There’s increasing concern that there is a higher education bubble.
Is there a higher education bubble in the UK?
This is an easy question, with an easy answer: No. There is no higher education bubble in the UK.
(Whether there is one in the US is a very different and much harder question, to which I may return later.)
(photo (CC) by D Sharon Pruitt)
The costs of UK higher education are tightly constrained and have been for a long, long time.
At the moment, fees for UK higher education are capped at below the cost of delivery, and have been for years. Browne reckoned about £7,000 pa was required; HEFCE reckoned £7,300; the current funding regime delivers less than that.
Even when the new fees regime comes in, there is still a cap of £6,000, or £9,000 in what are increasingly risibly called “exceptional circumstances”. David Willets (and the Treasury) initially hoped the average would be £7,500, but he has since revised that up towards £8,000. Universities have all made their initial pitch for fees and access agreements to OFFA, the Office for Fair Access, and the headline is that every single one wants to charge at least £6,000, and that lots want to charge £9,000. Some people are thinking this means that the average will be £9,000, which can’t possibly be the case unless every single university charges the maximum for every single course. “The Guardian’s figures show the average fee of those that have made their plans public currently stands at £8,629.73.” Which is still a lot more than Willets was hoping. But I strongly suspect that this is ignoring the effect of financial assistance packages (bursaries, discounts, etc) – Exclusive College may well be charging £9,000 across the board, but if it waives fees entirely for one sixth of its students as part of its access agreement with OFFA, its average will come out at a Treasury-pleasing £7,500. It’s worth noting that about a quarter of OU students get financial assistance (from the OU) with their fees under the current funding regime. The full public data on fees is available from the Guardian for exploration, although I don’t think it yet gives you the actual picture. As with all of this story, the details matter crucially, and are not yet available.
For reasons I won’t go in to here but might if I get on to the US, I don’t think that fees alone are the determinant of whether there’s a bubble in HE, but given flattish student numbers and tightly constrained fees, there can’t be a bubble.
So how come?
Well, there have been spectacular efficiency gains in UK higher education over the last 30 years or so. The student-staff ratio has changed from 9 to 1 in the mid-70s to over 20 to 1 in the mid-2000s (AUT figures), a massive productivity boost in quantitative terms. Of course, one might very reasonably argue that the nature of HE teaching has changed qualitatively over that period too, partly as a direct result. The university system changed, as we all know, from an elite, exclusive system to a mass system. There was a huge expansion in numbers, but there was not a proportionately huge expansion of costs.
Is there an unsustainable expansion of HE in the UK? No. Or at least, not recently.
According to the OECD via the Guardian, in 2000, 37% of young people in the UK got a degree; by 2008 that had fallen slightly to 35%. Other OECD countries were dramatically increasing HE participation rates over the period: in 2000, the OECD average was 28%, and the UK was third; in 2008, the OECD average was 38%, and the UK was fifteenth placed in the OECD rankings.
Education can be of huge intrinsic and unquantifiable value. But talk of a bubble is all about the finances, so is UK Higher Education worth it as an investment, in pure financial terms?
For individual students, this question is one of the graduate premium – how much more graduates earn than non-graduates, over a lifetime. This is very hard to accurately estimate, and is hotly contested. The figure of “over £100,000” as a lifetime graduate premium has done the rounds for years; most estimates turn up north of that but not by huge amounts. Even those tricky estimates are on historical data. Whether this remains the case in the future, with profound economic and social change, and the new fees regime, is a very different question, but I suspect it will persist in the UK for individuals for some time.
What about more generally?
There’s an OECD figure of nearly $120,000 (£77,500) for the extra tax revenues per graduate doing the rounds, but as mentioned above, the UK is not typical of an OECD country for HE, so that may be misleading.
HEFCE have made a widely-publicised claim that in 2009-10, universities and colleges generated “£59 billion in economic activity with a return of £3 for every £1 of public investment“. Which sounds great, although I note in passing that (a) they have an incentive to talk this up, and (b) I haven’t seen (i.e. looked properly for) the basis of the calculation – including the time period of the investment return. Turning £1 in to £3 sounds fantastic, but thanks to compound interest it doesn’t look like such a spectacular investment if the return happens over many years. A 5% annual return sounds fairly modest, but your £1 will magically grow to more than £3 after 23 years. A working lifetime might be 40 years, and a 5% annual return over that period gives you more than £7; to generate £3 over 40 years you only need a rate of 2.8%.
So the figures are not hugely robust, but so far as I can make out, they all point unequivocally in the direction of UK HE being a very good investment in pure financial terms. In wider, social terms, I think it does even better, although there is much scope for improvement. Notably, the mass expansion from 1975 to 2000 did not include a coresponding expansion of the working class participation rate in HE.
But the numbers are fairly clear evidence against there being a bubble in UK higher education.
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I take it you’ve seen this? http://www.economist.com/node/21256274
Yes, thanks – the fallout from Peter Thiel, including that very article, is part of my half-written post on whether or not there’s a bubble in the US.
I wonder if the analysis of “lifetime earnings” would differ if we varied the proportion of graduates. There will be bias introduced by the older professionals who while seeming to offer a more reliable sample (you have a better view of their lifetime’s earnings) in fact come from a time where only 5% or 10% of the population had a degree. You tend to compete in the job market against people approximately your own age for professional jobs. The Price-Waterhouse Cooper study says it accounts for this but does not say how.
My feeling is that if University attendance approaches 50% (and I would hope that it would as I believe in widening participation) you’re going to end up claiming a Lake Wobegone scenario where “all the children are above average”. To claim that a graduate earns more than average is to claim that most people do (I’m aware if we take mean not median then most people can earn more than average although in fact wage distributions tend to the opposite).
If you’re doing the analysis right, you really shouldn’t be comparing graduates to the average: you should be comparing them to non-graduates. (I think some of the smackdowns around the figures for the graduate premium have centred precisely on this point.)
“The Price-Waterhouse Cooper study says it accounts for this but does not say how.”
You get a lot of that in this area, alas. Pretty much all the major stuff around this would not pass editor screen, never mind peer review.
“if we take mean not median then most people can earn more than average although in fact wage distributions tend to the opposite”
Indeed – and increasingly so.
One factor that’s very infrequently addressed (but more often mentioned) is the problem of signalling/selection. It is almost certainly the case that really capable people are over-represented among people who get degrees, and these people are likely to have done well for themselves even if they hadn’t gone to university. What you really want to compare is what people who did a degree would have earned had they not done a degree, and what people who didn’t get a degree would have had they done so.
Which actually are only proxy measures for what you really really want to measure, which is the difference between what people who may or may not do a degree now will earn if they do and if they don’t.
I think I’ve come over all Bernard from Yes, Minister here, sorry.
There must be a better way of measuring HE efficiency than student-teacher ratio or bums on seats. These figures and calculations are always plucked out of the air like a conjuring trick.
The only valid measure should evaluate quality not quantity – I know this would be criticised for being subjective – and the starting point for this is the National Student Survey. The NSS is nowhere near perfect yet, but at least it starts from the premise that quality (like beauty) is best judged by the student (the ‘beholder’)!
We have to focus on outcomes here, not inputs, I think.