International or Bust? The inadvertent consequences of the Government cap on UG fees

Our Government has an unfortunate habit of making decisions that have inadvertent and often damaging consequences. Back in 2012, when it introduced a £9,000 cap on UG student loans, it never expected the entire sector to price to the max. Only 25% of recent students are now expected to pay off their loans in full and consequently the student loan book deficit is expected to hit £500 billion by 2042. Student loans have become grants by another name.

Instead of addressing this issue head on, the Government has chosen to reduce its exposure by stealth. By refusing to increase the cap (apart from the extra £250 in 2017) they have allowed the real value of each student loan to diminish to around £6,500 in 2012 money. And refused to review the cap before 24/25. 

With the fee diminishing in real terms every year, most universities responded by increasing their undergraduate intake. Which was fine until they eventually were forced to acknowledge that there is an inverse relationship between ever-increasing student volumes and NSS scores. You can’t put a quart in a pint pot, as my mother used to say.

Time for a new get out of jail card. High margin international students.

We learn from UCAS that many Russell Group universities are now focusing on increasing their revenue per student in the only way they can. By dramatically increasing the recruitment of unregulated fee international students, helped in part by 21/22 being the first year EU students are required to pay full overseas fees.

University	2021/22 International tuition income	Increase over previous year	% Increase over previous year	International as % of total tuition & educational grant income
UCL	£512m	£72m	16%	64%
Imperial	£238m	£44m	19%	56%
LSE	£153m	£143m	7%	55%
Warwick	£235m	£41m	21%	55%
Manchester	£356m	£51m	17%	55%
Southampton	£170m	£86m	99%	52%
Bristol	£168m	£29m	21%	43%
Exeter	£114m	£28m	33%	35%

Sources: University Annual Reports & Accounts 2021/22

The income from overseas students paying high unregulated fees is being used to subsidise loss-making UK students and UK academic research. Is this what the Government intended when it decided to kick tuition fee increases into the long grass? I hope for their sake at least that President Xi doesn’t decide to invade Taiwan too soon, because if he does, it won’t just be the global semi-conductor industry that goes into financial meltdown.

Universities outside the Russell Group (and lower down the QS Ranking) are not in so strong a position to attract international students. East Anglia has announced plans to make staff redundant and cut budgets due to falling (mostly international) student numbers and the UK tuition fee freeze. 

Lower-ranked institutions who depend on more local students, such as Sunderland, Wolverhampton, Roehampton, De Montfort and Sheffield Hallam are dropping low-recruiting arts and humanities courses and focusing on those with strong vocational appeal. Going back to their roots is the only strategy that will save them from going bust.   

But it’s not a strategy that will work with mid-ranking institutions. Right now, they’re caught between a rock and a hard place. Between the international prestige of Russell Group members and the vocational strengths of the former polytechnics. As always, being in the middle is the last place you want to be.

And with at least another two years until either the fee cap increases or the fee regime is restructured entirely (unlikely with a General Election approaching) many universities will have to work out new ways to deal with the financial pressures they face. 

Either by trying to follow Russell Group members in increasing international recruitment. Or by culling poor recruiting programmes and staff. Or by terminating some of the more hubristic adventures they launched in sunnier times. Or most likely, a combination of all three.

The one thing we can be sure of is that Government will not allow them to go bust. But then neither will Government ever accept responsibility for having driven them down the road to financial perdition in the first place.