Adjust course fees so that those who will earn more will pay more

Varying tuition fees by graduate earnings is fair and transparent, argues Dean Machin, and will ensure everyone shares the financial risk

November 5, 2015
David Humphries illustration (5 November 2015)
Source: David Humphries

Last month rumours emerged that the UK government is planning to follow the US and reveal how much students on each course at each university stand to earn.

At the same time, university leaders in England are finding their voices about the need to increase tuition fees. The current £9,000 a year limit for undergraduate degree study is unsustainable for much longer, they tell us, and there are plans to permit institutions with good scores in the proposed teaching excellence framework to raise fees – at least in line with inflation.

But the TEF may turn out to be a very bureaucratic exercise for little financial gain. A much better idea would be to make use of graduate earnings data – from HM Revenue and Customs and other sources – to institute fee caps that differ by subject and institution, and that increase (or decrease) as the evidence suggests graduate economic returns increase (or decrease).

The 2012-13 fees settlement was good for English universities: they increased their net income without incurring any of the associated risk. All that risk falls on graduates and taxpayers. And while there is nothing intrinsically wrong with graduates paying for a university education from which they benefit, that still leaves the question of what a fair fees system should look like.

As the expected economic return of a degree varies by subject and institution, it strikes me as fair that the contributions made by students should vary on the same basis. Such a fees system would be transparent, and this is important. Australia has differential fees for different subject bands, but the bands are decided on the basis of an opaque mixture of cost, economic return and political considerations. The banding lacks any clear rationale and has prompted widespread criticism.

Fee caps that reflect the relative economic returns of different course choices would help students make more informed decisions. We should not underestimate the problem here. Most students make their decisions before they know their A-level results; many have little understanding of the differences between universities, and careers advice is often poor.

Differential fees would also benefit taxpayers. The annual fee for degrees with low earning potential would drop from the current £9,000. And fee increases above £9,000 would be aligned with students’ ability to repay, so the level of unpaid student debt would decrease.

I propose fee levels that would make students liable to repay roughly 30 per cent of the net graduate premium for each course (annual fees would take into account the fact that some courses, such as medicine, last longer than three years). In my view, it is not unfair to charge graduates less than one-third of the economic benefits they can expect from higher education. But there is no uniquely correct figure; the key point is that as the percentage gets nearer to 100, university becomes an increasingly bad economic bet.

Differential fees could also benefit universities. If economic returns increased, fee caps would increase too, without a need for a vote in Parliament. Fees would become depoliticised. There would, of course, be a risk associated with the likely decrease in some fees caps, but we should not overstate it. The fees for some high-premium courses, such as medicine and engineering, could increase substantially from their current levels. And universities could reduce the risk to which they are exposed by improving their graduates’ employability. This would allow them to increase their fee caps.

But shouldn’t teaching costs also be factored into the fee-setting equation? Only, in my view, exceptionally. After all, they are not unalterable facts of nature: they can be reduced. And if universities charge students on the basis of their costs, they have no incentive to become more efficient. Furthermore, disparities between teaching costs and economic returns are the exception. Many subjects with lower economic returns, such as English or philosophy, are cheap to teach. But there is a case for public subsidy of subjects where private returns are low but public benefits high. One example might be the creative arts.

Finally, while we might expect differential fees to lead to a decline in some subjects at some universities, the Western canon will survive. Some students might turn away from philosophy because it is a bad economic bet, but this is not obviously bad – either for them or the subject. Philosophy will still be taught.

I suspect my proposal will be met with scepticism. Partly this will be based on universities’ institutional conservatism and fear of short-term upheaval. But they should be careful. Arguments against differential fees might apply with equal force against all arguments to increase fee caps. And while universities don’t want to expose themselves to financial risk, it is inevitable that the day will come when they have to. It is simply politically unsustainable that taxpayers and graduates should face all the risk of tuition fees while the university sector faces none.

Dean Machin was a teaching fellow in philosophy at University College London between 2012 and 2015, and is chair and joint head of UCL’s policy commission into transport and ethics.

