There are fresh problems for a coalition that has already been badly strained by the fees issue
If you have ever witnessed customers walking into a store and instinctively reaching for the most expensive goods, then you can grasp what is going awry in university finance. Under the new fee rules, institutions set a charge up to a cap of £9,000, and the theory is that the magic of competition will ensure value for money. And so it might, if prospective students were as concerned with penny-pinching as homo economicus. But universities fear many of them will turn up their noses at cut-price courses, and are rushing to levy the full whack. Colleges do not have to show their hands to the regulator until 19 April, but thus far only a handful have signalled they will buck the trend and saddle their students with smaller debts.
The moment customers stop shopping for bargains, and instead start inferring quality from price, the market melts down. Instead of going to the wall as they should, services that are both pricey and poor become profitable. In the end, students may become savvier, particularly if, as universities minister David Willetts hopes, new institutions set up and offer better value. In the meantime, the situation poses fresh problems for a coalition that has already been badly strained by the fees issue.
Ministers took the flak for raising the cap, because they believed there was no other way to sustain British scholarship. You might have thought club class fees would now be a problem for students, not Whitehall. But the Treasury has to stump up extra loans to finance higher fees, and only sees the money again if and when graduates earn decent pay. If average fees exceed the predicted £7,500, there will be a hole in the books. New Commons library figures show the shortfall could exceed £1bn over the spending round if the average fee even approaches the £9,000 cap. Desperate to avoid cutting a research budget to which he is personally committed, or a teaching budget that has already been slashed, Mr Willetts has been urging restraint. His difficulty is that fresh pain will be dished out sector-wide, with little regard to an institution's own price, so individual universities have little reason to hold back.
For the Liberal Democrats, in particular, there is an irony here. With uniform if high headline fees, there is less of a risk of the rich and poor sorting themselves into rich and poor institutions. The obligation on high charging colleges to improve the social mix of their students will further ameliorate the divisiveness of pay-as-you-learn. A silver lining of sorts for a party committed to social mobility. But the potentially desirable consequences of ubiquitously high university fees will not lend themselves to easy campaigning for a party which had committed to cut fees to zero.