High demand for places means universities are not under any competitive pressure to keep their student fees down
Of the universities that have shown their hand, two-thirds have gone for the highest possible tuition fee.
The reason for this appears to be simple enough – there is no competitive pressure on universities. Demand outstrips supply – last year one in three candidates failed to win a place while applications for entry this autumn have hit another record high.
Because numbers are controlled by the government, institutions are unable to expand to attract candidates deterred by high fees elsewhere, so there is little incentive to charge lower rates.
The result is not just a political embarrassment for ministers but a financial headache. Average fees now look much higher than their predicted £7,500, meaning the proportion of student loans that graduates will never pay back is higher than they bargained for. Graduates start to repay the loan when they earn above £21,000 but only higher earners will repay the full amount.
Analysis by the consultancy London Economics suggests that the additional cost to the exchequer of an average £8,000 fee is £181.2m in 2010 prices. At £8,500 it is £360m. Dr Gavan Conlon, a partner at the company, said: "If you're going to introduce a market-based system, there's got to be some threat of competition, [otherwise] you're allowing institutions to raise fees without losing students. [If] student numbers are fixed, institutions down the road can't take these students. Moving from £8,000 to £8,500, the government is going to lose about 69% of that additional loan, a huge cost as fees go up and up and up."
The Office for Fair Access, a government watchdog, has to approve universities' bids to charge fees above £6,000. Its regulatory powers are based on widening access. However, many newer universities already do well on attracting students from poorer backgrounds.
Ministers are considering a "selective relaxation" of controls on numbers. This could mean that more competitive or more popular institutions would be allowed to expand. They are also likely to cut numbers at universities which take a bet on charging higher fees only to find that students stay away.
But there is little expectation that students will be deterred by cost. Conlon said: "[Universities] are still very unresponsive to change in price. If you had a Ford Focus and it is £10,000, and all of a sudden they said it's £25,000, and every other car doubled or trebled in price, people just wouldn't buy cars. It's different with universities – it's an investment; if you buy a car it depreciates."
Conlon predicts that the University of Central Lancashire, which announced a £9,000 fee on Tuesday, may lose up to 20% of students. Some of these will drop out of higher education altogether.
But while the Treasury loses out from higher fees, and some students are put off, the government's reforms may well leave universities better off.
Conlon said: "The advantage for UCLan is that they're getting three times the revenue for the students they're getting, about 80% of students [as at present]. Their total revenue is probably going to go up – it will more than compensate for the loss of [government]teaching funds."