TEF and tuition fees – myths and reality

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Tuition fees are the percussion section of the higher education policy orchestra. They’re not always the most important section, and certainly not the most harmonic, but they’re always the one most likely to make a big noise. With an air of inevitability, it appears that the major political argument over the White Paper’s proposals will be over the inflationary fee increases.

As Stephen Bush of the New Statesman has suggested, this might be a direct result of the Prime Minister’s desperation to avoid any relatively tricky political conflicts whilst he navigates the EU referendum.

Of all the measures announced in the Queen’s Speech, tuition fees is one of the few with which Jeremy Corbyn can whip up some serious opposition fervour. Corbyn has been a lifelong opponent of fees, and his political base is teeming with students and recent graduates incensed at their indebtedness. Fees – and the political style that comes in opposing them – is the sort of political ground upon which Corbyn is completely comfortable. We’ve already seen a petition; expect shouting down megaphones at demonstrations and campus occupations soon.

Sadly, this doesn’t mean that the coming debate is going to be particularly substantive. Labour’s line is already based around the ‘Tory price-tag’ and ‘tax on education’. The latter line may prove difficult for any future leader wishing to campaign for a graduate tax. Indeed, that is still Labour’s official policy. Expect the debate to resemble this excerpt during the Prime Minister’s speech to the Commons last Wednesday:

Geraint Davies (Swansea West) (Lab/Co-op)
How is equal opportunity consistent with allowing the best universities to raise their fees so that instead of the brightest getting access to those universities, the richest do?

The Prime Minister
I am coming on to precisely that point. What we have seen since the introduction of fees is not only record numbers going to our universities, but record numbers from poorer backgrounds going to our universities.

In order to be successful, Labour will have to make the issue of fees about more than social mobility or affordability, as implied in Emran Mian’s piece on Wonkhe last week. It is too easy for the Conservatives to trump the ‘record numbers from poorer backgrounds going to our universities’ line when faced with this kind of opposition. More worryingly for advocates of good policy-making everywhere, if this level of debate sucks up airtime very little else in the Bill will get much scrutiny.

The further difficulty is whether the fee rise can be labelled a fee rise at all. Opponents of government austerity have tended to label cash-freezes in spending as ‘cuts’ in all-but-name (for example to 16-19 education budgets). By that marker, fees have been ‘falling’ for the half-decade since the £9k cap was introduced.

The power of inflation to eat away at spending power is very apparent when you take a look at the real-terms figures based on RPI-X forecasts. The below tables show the real and then cash value of the six different caps that will be in place in the new system.

Real value of fees projections 2016-2021, in 2016 £s

Fee Year201620172018201920202021
No APA + No TEF £6,000 £5,837 £5,650 £5,486 £5,326 £5,171
No APA + Meets Expts £6,000 £6,000 £6,000 £5,913 £5,827 £5,742
No APA + Excel/Outstanding £6,000 £6,000 £6,000 £6,000 £6,000 £6,000
Holds APA + No TEF £9,000 £8,755 £8,475 £8,228 £7,989 £7,756
Holds APA + Meets Expts £9,000 £9,000 £9,000 £8,869 £8,740 £8,612
Holds APA + Excel/Outstanding £9,000 £9,000 £9,000 £9,000 £9,000 £9,000

Cash value of fees projections 2016-2021

Fee Year201620172018201920202021
No APA + No TEF £6,000 £6,000 £6,000 £6,000 £6,000 £6,000
No APA + Meets Expts £6,000 £6,168 £6,372 £6,467 £6,564 £6,663
No APA + Excel/Outstanding £6,000 £6,168 £6,372 £6,563 £6,760 £6,962
Holds APA + No TEF £9,000 £9,000 £9,000 £9,000 £9,000 £9,000
Holds APA + Meets Expts £9,000 £9,252 £9,557 £9,701 £9,846 £9,994
Holds APA + Excel/Outstanding £9,000 £9,252 £9,557 £9,844 £10,139 £10,444
201620172018201920202021
RPI-X = OBR Forecast March 2016n/a2.80%3.30%3.00%3.00%3.00%

APA = Access and Progression Agreement

What is striking is how these numbers show that universities will have to sprint just in order to stand-still. Any institution that doesn’t reach the ‘Excellent’ or ‘Outstanding’ ratings will only receive half of the allowed inflationary uplift, and thus see their incomes fall drastically. To students and opponents of fees, the half-inflation increase is a fee hike all-the-same. But to institutions, it is a half-inflationary loss. Those that reach the two top levels of the TEF will be rewarded by keeping the real value of their £6,000 or £9,000 fee cap.

