Higher education decisions in the UK & the 2004 Higher Education Act.

This presentation reflects the view of the authors and not BIS or UCAS.This material cannot be quote without prior written approval of UCASArnaud Chevalier (Royal Holloway)

Gauthier Lanot (Keele University)

Motivations- Increased in the number of students, public finance

difficulties and internationalisation have stretched the model of public finance to higher education.

- Move to private contribution started with 1997 Dearing’s recommendations.

"We therefore recommend that students enter into an obligation to make contributions to the cost of their education once they are in work.“

The 1998 Teaching and Higher Education Act is passed into law - setting an annual tuition fee for England of £1,000, with the expectation that means testing would mean a third of students would not pay anything.

Up front fees: restrict access for poorer students, very limited support to students during their studies, income to university is still limited.

2004 Higher education act aims to correct these features by moving to income contingent loans - Increase tuition fees – no longer means

tested, - deferred payment - Income contingent reimbursements - funding for maintenance for all students - Institutions benefit from increased

funding per students 2010 Browne’s review furthers these points and

recommends further increase in the students’ contribution but what could be the effect of raising tuition fees on the demand for HE?

This paper investigates the impact of the 2004 Higher Education act on the demand for HE

We use differences in the implementation between regions to identify the effect of the reform

Policy was announced two years in advance Some students who would have deferred entry until

2006-7 may not have done so, in order to avoid higher fees

Potential for overstating ‘true’ impact of new policy regime

Importance of UCAS data: Since the supply of HE is fixed, it is important to look at

the demand (Applications) rather than the equilibrium (nbr of graduates)

Summary of conclusions 2pp drop in the applicants ratio (applicants/pop 18-20) 4pp reduction in accepted offers, conditional on having

applied

Students are more likely to expect to live at home (6pp) No difference in subjects applied to No difference in the offers made by institutions No difference by social background (in the short run)

Welsh students more likely to accept places in Wales (+10pp)

Higher Education Act of 2004 - England

The reforms is multifaced and we cannot identify separately the tuition fees effect

Pre - 2005 Post 2006 Fees £1200 up front £3,000 deferred Reductions? Means tested None Loan Mortgage type Income contingent Interest free

Reimbursed 9% above £15000

No grant Grants up to £2,700 + bursaries

Regional dimension

Due to devolution of power to the regions, higher education policies differ, this will be the source of our identification

Northern IrelandSame as in England

Scotland No fees for Scottish students studying in Scotland; No

change over the period (2002-2007) Wales

Welsh residents studying in Wales are entitled to a tuition fee grant, effectively capping their fees at around £1,285 a year. For non Welsh resident, same as England

Trends in applicant ratio (population 18/20by gender and LEA)

Still a large increase in the ratio in 2005 and a drop in 2006

We test pre-reform trends: no difference between England, Wales and Scotland, but significantly different for Northern Ireland. (important to note for difference in difference)6.00

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2002 2003 2004 2005 2006 2007

England N.Ireland Scotland Wales Using aggregate data from 2000 to 2004, we estimate the following equation:

2 1 2 21 2ct c c c c c c ct

c c c

R C t t C t C t

Applicants ratio – LEA dataConcerns: Scotland’s educational system, culture and demography differs but as long as those cross country differences do not change over the period of study, they are eliminated. 1- We implement a Difference in Difference with Scotland as the control group. 2- We introduce lag terms of the dependent variable and estimate a dynamic panel (Difference GMM)

05 05 06 06

* * *

(1)

amt o ci i m i ii i

a amta

y Post C Post M t C M

Y Y A

1 1 2 2

05 05 06 06* * * amt o amt amt

ci i m i i a amti i a

y y y Post

C Post M t C M Y Y A

Table 1: Difference in Difference estimates of the 2004 Higher Education Act on applicant and Acceptance ratios - LEA level data Applicant ratio Acceptance ratio

