Education economics - should government intervene to mandate lower tuition fees for local students?

Record numbers of students have applied for university places this according to data published by UCAS, the university admissions administrator.

In his latest entry for our economics blog, Paul Ormerod writes:

Just over 300,000 18-year-olds have applied, representing 44 per cent of the entire year group. The number is up 10 per cent on what was then a new record total in 2020.

A key reason seems to be the uncertainty created by the pandemic around job prospects. It seems safer to postpone the day of having to enter the labour market until the outlook is better.

It is nevertheless surprising. The appalling way in which many universities have treated students over the past year or so has been widely publicised.

Most courses are given online, yet full teaching fees have still been demanded. Many have been forced to pay for accommodation even though for much of the time they have been unable to use it.

There is a more fundamental reason which ought to deter university applicants.

The simple fact is that there are not enough jobs in the economy which in terms of the skill requirements really need graduates.

The so-called graduate premium – the idea that getting a degree boosts lifetime earnings – still applied to around one half of students to varying extents. But to the less able half, it does not. They will not earn more and will be saddled with debt which they cannot repay.

We have a situation in which the demand for a product – a university degree – is considerably higher than it would be if the choice were being made rationally.

This is a classic situation in which a government ought to intervene in the workings of the market to bring about a more desirable outcome.

A straightforward way would be to insist on minimal, but reasonably demanding, grades at GCSE in both maths and English in order to qualify for a loan.

Setting this at, say, what is now grade 5 – B/C borderline under the old system – would be desirable.

But no doubt any measure to curtail what many have come to see as a “right” to higher education would create outrage.

The government would do better to try and channel the demand for places so that the outcome for society is better.

There is a lot of evidence to show that graduates have rather a high propensity to stay and work in the town or city where they went to study.

This has created a serious problem for the “left behind” towns. Their brighter young people go off to a university, and usually do not come back.

Creating more incentives to go to a local university would be a big help. For example, fees could be mandated to be distinctly lower for non-residential students.

Universities would moan vociferously, because their expensively built residential accommodation would be partly empty. But that is just a risk of being a business, which most universities see themselves as these days. They are in it for the money.

The current situation is clearly unsustainable. One way or another, the university sector is one which is crying out for government action.