Steep tuition fees are not deterring most students. But the attempt to create a market in higher education is off track

ASKING students to pay more for their education was supposed to encourage competition among universities, not just lighten the load on taxpayers. That was the idea in December 2010, when Parliament voted to let English universities charge tuition fees of up to £9,000 ($14,400) from this September, almost treble the existing limit. But demand for higher education is so great, and the fee increase so ringed with restrictions, that universities are not competing for students and responding to market demand. Instead, students are competing for places.

At first glance, statistics seem to tell a different story. The number of British people who applied for a full-time university course fell by 8.7% this year, according to figures published by the Universities and Colleges Admissions Service on January 30th. But the decrease was mainly among older folk, who may have been unwilling to quit hard-won jobs. And fewer people are leaving school in 2012. Adjusting for that decline, applications by school leavers were only 1% lower than last year, when a bumper crop dashed off to university to avoid the fee increase. High youth unemployment has encouraged many to seek shelter in higher education, taking applications to their third-highest level ever.

There are a few signs that higher fees have encouraged marginal decision-making, even if they haven’t stopped young people applying altogether. Arts and social-science subjects have attracted fewer applicants than last year. The lack of jobs has concentrated students’ minds on employment prospects, according to Ross Renton, dean of students at the University of Hertfordshire. But they seem unfazed by the expense itself. “The first question is never ‘How much?’ Students want to know what the course is like and what facilities we have,” he says.

In the past students have also proven surprisingly calm about rising prices. Just before tuition fees of £1,000 were introduced in 1998, many people cancelled gap years to avoid paying. The number of applicants fell slightly when the fees kicked in, but then recovered strongly. The same thing happened when fees trebled in 2006. The enduring popularity of higher education is such that demand now significantly outstrips supply, and the chances of applicants gaining a university place has been falling for years (see chart).

Alas for ambitious school leavers, universities cannot expand to accommodate them. That fact, as well as the cap on tuition fees, albeit at a higher level, has stymied the development of a higher-education market. Because the Treasury must lend students the funds to pay their fees and because not all graduates clear their debts, the state limits not only how much universities charge but also how many students they can admit. During the boom years, adding places was affordable. Now it is not. A temporary expansion of places in England announced in 2010 is about to end. In Scotland, Wales and Northern Ireland, where devolved administrations keep fees down for local and EU students, expansion is equally unaffordable.

Moreover, reforms intended to make universities more responsive to student demand look increasingly bizarre. English institutions recruiting students who gain good grades at A-level will be allowed to take as many as they wish. But historically most high-fliers go to Oxford, Cambridge and a handful of other elite universities which prefer to retain their exclusivity and their present size. So David Willetts, the universities minister, will also let some institutions that charge £7,500 or less expand at the expense of others. The outcome will be determined not by student demand but by a committee comprised of dons and administrators.

Libby Hackett of Universities Alliance, which represents many middle-ranking universities, decries the opportunities lost. “At a time when our global competitors are increasing the number of graduates in the workforce to increase their capacity for economic growth, how can Britain justify a reduction in university places?” she asks.

She is not alone. Matt Grist of Demos, a think-tank, argues that anyone who wants to study and is qualified should be allowed into higher education. Too little capacity hampers social mobility more than high tuition fees. Mr Grist reckons the government should increase the interest on student loans and make the debt harder to forgive in order to finance more places.

Britain could benefit if it did. Graduates not only contribute more to the economy than less-qualified people but also pay more tax, enjoy better health and are more politically active. Poor youngsters would have a better shot at university in future, and the coalition’s school reforms may swell the numbers of those qualified to get in. Future taxpayers might be thankful too: the Treasury is set to lose 30-40% of the money lent under the current arrangements. Perhaps Mr Willetts should tinker some more with the ivory towers.