(1) Fixed effect,

gender/country specific trend

(2) Difference

GMM 2-lag

(1) Fixed effect,

gender/country specific trend

(2) Difference

GMM 2-lag

Post2006 0.031 0.002 0.010 0.001 [0.020] [0.004] [0.017] [0.003] England post 06 -0.046 -0.023 -0.032 -0.017 [0.021] [0.005] [0.018] [0.004] Wales post 06 -0.054 -0.007 -0.030 -0.008 [0.030] [0.006] [0.028] [0.005] N. Ireland post 06 -0.086 -0.018 -0.056 -0.027 [0.033] [0.007] [0.035] [0.006] 1st lag dependent 0.552 0.464 [0.123] [0.149] 2nd lag dependent 0.186 0.222 [0.057] [0.063] Nbr obs. 2256 1128 2256 1128 Nb groups 376 376 376 376 Nbr of instrument 29 29 Test AR(2) in urt P=0.425 P=0.736 R2 0.937 0.939

Static Model 4to 5pp drop in

application ratio in England and Wales (not significant)

Smaller drop in acceptance ratio

This model assumes no effect of year t demand on the demand at year t+1. The data in fact rejects this assumption.

Dynamic Model 2pp drop in England No significant effect in

Wales

First Conclusions Comparing the trends in number of applicants

in LEAs between the countries: Reforms has not had a negative effect on number

of applicants But this is misleading as underlying populations

changed over time Static diff in Diff

Drop in application ratio by 5pp Dynamic difference in differences:

Drop in application and acceptance by 2pp in England.

No effect in Wales Note those are short-term effects since the data

only covers the first 2 years of the policy change.

Individual level analysis

All results are conditional on having applied, so the outcomes of interest have to do with the application process rather than the decision to apply or not.

Change in prices of HE may have affected Geographical mobility (-) Quality (Ranking) of institutions/subjects applied

to (ambiguous)

Between country students mobilityhome

status 2002 2003 2004 2005 2006 2007

England Applied 0.85 0.87 0.88 0.88 0.87 0.88 Accept 0.86 0.87 0.88 0.89 0.90 0.90 Wales Applied 0.38 0.38 0.39 0.41 0.47 0.48 Accept 0.53 0.52 0.53 0.55 0.62 0.64 Scotland Applied 0.90 0.90 0.91 0.91 0.92 0.92 Accept 0.93 0.93 0.94 0.94 0.94 0.94 nbr Applied 1,498,017 1,486,738 1,487,512 1,606,257 1,529,310 1,620,945 nbr Accept 256,210 247,868 249,517 268,763 249,809 263,643

Low level of cross country mobility in England and Scotland. Welsh applicants became more likely to apply and accept offers in Wales

when Welsh grant is introduced (£1,800 if studying in Wales)

Individual level analysis - ApplicationOutcome Post 2006 England Wales

Nbr application 0.065 -0.080 -0.039 [0.050] [0.050] [0.065] Nbr Institutions 0.134 -0.167 -0.236 Applied [0.039] [0.042] [0.062] Quintile of best -0.059 0.099 0.186 department [0.014] [0.016] [0.020] Applied to institution -0.030 -0.004 0.088 closeby1

[0.007] [0.009] [0.018] Nbr of offers -0.002 0.002 -0.001 received [0.009] [0.009] [0.014] Accept 0.053 -0.040 -0.042 [0.009] [0.010] [0.015]

4pp drop in probability of accepting an offer compare to the trend in Scotland despite no change in number of offers received. Note Welsh applicants are 9% more likely to apply in Wales

Individual level analysis – Accepted offeroutcome Post 2006 England Wales

overall rank 0.259 -1.755 3.062 [0.935] [0.969] [1.209] Quintile -0.006 -0.034 0.054 [0.022] [0.022] [0.028] Same country -0.016 0.009 0.106 [0.006] [0.007] [0.016] Distance <30 km -0.041 0.013 0.085 [0.010] [0.011] [0.020] Lives at home -0.105 0.056 0.088 [0.017] [0.018] [0.023]

Reduction in costs – students more likely to live at home (reduced choice) Welsh students trade off lower fees for slightly reduced ranking (probably not economically significant).

Conclusions The introduction of Higher education act 2004

At regional level, drop of 2pp (England) in application ratio in the short-run, no long-run effects.

At individual level, drop in 4 pp in probability of taking up an offer

No impact of the reform on reducing social gap in the short-run

Inference on the impact of tuition fees is limited since the reform affected tuition, loans and grants.

But Wales evidence suggest that students are sensitive to price. In Wales a £1,800 additional grant lead to a 10pp increase in accepted offers – but this is only a displacement effect

Population trends

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England Wales Scotland Ni