International student levy ‘could topple mid-tier universities’

The incoming international student levy is expected to add to pressure on already “squeezed” middle-ground universities, as smaller and specialist providers benefit from exemptions while institutions charging higher fees have dodged a percentage charge. 

The UK government’s decision to go ahead with a flat fee of £925, instead of a percentage charge as was initially suggested, will limit the damage to institutions charging higher tuition fees. 

Similarly, the policy to make the first 220 students at an institution exempt from the levy will mean many small and specialist institutions avoid feeling the pinch.

“What may result is a squeezed middle set of institutions – large post-1992 institutions that charge more moderate fees to their international students will be paying proportionally more than their Russell Group counterparts,” said Rose Stephenson, director of policy and strategy at the Higher Education Policy Institute. 

Vincenzo Raimo, an international higher education consultant, said these institutions “often don’t have the pricing power to pass the levy on to students, but equally can’t afford for margins to tighten much further so the pressure tends to push them towards reducing scholarships, limiting agent commission, or scaling back activity in particular markets”.

“One point that’s often missed in the public debate is just how slim the margins already are in some universities,” he said, adding that the levy could “push net income well below sustainability thresholds”. 

Rachel Hewitt, chief executive at MillionPlus, which represents modern universities, said although her members were “disappointed” by the flat fee, the levy still felt a long way off in comparison to more pressing issues, such as pension schemes and changes to immigration compliance rules. 

“Although the institutions are thinking about how they’ll cover the costs of the levy…the almost greater issues coming up are the immediate pressures that are being placed on [them] and to some degree wiping out some of the gains from the tuition fee [uplift].”

However, there is a sense that although the government might not have axed the unpopular proposal altogether, it has listened to the sector's concerns, with the flat fee not as bad for most as the originally mooted 6 per cent charge would have been.

Initial analysis by Nous Group found that 150 universities were better off under the flat fee, while 50 were worse off.

“Most institutions of various sizes…ought to be happy with these changes, even if they don’t love the change in general,” said Nous Group director Nicholas Dillon. 

He continued: “We’ve got a couple more years of inflationary fee increases to come through. A lot of the institutions that look like they’re losing now might not be losing once they’ve increased their fees for another couple of years, assuming that they feel able to.”

University of Surrey vice-chancellor Stephen Jarvis said the outcome was “a positive response” to the sector’s lobbying, and differentiating between those charging higher and lower fees was the right thing to do. 

“The government aren’t trying to put off exceptionally high-skilled students coming into our best institutions, contributing to good quality research, and of course, meeting some of the needs of our companies and industries across the country.

“Converse to that is where the students and perhaps the providers are lower quality, then you can understand that having some disincentive there is again not such a bad thing.”

helen.packer@timeshighereducation.com