University Education in England is a Failing Marketplace, Report Says

A Levels
Pupils react after receiving their A-level exam results, in Manchester August 16, 2007. People applying to university are often poorly served by the market. Phil Noble/Reuters

The market for higher education in England is not working for the benefit of students, according to an official report that warns competition between universities is not leading to better value or higher quality education.

Amyus Morse, head of the National Audit Office (NAO) that conducted the report, said: "We are deliberately thinking of higher education as a market, and as a market, it has a number of points of failure.

"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."

Students in England are widely dissatisfied with their courses. Just 32 percent of students in England say their course provides value for money, a slump from 2012's rating of 50 percent.

The report points out that government policy in recent years has tended towards marketization of universities. It has sought to boost students' capacity to choose, and thus force schools to compete for attendees, theorising that this would drive up quality.

But "there is no meaningful price competition in the sector to drive down prices for the benefit of the student and taxpayer," the report states.

When student fees jumped in 2012, the government expected the average price for a course to be £7,500. In reality, 87 of the top 90 universities now charge £9,000, the maximum amount possible under British law.

"Evidence shows that students use price as a proxy measure for quality, and the providers we spoke to were concerned that lowering prices may signal poor quality," the report said.

"Providers also choose the purchaser in higher education, which differs from most traditional markets where the buyer chooses the product or provider. These factors result in weak incentives to reduce costs and fees."

And the report warned that universities had little financial incentive to drive up quality. Moving up five places in a league table, the report found, gained a university just 0.25 percent of extra fee income.

While in a healthy market consumers can improve the quality of services by complaining or switching providers, the report found, students can do little to change things they are dissatisfied with once they are on a course.

"Students are unable to drive quality through switching providers," the report states. "Switching rates in higher education appear low at 2 percent a year. Our analysis found no correlation between switching and satisfaction scores."