No student takes the decision lightly to drop out of university before completing their course – particularly if they’ve taken out large loans to pay for the tuition fees. My new research shows that when tuition fees go up, it actually decreases the risk of students dropping-out. The higher the student fees, the less likely a student is to be at a university in the first place – but, once there, they are also less likely to leave without completing their course.
In recent years, successive UK governments have reduced the public subsidy to higher education and have pushed more of the costs on to students through tuition fees. The 2004 Higher Education Act raised the cap on fees from £1,000 to £3,000 a year from the 2006-7 academic year, but students could defer the payment of fees by taking an income-contingent loan to cover the cost of their fees. A further tuition fee increase was introduced in 2012-13 meaning universities can currently charge a maximum of £9,000 per year. Students receive financial support to pay these fees and their living costs through both loans and maintenance grants, although all these grants were scrapped and turned into loans in the latest budget.
Calculations in my recent working paper looked at whether the increase in tuition fees and the introduction of loans in 2006 affected how many students dropped out from their courses before finishing them. Using a dataset provided to us by the Higher Education Statistics Agency on the population of students enrolled at university between 2003 and 2010, my colleague Steve Bradley and I created a model that estimates the policy reforms reduced the estimated risk of dropping-out during their course by 16%. Our model calculated the probability to drop out each month, based on to the fact that a student had not dropped out the month before.
In 2003 there were 28,412 students who dropped out during the first year of their undergraduate degree – or 9.7% of the total 289,922 who started; whereas in 2010 there were 15,949, who dropped out, 5.5% of the 289,994 who started.
Lower risk of dropping out
Both students from high and low-income backgrounds were less likely to drop out following the reform, but the fall was smaller for low-income groups. Students who attended elite, Russell Group universities, experienced a substantial decrease in the risk of drop out – around 32% – and this was particularly pronounced among men. However, students at these universities are likely to be those with higher prior attainment from higher-income backgrounds.
Tuition fees didn’t affect all students’ risk of dropping out in the same way during the period we looked at. Students who started university in 2006 and in 2007, the first two years after the initial fee reforms, experienced a small reduction in the risk of drop out, but by the third year – those who started in 2008 – the risk of dropping out was substantially less.
However, this third group, who studied between 2008 and 2010, overlapped their time at university with the financial crisis. Our model estimated that the crisis caused a 25% reduction in the risk of drop out for those students. This is a large contribution, but does not account for all of the reduction in the risk of dropping out. So we argue that the effect of tuition fee reform on lowering drop-out rates persisted beyond three years.
In general, we think there are three broad explanations for this reduced likelihood to drop out. First, students may be reluctant to borrow in the first place, either because they fear potential credit constraints after graduation or because they are debt averse. Those students that are debt averse tend not to enrol if fees go up, so it’s possible there is a more selected sample of enrolled students with a lower probability of dropping out.
Second, low-ability students may also be discouraged from applying to university because the increased costs of a university education are perceived to be higher than the expected benefits. Previous research has shown that students who did less well at school are more likely to drop out of university because of a higher probability of academic failure. And third, the tuition fee reform was quickly followed in 2008 by the global financial crisis. As the labour market for young people became tighter, job opportunities declined too. This changed the opportunity costs of remaining at university, so drop-out rates fell.
The point when debt changes behaviour
It is clear that the 2006 tuition reforms decreased the likelihood of students dropping out of university. Yet the build-up of student debt does not appear to have played a major role in this. We saw no increase in drop out in the first three months of the academic year, before which point students did not have to pay anything if they dropped out. But we believe there may be a threshold above which the level of debt a student starts to accumulate starts to significantly affect their decisions to enrol and to drop out.
We don’t have any data yet on drop-out rates among the cohort of students who started their undergraduate courses in 2012 under the £9,000-a-year fee regime. But we think that such a large increase could have led to a higher reluctance to borrow among students, thereby increasing drop-out rates.
In contrast, the recent removal of maintenance grants for students from low-income backgrounds is certain to increase the magnitude of debt accumulation – with the Institute of Fiscal Studies warning that the poorest students will graduate with £43,000 of debt. This may reduce students’ likelihood of enrolling at university in the first place, and so could potentially drive down aggregate drop-out rates.