Strategies for student number control

If you look at the relatively small group of HE institutions that have won places in the core/margin allocation, it is clear that most (although not all) of them are relatively unpretentious new universities. On the other hand there are plenty of similar institutions which have set higher fees and did not win any margin numbers. I was surprised by the number of institutions that chose to reduce fees to enter the core/margin contest because of the higher risks this strategy brought.

We can see that quite different calculations are being made by universities with very small AAB populations than in universities with larger AAB populations. For many of the least prestigious institutions, the AABs are almost immaterial and it’s much easier to lay out the possibilities for this group, especially as we’ve recently seen some new information about the Student Number Control which make it possible to evaluate the choices made by these universities, and start to estimate what might happen to them.

What news do I mean?

• HEFCE have announced the 2012/13 core allocations and also first margin allocations;
• David Willetts has declared a broad intention to roll the margin out at 20,000 places a year;
• The SLC have provided data on SLC-supported students at private providers to the Times Higher Education, and subsequently released the same data to me;
• The HEFCE grant letter and news about London Met’s astonishing over-recruitment underline BIS’s continuing concern over the prospect of over-recruitment in the sector;
• And the UCAS data have largely – if not entirely – resolved the fear that the 2012 fees hike would dramatically reduce applications to HE.

The below table compares two strategies for a notional institution. In Strategy 1 the fee is £7,500 and bids are made for margin numbers. In Strategy 2 the fee is held at £9,000 and numbers are allowed to fall.

What is happening in this table? Firstly, I’m assuming that the AAB boundary is not moving or, if it is, that it is moving so little that these institutions are barely affected. AABs almost all go straight into HE in England, so there is no reserve pool of people with AAB at A-level who have not already been to university. As you move down the grades, the group of people who delay going to HE, or have never been at all, gets larger and larger so the risk of uncontrolled recruitment gets larger and larger. In the current climate I can’t see dramatic moves here.

Secondly the private sector is currently uncontrolled. The SLC-supported numbers in 10/11 were only about 5,400. In 12/13 HEFCE are removing a further 5,000 from the public sector to reduce the risk of over-recruitment and I have assumed continued growth at a fair clip in the private sector so that by 2015/16 the numbers are four times as high as they were in 10/11.

Thirdly the margin continues to grow at the 20,000 a year projected by David Willetts. This represents an ever-growing share of the ever-shrinking core. In Strategy 1 I assume that successful margin bids in one year are rolled into the core in the next. That might not happen, of course. In which case by 2015/16 our nominal institution will be bidding for 2,000 margin places under Strategy 1.

Finally, for ease, I am assuming that there is no drop-out, and fee revenue is therefore based on three year’s worth of student cohorts.

What you will see is that both strategies produce roughly equal revenue until 2013/14. This means that in the near term, the high-fee strategy is clearly superior because it is lower risk: the low-fee strategy relies on HEFCE awarding those margin numbers and the institution filling them. From the 2014/15 year a gap begins to open up between the high-fee and low-fee strategies. But look at what is happening to the margin numbers in Strategy 1: to maintain its position our notional institution is having to win an increasing proportion of the margin numbers. By definition, not all institutions can do that. In fact we can expect competition for the margin places to get stronger, not weaker over time as the steady rise of the private sector sucks numbers out of the public realm.

Our notional institution only has a few AABs. If we were looking at an institution with more, then the difference between these two strategies would very much depend on success in recruiting AABs. The risk is that a low-fee strategy would actively deter the AABs (on the assumption that the fee helps to communicate prestige). I haven’t modelled this kind of institution because it still seems to me a little too speculative.

It follows from this analysis that institutions which have chosen the high-fee route will be happy to stay high-fee for at least the next couple of years. There is no reason to think there will need to be a rush for the lifeboats. However they don’t currently have a viable long-term strategy unless they are (or can get themselves) in position to compete above the AAB boundary. Unfortunately, institutions which have gone the low-fee route don’t really have a viable long-term strategy either. At the moment they cannot compete with the private sector because they are capped and the private sector isn’t. If that situation is resolved by new legislation, they will have to outcompete the private sector both in bidding (to get the margin places allocated) and delivery (to fill them). This will be challenging, although some of us hope to manage it.

If you don’t currently work in one, you might take the view that the country would be no worse off if institutions below the AAB-level shrank quite a bit and the private sector grew in proportion. Although, from the Government’s perspective, such a dramatic reshaping of the sector would not be a good thing. To lose one university would be a misfortune; to lose almost all of them would look like carelessness. I have previously called this scenario a slow-motion apocalypse because BIS can expect 2-3 years of relative stability before the consequences of the new arrangements really start to bite. Time enough to take things slowly, but they will need to act soon to ensure that the majority of universities in the country have viable future strategies in place.

This may not require massive change from what is already planned. Bringing the private sector within the number control system, and allowing modest growth to resume as and when government finances allow, would probably be enough. Universities have been faced with a very difficult choice; to choose the high-fee or low-fee route without any clear knowledge of the consequences and much uncertainty about the final regulatory framework. So the sensible strategy for now must be to ‘wait and see’.