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 UCAS
Arnaud 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
Fees
Reductions?
Loan
Pre - 2005
£1200 up front
Means tested
Mortgage type
No grant

Post 2006
£3,000 deferred
None
Income contingent
Interest free
Reimbursed 9%
above £15000
Grants up to £2,700
+ bursaries
The reforms is multifaced and we cannot identify separately the
tuition fees effect
Regional dimension
Due to devolution of power to the regions, higher
education policies differ, this will be the source of
our identification
Northern Ireland
Same 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)
19.00

18.00
17.00
16.00
15.00

14.00
13.00
12.00
11.00
10.00
9.00
8.00
7.00
6.00
2002
2003
England
2004
N.Ireland
2005
2006
Scotland
2007
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)
Using aggregate data from
2000 to 2004, we estimate the
following equation:
Wales
Rct      cCc  1t   2t 2    c1Cct    c2Cct 2   ct
c
c
c
Applicants ratio – LEA data
Concerns: 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.
yamt   o   Post    ci Ci * Post   m M    it * Ci * M
i
i
 05Y05   06Y06   Aa   amt
(1)
a
2- We introduce lag terms of the dependent variable and estimate a dynamic
panel (Difference GMM)
yamt   o  1 yamt 1   2 yamt  2   Post 

i
ci
Ci * Post   m M    i t * Ci * M   05Y05   06Y06   Aa   amt
i
a
Table 1: Difference in Difference estimates of the 2004 Higher
Education Act on applicant and Acceptance ratios - LEA level data
Post2006
England
post 06
Wales post
06
N. Ireland
post 06
st
Applicant ratio
(1)
(2)
Fixed effect,
Difference
gender/country
GMM
specific trend
2-lag
0.031
0.002
[0.020]
[0.004]
-0.046
[0.021]
-0.023
[0.005]
-0.032
[0.018]
-0.017
[0.004]
-0.054
[0.030]
-0.007
[0.006]
-0.030
[0.028]
-0.008
[0.005]
-0.086
[0.033]
-0.018
[0.007]
-0.056
[0.035]
-0.027
[0.006]
1 lag
dependent
nd
2 lag
dependent
Nbr obs.
Nb groups
Nbr of
instrument
Test AR(2)
in urt
R
2
Acceptance ratio
(1)
(2)
Fixed effect,
Difference
gender/country
GMM
specific trend
2-lag
0.010
0.001
[0.017]
[0.003]
2256
376
0.937
0.552
[0.123]
0.464
[0.149]
0.186
[0.057]
0.222
[0.063]
1128
376
2256
376
29
P=0.425
P=0.736
Static Model



1128
376
29
0.939


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:



Static diff in Diff


Reforms has not had a negative effect on number
of applicants
But this is misleading as underlying populations
changed over time
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
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 mobility
home
status


2002
2003
2004
2005
2006
2007
England
Applied
Accept
0.85
0.86
0.87
0.87
0.88
0.88
0.88
0.89
0.87
0.90
0.88
0.90
Wales
Applied
Accept
0.38
0.53
0.38
0.52
0.39
0.53
0.41
0.55
0.47
0.62
0.48
0.64
Scotland
Applied
Accept
0.90
0.93
0.90
0.93
0.91
0.94
0.91
0.94
0.92
0.94
0.92
0.94
nbr
nbr
Applied
Accept
1,498,017
256,210
1,486,738
247,868
1,487,512
249,517
1,606,257
268,763
1,529,310
249,809
1,620,945
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 - Application
Outcome
Nbr application
Post 2006
England
Wales
Nbr Institutions
Applied
0.065
[0.050]
0.134
[0.039]
-0.080
[0.050]
-0.167
[0.042]
-0.039
[0.065]
-0.236
[0.062]
Quintile of best
department
-0.059
[0.014]
0.099
[0.016]
0.186
[0.020]
Applied to institution
closeby1
-0.030
[0.007]
-0.004
[0.009]
0.088
[0.018]
Nbr of offers
received
-0.002
[0.009]
0.002
[0.009]
-0.001
[0.014]
Accept
0.053
[0.009]
-0.040
[0.010]
-0.042
[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 offer
outcome
overall rank
Post 2006
0.259
[0.935]
England
-1.755
[0.969]
Wales
3.062
[1.209]
Quintile
-0.006
[0.022]
-0.034
[0.022]
0.054
[0.028]
Same country
-0.016
[0.006]
0.009
[0.007]
0.106
[0.016]
Distance <30 km
-0.041
[0.010]
0.013
[0.011]
0.085
[0.020]
Lives at home
-0.105
[0.017]
0.056
[0.018]
0.088
[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
2500000
250000
2000000
200000
1500000
150000
1000000
100000
500000
50000
0
0
2001
2002
2003
England
2004
Wales
2005
2006
2007
Scotland
2008
Ni