fees. The impact on disadvantaged students is an obvious area of concern. But also the impact on the quality regime is not yet understood."
John Randall, former head of the Quality Assurance Agency, warned last year in The THES that differential fees would lead to a more rigorous inspection regime.
He said: "If top-up fees are introduced, they will represent, for the individual, a financial commitment at least as significant as many of those for which the law provides a detailed regulatory regime in fields such as the financial services."
Dr Brown said: "Professional bodies [that validate degrees] would also probably have something to say if one university charged more for a course than another university - what would justify a higher fee?"