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Print headline: Defining the variables: students who will earn more should pay more

Reader's comments (3)

An absurd idea, in my opinion. The subjects which lead to the best jobs tend to be the most important subjects (medicine, engineering, etc.) -- we should encourage people to study those courses, not put them off with higher fees! I would propose the polar opposite of this idea. Raise fees on time-wasting subjects like dance and media studies so as to put people off, and reduce fees on useful subjects so as to encourage them. Society needs doctors and engineers more than it needs actors and social scientists.
It is indeed an absurd idea, but not for that reason, obviously. Machin writes that 'there is nothing intrinsically wrong with graduates paying for a university education from which they benefit'. Well, obviously there is something wrong with this, which is that it fosters the idea that only the individual benefits from their own education. This report (link below), among others, shows a wide range of benefits, not merely economic ones, and not merely to the individual themselves, but to society Thinking of it only in terms of the individual has a tendency to lead to the assumption that the point of education is purely its financial return. In fact, even at an individual level this is not the case. While it is true that it is likely to produce a significantly higher income, perhaps some graduates might find their education leads them to the idea that happiness is not to be measured purely in terms of financial gain - an evidence-based position since studies such as this one (link below) show that above a certain level of affluence, happiness is influenced more by 'social trust, quality of work, and freedom of choice and political participation'. Humanities subjects are rather good at encouraging and developing this potential. Even taken on its own terms, recent data suggests that even 'time-wasting subjects' as the correspondent above would probably term my own, may provide excellent returns on the financial investment - Forbes list thinks so anyway, (writing, obviously in a US context). And in what other sphere would we expect people to pay for goods purely on the basis of resultant financial gain? Is that in any way fair? Is quality no longer of any concern, except in the infinitesimal way an appreciation of it might filter through to employers? It would, as the rude, but in some ways correct correspondent above points out, also skew admissions in unhelpful ways. Students from affluent backgrounds might feel more able to pay higher fees thus tending to entrench inequality even more than is the case already. The message would be given out that lower-cost subjects were indeed 'time-wasting' whereas they are not only valuable in their own right, but in fact do produce some decent career prospects. Who knows what it would do to student numbers for different subjects, but it could produce some unwelcome results. Far from philosophy being ok, we might well find that philosophy will not in fact be taught in such a climate - philosophy departments could well end up being cut. My own subject, Drama, might be earmarked as one that could charge higher fees, given the need for studios etc, but that would not be regarded as leading to high earnings. I guess we'd lose out on every level then. There goes Drama... I'm not a great advocate for the TEF, but at least the idea is to identify excellent teaching, rather than to reduce everything to a financial investment. These ideas are not thought through, and not worthy of a philosopher. Tuition fees will never be depoliticised.
It is pleasing when people engage with your work but disappointing when they make no attempt to understand the problem. In the world as-it-is, rather than the world as-we-might-wish-it, undergraduate teaching is going to be funded by student loans – at least for the foreseeable future. If so, we must ask: should students pay the same? And, if students should be charged different amounts, on what basis should fees differ? It would be unfair to charge the same for all courses and so make the Bedfordshire nurse liable to repay the same as the Oxford lawyer. We could base differential fees on cost – but then the nurse would pay more. Alternatively, we could base differential fees on the background or the future of the relevant individual. Personally, I prefer the latter. If we are to charge individuals MONEY on the basis of their future, it makes sense that the charges differ to the extent that individuals’ ECONOMIC futures differ. With suitable debt forgiveness mechanisms, this is fair. Furthermore, it is wrong to claim that fees make students think ONLY of the economic effects of their choices. Parenting costs money – the amounts have been calculated many times – but this does not ‘tend to’ or ‘foster’ the belief that children are a self-interested economic investment. My argument might be wrong but it is not wrong for any of the reasons that, so far, have been advanced. Many academics just don’t like change; they think change only makes things worse. They would get on very well with the most crusty of Tories.

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