What does a degree actually cost – for students and for universities?

Many students say they feel COVID has diminished the value of their university experience. Complaints filed with the Office of the Independent Adjudicator in 2020 detail examples of how the pandemic has disrupted students’ learning. A recent report from the Higher Education Policy Institute finds students often say they regard universities to be relatively poor value for money.

Such sentiments were reported before COVID shut campuses down and sent students home. The UK government acknowledged, in the 2019 Augar review, that the university experience can, for some, lead to disappointment. But the pandemic appears to have made matters worse for many students and staff.

So, with students unlikey to be able to have fees funded, a question of value arises. And to answer that we need to know what it costs to deliver a degree course and what students and graduates actually pay for.

What a course costs

Academic staff expenditure represents between 29% and 32% of university budgets in England. My colleagues Norman Gowar and Michael Naef and I, in our book English Universities in Crisis, show that roughly the same percentage is spent on non-academic salaries (IT support, admissions, rising bureaucracy) and on facilities (libraries, lecture theatres).

If we view teaching as core to a student’s education, we can calculate this direct cost. A lecturer’s salary in the UK starts at about £40,000, and a professor’s at about £60,000. The number of students for each teaching position ranges between about ten at some universities to about 15 elsewhere. Taking a salary of £60,000 and adding roughly a third for National Insurance and pension costs, my calculations suggest 15 students could hire a professor to teach them for just over £5,000 a head.

This allows for the fact that a traditional lecturer on a research and teaching contract spends about 40% of their time on teaching, 40% on research and 20% on admin duties. Though many universities have somewhat controversially cut costs on academics by having some academics on teaching-focused contracts, where the lecturer teaches roughly 50% more than a traditional academic.

This raises the question of whether undergraduate student fees are effectively subsidising research, which is very difficult to answer. But students also benefit directly by being taught by active researchers. Simply put, would you rather be taught by the person who discovered the new theory, or someone who has only read about it?

The Office for Students (the independent regulator of higher education in England) classifies most subjects as low-cost, essentially involving only the lecturer and the lecture theatre. Some high-cost subjects, including clinical medical and veterinary courses, and, to a lesser extent, laboratory sciences, receive supplementary public funding. The government has proposed to cut by 50% this supplementary funding to some arts subjects, such as drama and music, although this only works out to about £120 per student.

What a student pays

In 2012, government reforms saw maximum tuition fees in England triple to £9,000. Despite the fact that this £9,000 was a cap and the government hoped that competition between universities would result in lowered fees, the cap became the standard charge. In addition, the government phased out student number controls that limited how many students each university could admit.

These reforms were designed to enable more young people to study by increasing university budgets without an immediate cost to the government. Key to this expansion is the loan-repayment scheme. Students do not need to pay anything up front. And they only start repaying once they’ve graduated and are earning above a certain amount.

The 2020-2021 threshold for student loan repayments is £27,295, with an interest rate of 5.6%, which is well above current market rates. After 30 years, any remaining balance is written off.

Consequently, any graduate with relatively low earnings pays off only a fraction of their debt and interest. The Augar report calculates that the 30% with the lowest lifetime earnings pay less than 10% of their original debt, while the top 30% pay more than they borrowed.

This means some students will pay more than the cost of their education, while others effectively receive a subsidy. In 2018, the Office of National Statistics determined that much (estimated by the government to be about 50%) of the student loan book would never be repaid and would have to be carried on the books as government expenditure.

Financial returns

The Institute for Fiscal Studies (IFS) has found that, after taking account of student-loan repayments, male graduates end up on average £130,000 better off over their lifetimes by going to university, and female graduates gain £100,000.

This differs, however, by type of university and by subject. For graduates from the large, research-intensive universities of the UK’s Russell Group and, in general, for graduates in medicine, dentistry, veterinary, economics, mathematics and engineering, earnings have been shown to be high.

Other students, meanwhile, gain no financial advantage. The IFS report found that around 20% of undergrads would have been better off financially without a degree.

If this is the case, why do differently ranked universities charge the same fees? As my colleagues and I have shown, this is in part because the courses are oversubscribed – enough students are willing to pay the maximum fees to get into university regardless of their ranking. What’s more, considerable expense has gone into raising student satisfaction, via marketing and non-academic facilities.

The pandemic, however, has changed things. For much of the lockdown period students were unable to access, or at least make the most of, new buildings fees have helped fund. The recent complaints suggest that some universities will now look for ways to improve the academic experience and make the value of a degree clearer should they seek to continue charging the same fees.

Jefferson Frank does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.