Incentivise predatory universities with a proportional grade-linked fee structure

 
Paul Ormerod
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The A-levelresults have come and gone yet again. Underneath all the hype and excitement, we can see the reliable old friend of economists at work.

Namely, the impact of incentives.

Michael Gove, in his previous Cabinet incarnation as education secretary, decided to restore the meaning of grades in A-level and GCSE exams. Until the middle of this decade, the average exam grade had risen every single year for over 20 years. A rise which was wholly implausible to anyone outside the state education sector.

The course content and the exams were to become harder. This was the first year in which the full effect of the Gove reforms were to be seen.

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But he did not appreciate the strength of the incentives facing educational professionals to produce high exam grades. Good grades make everyone involved look good, not just the students. The incentives to generate them had not been altered.

The exam regulator, Ofqual, adopted the simple expedient of lowering the threshold marks required to meet grade criteria. The work may have become harder, but you could get the same grade as before with a lower mark.

When the government increased tuition fees, now at £9,250 a year, they believed that different levels of universities would set different rates. The weaker ones would have lower ones, reflecting the cost of delivering their courses and degrees.

But price – the tuition fee – was not determined by cost in this textbook way. Instead, it had a signalling function. Who was going to announce to the world that you had cheap, low value courses by setting price at anything other than the maximum permitted? No-one.

Most summers, the fields of Southern England are filled with the lurid yellow of rape seed. A few years ago, the subsidy on linseed was higher, and the altogether more agreeable lavender flowers of that plant proliferated. From a subsidy perspective, all students are currently the same, just like a crop.

Each student you can corral through your doors carries a fixed amount of money for the university, whether paid for through a loan or by the bank of grandma and grandad. So universities are ruthlessly predatory. Some will accept students with absolutely minimal qualifications, who should never be there in the first place.

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Perhaps one solution is to set the tuition fee in proportion to the grades a student obtains. Those who do well have a high price on their head. In return, they can go to the best places, where the premium on earnings of graduates still exists.

But weaker students would carry a lower price. Low grade universities would have to adapt to this new set of incentives.

They could provide courses to match the price. Or they could still charge £9,250 and students would have to top up their loans in the open market, should anyone be willing to lend for, say, sociology at Liverpool Edge Hill. Either way, this would indicate very clearly to students the potential value of the course and the university.

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