International and postgrad fee survey, 2014

Source: Alamy

Download the annual tuition fee data for full-time courses at UK institutions, 2014-15

You could think of the £9,000 cap on undergraduate tuition fees in England as a dam holding back universities from charging UK undergraduates even larger amounts. If you did, you would see a structure that is coming under more pressure than ever before – and some vice-chancellors are hoping that it will burst before long.

Figures published last month by the Office for Fair Access confirm that English universities charging less than £9,000 a year for an undergraduate degree course have become an exception to the norm, as more and more universities bump up against the ceiling.

There is no limit, however, on the amount that universities are allowed to charge international students, and a survey of tuition fees for the coming academic year, compiled by The Complete University Guide and published this week by Times Higher Education, shows that fees for overseas students have risen by inflation-busting amounts.

If, after the general election in May next year, the cap on undergraduate fees is removed and the floodgates open, what might be the result? Is it likely that fees for UK undergraduates would surge upwards, as they have for international students?

Since the £9,000 cap on undergraduate fees was set for 2012-13, it has remained unchanged while inflation has nibbled away at its value. Last year, Andrew Hamilton, vice-chancellor of the University of Oxford, broke cover and argued that fees should better reflect the cost of educating an undergraduate at the university, which he claimed to be £16,000 a year.

In June this year, Sir Howard Newby, vice-chancellor of the University of Liverpool, was even more explicit, calling for completely uncapped fees. And in the same month, Michael Thorne, who leads Anglia Ruskin University, said that some universities would be “completely stuffed” financially in just three years if fees remain frozen at £9,000.

Meanwhile, universities have been raising fees in those other areas where they have freedom to do so. According to the 2014 survey results, on average, universities have increased their “typical” fee for overseas undergraduate classroom-based subjects by 4.8 per cent on the previous year (among universities providing comparable data in the 2013 and 2014 surveys), with an average fee of £11,987. In the lab, fees are up by an average of 4.6 per cent to £13,774.

At postgraduate level, international students are also being charged more: on average 5.5 per cent extra for classroom subjects and for those studied in the laboratory. Across the sector, the average typical fee for these course types was £12,390 and £14,4, respectively.

The priciest course in our survey is Oxford’s MBA at £42,640. Oxford declined to comment, but in previous years the university’s Saïd Business School has argued that the sum is not excessive compared with other MBA programmes at elite universities in the US and Europe. Excluding medical school fees, the most expensive courses were generally those geared towards a career in business or finance. The average annual price of an MBA for an international student was £17,413, substantially higher than the average for other classroom-based postgraduate courses.

All this might seem to suggest that in a “true”, uncapped market, fees for home undergraduates would balloon. But data from home postgraduate fees, which are not subject to a cap, present a different picture.

For these courses, in 2014-15, average annual tuition was £5,680 – much lower than the typical undergraduate fee. The average fee increase for home postgraduate students was 1.2 per cent, a rise that is below the rate of inflation (which in June this year was 2.6 per cent). At more than one in five universities, the typical fee for this type of course has actually been cut for 2014-15.

Yet some postgraduate courses for home students do not come cheap. Among the most expensive were MScs in finance, finance and accounting, investment and wealth management, and risk management and financial engineering at Imperial College London, which cost £29,000 a year. The University of Warwick charges £31,000 for finance-related master’s programmes, while Oxford’s MSc in financial economics comes in at £32,760.

Some commentators on higher education policy have argued that the cap on undergraduate fees drives up the average: universities feel that they must charge top dollar for fear that students will think that low fees mean low quality, which explains why almost all of them have now gone for the maximum sum.

This type of pressure on pricing was predicted by the Browne Review, the 2010 report into university financing that paved the way for the controversial decision to triple tuition fees. It warned against placing a cap on fees, arguing that it would “distort” them. “In the current system, all institutions charge the maximum amount [£3,290, as it was in 2010] for all courses – so the cap has become a standard price for higher education rather than a means of control to prevent unfair charges,” the report said.

Might the absence of a maximum fee give some institutions the freedom and confidence to charge less than £9,000?

Anna Vignoles, professor of education at the University of Cambridge, thinks that this is very unlikely.

“There will be a reluctance to reduce fees since this might signal lower quality to students, and students will not push for lower fees if the government is continuing to underwrite the loans,” she says.

Moreover, “some middle-ranking institutions may put up fees to match the fees of higher-ranking institutions to try to signal higher quality”, Vignoles adds.

In other words, the temptation to charge a high price for fear of appearing to be a low-cost, low-quality option – or, to put it another way, an institution’s desire to signal its membership of the “elite” – might be undiminished in an uncapped market.

When universities decide their fee levels, the issue of students’ access to loans is another crucial factor. For Nick Barr, professor of public economics at the London School of Economics, it is “not surprising” that postgraduate tuition fees for home students are relatively low, because UK postgraduates, unlike undergraduates, have no access to a public loan system that helps them to cover the cost of their tuition fees – an omission that he describes as “barking mad”.

Were undergraduate fees to be fully uncapped, Vignoles points out, it is highly unlikely that the government would simply extend the current system to cover any fee – this would be akin to the Treasury, which backs the loans, “writing a blank cheque”.

What could happen instead, thinks David Palfreyman, director of the Oxford Centre for Higher Education Policy Studies, is that the government might offer each student a “voucher” of up to £7,500, for example, in publicly backed loans. Universities wishing to charge more than this would have to finance any extra privately, from banks, perhaps, so that students could take out bigger loans to cover the costs.

The “premier league” of universities will “easily” raise this from the commercial money market and so will be able to charge £15,000 to £17,500 a year, he thinks. But at the other end of the scale, some universities might charge as little as £6,000, and the government could even limit its publicly backed “voucher” to £5,000 a year to save money, Palfreyman forecasts.

If students have to take out privately financed loans, where repayments are not contingent on income, “students would be much more cost-focused”, says Vignoles, and this would push fees downward.

But, of course, loans with tougher repayment conditions might be a great deterrent for students from poor backgrounds. “I would be concerned if you had very high fees without income-contingent loans,” Vignoles says.

Reshaping the University: The Rise of the Regulated Market in Higher Education, a recently published book written by Palfreyman and Ted Tapper, emeritus professor of politics at the University of Sussex, predicts that the cap will have been removed by the end of the next parliament and suggests that a greater range of fees will emerge: “In the context of uncapped fees, and the consequential likelihood of wider fee differentiation between universities and among courses, then fee levels can be predicted to have a greater impact on student demand.”

But all this assumes that a dam, ready to burst, is an apt metaphor for the £9,000 cap. The decision to raise the cap on fees to £9,000 was highly controversial, prompting thousands to take to the streets in a series of protests that were held near the time of the parliamentary vote on fees in December 2010.

Whoever forms the next government may decide to take a very different route, perhaps, Palfreyman suggests, re-embracing the idea that higher education is a public good, lowering undergraduate fees to £6,000 and reintroducing more state-funded teaching grants. This is thought to be the Labour Party’s current preferred option, although it has not announced its official policy. So the fees dam may not burst at all after May 2015 – but may instead be reinforced.