Calculators at the ready

The mood of realpolitik brought about by the state of the economy suggests that the recommendations of the Browne Review will form the basis for undergraduate funding for home students in England within two years.

With 2012 prospectuses going to press in about six months' time, institutions are already considering the level of fees to charge and the size of bursaries to offer if this does happen.

Unlike in 2004-05, when predictions about the birth of a market proved premature, universities must now make decisions in the context of a competitive environment in which undergraduates have real "purchasing power" and where their choice may be influenced by the size of debt they expect to accrue.

But the pricing choices universities face are complex and can be informed only by limited evidence. Because of the current £3,290 cap, universities have had little chance to discover how and when this price-sensitivity may come into play. What evidence there is from the past four years suggests that cost will become significant at different points for different subjects, institutions and applicants.

There are new factors to consider, as well, with substantial cuts in teaching grants expected for the majority of courses and an annually adjusted limit to be introduced on the number of students receiving publicly funded loans.

Some lessons can be learned from the systems institutions have set up since 2006 to administer their new financial relationship with students. Managers have realised that if they want the maximum bursary take-up and increased efficiency, things need to be streamlined. One benefit of closer contact with undergraduates about finances is that cases of hardship are being spotted and addressed earlier.

One challenge that has been looming since 2004 but will now have to be faced is the need to provide clear information on courses and on the cost to students of each programme of study. With the inevitable build-up of larger debts, it is reasonable for students to expect these data to be available. While collaborations between institutions, through the Universities and Colleges Admissions Service and with Student Finance, are starting to bridge this gap, there is still some way to go. But communication with students will be easier if the system of fees and bursaries is straightforward.

Pricing needs to be realistic. Students increasingly expect to see indicators of "value" - although these may be in the form of proxies, such as contact hours, rather than measures of teaching quality.

Setting a higher price to build reputation is unjustified. There is no evidence that, in higher education, cost confers, rather than follows, status.

With the potential for fees to rise beyond the expected band of £5,000 to £7,000, it is possible some universities will set different fees for specific courses. Bursaries would probably vary as well, making an applicant's calculation of cost even more complex.

Charging a range of fees would leave a university with the challenge of how to allocate the resulting resources internally: should this be according to how they are earned; where they are needed; or where they can support strategic priorities?

Part-time students also complicate the picture. While there are benefits to putting them on the same financial footing as full-time students, they will bring another stream of revenue into the uncertainties created by Lord Browne's proposals.

Ultimately, a funding system created along the lines recommended presents opportunities for institutions to think creatively about the types of courses and modes of delivery they should offer, but it also creates real risks of financial failure.

This is particularly true for universities that currently receive a large proportion of their income from teaching home and EU undergraduates, do not have a distinctive position, have a number of regional competitors and rely significantly on local recruitment - in many cases those institutions that are most successful in attracting the widest range of students into higher education.