The debate is further muddled by the nature of income-contingent loans: the real cost is to graduates rather than students, and inflationary increases in fees reflect changes to purchasing power today, whilst repayment ability will be primarily affected by purchasing power in the future (confused yet?). Relatively small fee increases of this sort will only really affect the best paid graduates who are already able to pay-off their loans before the 30 year write-off deadline. Lower-earning graduates, whilst nominally in a greater amount of debt, may not pay much more, except for the larger value of interest charged on their overall loan account. Then there are the many caveats of terms and conditions of the loan-book. It is impossible to anticipate whether and how future governments will tweak the variables affecting student loan repayment, including the earnings repayment threshold, interest rates, and write-off date.

Don’t expect the upcoming coverage and debate to dig into this in any great depth. The headline story will be the cash rise in fees at the highest level and the government’s achievement at finally creating a differentiated fees system. By the time of the 2020 general election, the highest fees might have broken the £10,000 mark. By 2025, they will be £11,700. And by 2030, the magical power of compound inflation could have brought the cash level of fees to £13,650. But remember, this is still effectively £9,000 of purchasing-power in today’s money, and thus the same ‘cost’ in value to students.

Much more will be written about this, so to finish, there are two ironies to reflect upon. Firstly, UUK’s campaigning for the inflationary uplift originated in 2013 after several years of relatively high inflation. RPI-X in 2010 and 2011 was three-times the level it is now. The lack of an uplift really mattered in those years, but inflation is likely to quite a bit lower in the short-term. The forecasts expect it to go back up again in the medium-term, but the forecasters have consistently overestimated inflation in the past.

For the same reason, the above figures should be read with a healthy scepticism; economists are notoriously bad at accurate future gazing. If inflation is lower than predicted for the next half-decade, the coming political battle might feel like much ado about nothing.

And that brings us to the second irony, which is that in order to achieve a truly differentiated fee structure, a Conservative government will be hoping for moderate-to-strong inflation in the coming years. Given that keeping a lid on inflation is effectively the raison d’etre of the Conservative Party, this bizarre outcome encapsulates the strange times we live in.

Find an updated version of the above article: TEF and tuition fees continue their complex dance

5 thoughts on “TEF and tuition fees – myths and reality”

  1. Rob says:

    Can you clarify another myth/possible truth for me please?

    After 5 years of TEF and subject to piloting, is it the intention of government that the introduction of TEF assessment at a discipline level would lead to fee income variation across an institution depending on discipline TEF scores? i.e. students at the same institution paying different fees based on the TEF quality assessment of their discipline?

    1. David Morris says:

      The White Paper states that the ultimate aim is to introduce TEF at a disciplinary level in year 4, after carrying out pilots in year 3. It is not explicitly stated in the White Paper that this would mean differential fees are tied to discipline level TEF, but I think it is 90% likely this is the government’s intention. Besides, if discipline-level TEF was introduced, would an ‘aggregate’ institutional score determine fee levels, and if so, how would this be worked out?

  2. Matt says:

    I’ve got another question about this…

    If the amount students can be charged can change part-way through their course then, in future years, could this not lead to very large jumps in fees year-to-year?

    Using the assumptions about inflation above, by 2021 students at an institution with an APA that improves its TEF rating from “meets expectations” to “excellent” could see a jump in fees of £450 from one year to the next. That’s 4.5 per cent. But won’t this issue get worse and worse over time as the gap between inflationary and half-inflationary uplift grows over time?

  3. David Singer says:

    Are you sure about the fee projections? I understand the amounts for £9,000 + full RPI as the compound effect of the forecast RPI in each year. I’m not so certain about the half RPI amounts for Meets Expectations.

    Those providers assessed as Meets Expectations will get the full RPI increase in 2017 and 2018. What happens after that? The table above assumes half RPI on top of the 2018 maximum. It’s not clear to me that this is what the White Paper says. Actually it’s not clear to me what the White Paper is saying about this at all, but at the most pessimistic all increases are based on RPI since 2016. That means that the Meets Expectations rate (half RPI increase) in 2019 will be £9,416 – less than what was allowed for 2018.

    I can’t see anything that suggests the baseline will lock in inflationary increases; rather the reverse: “We will operate a history-blind system, meaning that a provider’s fee/loan cap is solely dependent on their current TEF level. This means coasting institutions will not be able to ‘bank’ increases gained if they performed better on the TEF in previous years …”

    Any further insight?

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