Threat of fee increase recedes

By Mike Baker

Changes to university fees could be pushed beyond the general election

At a universities' conference this week, the Higher Education Minister, David Lammy, said the review of student top-up fees in England would "start this year".

No surprise there. After all, a review in 2009 is required by the legislation that brought in variable tuition fees five years ago.

But something about the minister's emphasis on the word "start" prompted me to ask him whether the review would also "finish" this year.

He admitted it would not.

This was the first time I had heard public confirmation that the government intends to drag its feet over the fees review.

It also seems to guarantee there will be no decision to lift the fee "cap", which currently stands at just over £3,000 a year, before the next general election.

Hard times

Assuming Gordon Brown will not go to the country before spring next year, that will mean no decision on fees until well into 2010 at the earliest.

And, even if the next government does decide to raise the fees cap to the £7,000 level that some feel is now necessary, it would still have to win the approval of both Houses of Parliament.

There would also need to be adequate time for both students and universities to prepare for a new fees regime.

So, experts like the head of the Higher Education Funding Council for England, Professor David Eastwood, now believe there is no prospect of the fees cap being lifted before 2013.

The government is now likely to launch the review some time this summer, giving it at least a year to report.

There is also a good chance that discussions will take place between Labour and the Conservatives to try to take the nature and remit of the review out of the political battleground.

This happened in 1997, when pre-election discussions between the political parties meant there was cross-party agreement to the Dearing Review, which was established by the Tories and which led to the introduction of undergraduate tuition fees after Labour took power.

Higher fees mean higher student loans

While prospective students and their parents may welcome the fees cap staying in place for another four to five years, it means hard financial times ahead for universities.

That was underlined this week by the Shadow Universities Secretary, David Willetts, when he told university chiefs that the next government would face "a much tighter regime of public expenditure".

On the fees review, Mr Willetts said he wanted the government to "get on with it", particularly because "the more you look at it the trickier it looks".

In particular, Mr Willetts highlighted the problem that any increase in fees would, in the short term, cost the government more.

This is because higher fees mean higher student loans.

And, since the current loans are at a subsidised zero "real terms" rate of interest, that would mean a rise in the cost to the Treasury - something no Chancellor of the Exchequer is going to welcome in the current climate.

One way out of this impasse would be for government to end the zero real-terms rate of interest on student loans.

But that looks politically unlikely.

Demographic downturn

So if fees are to rise only in line with inflation, what are the options for universities?

They could seek further savings. But that would mean larger classes and poorer facilities.

That would damage the quality and the reputation of British universities.

That in turn would hamper their efforts to recruit more international students, who have proved to be an economic lifeline for many institutions.

A delay in removing the tuition fees cap is good news for some

Until now overseas student recruitment has been buoyant.

The latest statistics show that while the total number of new British students at UK universities fell slightly in 2007/8, the number of overseas students rose by 4%.

Since students from outside the EU pay full-cost fees, they are very attractive to universities.

Overseas students will be increasingly important, as the next few years will bring a demographic downturn in the number of school-leavers.

Forecasts show that between 2009-19 there will be fall of 6% in the number of 18-25 year-old university applicants across UK.

Yet the competition for international students gets tougher every year.

More European countries are now providing courses taught in English.

Meanwhile university systems in places like China have grown so rapidly that their post-graduate students no longer have the same need to look abroad to study.

There is also growing competition from private universities that are offering on-line, distance learning degrees.

The University of Phoenix has some 362,000 students enrolled on its online degrees and some 15% of them live outside the USA.

Bumpy road

There are other ways ahead for universities. One option being pursued by many is to offer more short-courses tailored to the needs of employers.

This is likely to be an increasingly important role for higher education.

But it is a risky strategy in a recession when many employers are themselves cost-cutting.

Rising unemployment will raise demand from individuals needing to improve their skills or learn new ones.

But affordability will be a barrier for such potential students.

Indeed, the government's decision to reduce funding for students wishing to take an "Equivalent or Lower Qualification", may price some existing graduates out of a return to university to re-skill.

So it looks like a very bumpy road ahead for British universities.

They may look back on the past few years as times of plenty.

Like businesses, they will need to be nimble and adaptable to survive.