DfE warned regulation of universities ‘raises spectre of mis-selling’

NAO report calls on the government to ensure regulatory reforms can improve student perceptions of value for money


Photo: Francisco Orsio via Flickr

By Richard Johnstone

08 Dec 2017

Auditors have called on the Department for Education to develop “a more comprehensive approach to the oversight of the higher education market” after concluding that if the sector was a regulated financial market it would face accusations of mis-selling.

In a report looking at the development of the higher education market since the government increased tuition fees to £9,000 in 2012, the National Audit Office concluded only 32% of higher education students considered their course value for money, while hopes higher fees would increase competition between providers to drive improvements on price and quality have not been realised.


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Although the government has increasingly delivered higher education using market mechanisms, in particular relying more on student choice and provider competition to improve quality, today’s Higher Education Market report said there is “no meaningful price competition” while incentives for providers to compete for students based on course quality are judged to be weak. In 2016, 87 of the top 90 English universities charged the maximum permissible fee of £9,000 a year for all courses.

As a result, auditors said the DfE needed “a more comprehensive approach to the oversight of the higher education market”, where up-front public funding for higher education students in England is over £9bn a year, up from £6bn in 2007/08. Most of this is in the form of loans to cover the cost of tuition fees and average student debt, for a three-year course, on graduation is £50,000.

The report called on the department to use forthcoming regulatory changes, including the introduction of the Office for Students, to improve student perception of value for money, and warned that prospective students are in a potentially vulnerable position when deciding whether to enter higher education and take on a student loan.

Although graduates earn an estimated 42% more than non-graduates on average, earnings for some providers and subjects are lower than for non-graduates, which auditors said underlined the importance of making an informed choice.

Despite this, higher education has a more limited level of consumer protection than other complex products such as financial services, with no system comparable to the Financial Conduct Authority requirement that financial services firms disclose clearly the risks of such products to potential customers, who may be vulnerable to making poor choices, to minimise the risk of mis-selling.

The DfE has improved information available to help prospective students choose their course and provider, but only one in five use it and additional support does not adequately reach those who need it most.

Auditor general Amyas Morse said the government was “deliberately thinking of higher education as a market, and as a market, it has a number of points of failure”.

He added: “Young people are taking out substantial loans to pay for courses without much effective help and advice, and the institutions concerned are under very little competitive pressure to provide best value.

“If this was a regulated financial market we would be raising the question of mis-selling. The department is taking action to address some of these issues, but there is a lot that remains to be done.”

The creation of the Office for Students is intended to improve student cost and outcomes, and with a regulatory focus on increased choice and diversity.

According to the NAO, the OfS must look to learn from other regulators in making the most effective use of its new powers, and undertake a review of the effectiveness of competition in the sector, as well as considering how to empower students to make informed decisions. The department must work with the OfS to monitor the sector and identify criteria to determine when and whether it needs to intervene in the market, particularly where providers are failing. It should also commission an independent review of the new regulatory arrangements to ensure the changes are effective.

A DfE statement said there were plans to conduct “a major review of funding” for universities.

“Our reforms, embodied by the Higher Education and Research Act, are helping students make more informed choices about where and what to study, ensuring they good value for money," it added.

 

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