Lifting of fees cap may lead to bankruptcy

September 1, 2006

Universities could go bankrupt if the Government removes the cap on tuition fees - because they have little idea how much their degrees are worth or how much they cost to teach.

This could mean that they price themselves out of the market with disastrous financial consequences, according to research by Helen Carasso, acting director of undergraduate admissions at Oxford University.

Ms Carasso's paper, The Value of A Degree: Costing and Pricing Undergraduate Courses in a Deregulated Market , will be discussed next month at the European Education Association conference in Geneva.

It was written for her doctorate in education and is based on her study of the way 30 universities price their degrees for international students.

Ms Carasso argues that universities are unaware of crucial information, such as how much it costs them to teach a degree and whether students place more value on the service a university provides or the kudos of its degrees.

This, she believes, is not the fault of the universities. They have in the past answered to the Government, but they are now expected to operate in a market.

She said: "Universities do not have the information to put a price on their degrees and in a deregulated market, where the cap has been lifted, this could give them serious financial headaches and even end up in bankruptcy in the worst case scenario.

"Universities do not have enough sophisticated information about their consumers. In terms of the value they place on a degree and how much a course costs, the information they have is very broad."

She said that when it came to how much degrees cost to teach, universities relied on sector-wide guidance such as the Higher Education Funding Council for England's report last year on pricing and costing.

She argues that the much criticised cap on tuition fees is in fact saving some institutions from financial disaster.

She said: "In a deregulated market, if universities set their prices too high and then fail to recruit sufficient numbers of students, they could go bankrupt. After all, it is hard to quickly change the price of fees."

Ms Carasso said that universities had shown themselves to be "risk averse" and "very conservative" in the existing deregulated market of international students.

She said: "Universities cluster their prices for international students according to simple perceptions of how good they are; they only have a vague idea of how good they are. Those in the 94 Group will charge similar prices to one another, as will those in the Russell Group.

"They need to become more self-aware, not just about how they see themselves but how they are seen. This is a warning."

Andrew Dilnot, an economist at Oxford, agrees with Ms Carasso's claims.

He said: "Universities are going to have to know more about their market than they have done in the past.

"They are aware of this and are looking to change. It is possible that everybody will have to raise their game."

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