Universities bank on foreign currency

by Professor Gill Wyness and Professor Lindsey Macmillan

This weekend, we woke up to the news that reporters from the Sunday Times had discovered that some of the UK’s top universities are allowing international students into degree programmes with lower grades than UK students.

While at first glance, this sounds grossly unfair and very much against CEPEO’s mantra of equalising opportunities, others have pointed out that this isn’t ‘news’: these are ‘foundation year’ programmes that are designed to help students with lower grades get access degrees by taking a year-long course to prepare them for entry.

While the details around this are still a little murky (why does the international agent in the Sunday Times video promise guaranteed entry to second year? And why do these programmes appear to have 100% conversion rates onto degree programmes?), it has brought the perilous state of UK university finances to the forefront.

At the heart of this issue is the UK universities’ reliance on tuition fees from international students to balance the books.

The majority of universities’ teaching resources come from tuition fees, though they also receive some teaching grant from the government. However, the tuition fee cap has been frozen (apart from a small increase of £250) since 2012. This means that in real terms, it has been cut by around a fifth over the last ten years. Recent IFS analysis showed that per-student resources for teaching home students have declined by 16% since 2012.

Against this backdrop, international students are very attractive to universities. Their fees are unregulated, and universities typically set them at much higher levels than those for domestic students, meaning they provide huge amounts of much-needed income, particularly in tough times.

Crowding out or crowding in?

While it has long been the case that universities have used money from international students to subsidise UK students, it is reasonable to be concerned that increasing reliance on international students may result in ‘crowding out’, where talented UK students are denied a place on a course because that place has gone to a more lucrative, foreign student. But there is little evidence of this.

Research by CEPEO affiliate Richard Murphy, alongside Steve Machin, studied this question for the UK system between 1994-2011, a time of rapid internationalisation of the UK HE sector. Their study found no evidence that UK undergraduates were crowded out by international students. They also found evidence that postgraduates (whose numbers – like undergraduates under today’s system – are unrestricted) were ‘crowded in’ by foreign students. In other words, their work showed that foreign students provide much needed subsidies to the UK sector, and that without them, even fewer places would be available to UK students.

The evidence from this year also shows little evidence of crowding out; an interrogation of UCAS data from 2023 reveals that of students (under age 21) applying to all UK universities, 354,450 were from England, 28,010 were from Scotland, 15,560 were from Wales, and 14,650 from Northern Ireland. This compares to 82,760 from non-EU countries, and a further 18,810 from the EU. Thus, students from abroad make up about one fifth of total numbers.

This proportion has remained constant since 2018 – while the share of non-EU students has risen from 11% to 16% over the period, the share of EU students has fallen from 8% to 4%.  Thus, it seems that UK universities are simply replacing EU students (who, as a result of Brexit, have faced higher fees from 2021 and are no longer eligible for fee loans) with non-EU students.

Out of options?

While these numbers may provide some reassurance on the issue of UK students being frozen out of the sector, there is no doubt that more funding for domestic students is urgently needed – particularly given demand from UK students is likely to increase even further in the next few years due to increasing participation and the population surge currently working its way through the secondary education system.

Figure 1: Pupil numbers in education

 

Source: Figure 3.1b) from IFS Annual report on education spending

However, this is politically and economically very tricky. Raising the tuition fee cap would be deeply unpopular with the electorate, given the cost-of-living crisis. A recent report by Public First found that a sizeable portion of the population still support the idea of fee abolition, although this declines when the economics of paying for this are explained in more detail. But the vast majority of respondents were opposed to the idea of increasing tuition fees.

Figure 2: Polling on support for changes to tuition fees

Source: Public First report on Public Attitudes to tuition fees

The alternative – injecting cash into the sector through raising the government teaching grant – would be extremely expensive, so is also unlikely to fly at a time of significant fiscal constraints.

In short, there are very few options available to the government, meaning reliance on overseas students is set to continue for the foreseeable future.