Counting the cost

HEPI published today the outcomes of the annual Student and Academic Experience Survey, which they conduct jointly with the Higher Education Academy. It’s a really interesting survey, which allows comparison with previous years while also adding content to address current policy issues. You can read the survey here.

One issue which features prominently in the survey is student perceptions of value for money. There’s plenty in the survey about whether students think they’re getting value. Most don’t, it seems, but my experience is that the value of a university education stays with you for a long time – it isn’t a good which you consume, it’s an investment which stays with you. We’ll get more relevant data if we ask these students the same question in 40 years.

It takes a lot of these to make a building

All well and good, or not. But there’s another aspect of this question which I find fascinating. The survey asked students to identify their preference for what universities should spend less money on, in order to be able to reduce the cost. There were two clear favourites here: Spending less on buildings (49% of respondents) and spending less on sport and social facilities (46%).

This is a genuinely hard challenge for universities to address, for three reasons.

Firstly, let’s look at the money. Buildings last a long time, and money spent on buildings is regarded as being spent over the lifetime of the building. It’s not unusual to see the value of a building spread over 50 years. So the value in the accounts in any one year of a £50m new build is £1m. (If you use straight-line depreciation. Ask an accountant.)

Another way of looking at it is the cost of borrowing the money. Universities get good interest rates at the moment – 4% would be at the higher end. So the loan for the £50m building would cost about £3.8m per year, if we assume repayment over twenty years.

Now neither of these numbers - £1m per year, or even £3.8m per year – is going to make a big dent in a university’s cost structure. Even if a university was minded to reduce fees (and there’s lots of reputational reasons why they shouldn’t, and market data from students that shows that there’s no point), it wouldn’t make much impact in a university big enough to need a £50m building.

But, you say, perhaps universities don’t need the shining edifices of glass and metal which spring up all over campuses. What if they had plainer buildings? What indeed.

Few university buildings are truly high specification, in terms of the extravagance of the fixtures and fittings. But for the sake of argument let’s assume that the £50m building would cost £40m if it wasn’t so luxuriously specified, or if space was better used (now that’s more likely to be an issue, I will concede). This means that the university spends less money, but – for exactly the same reasons as I set out above, not as much as would be needed to make a dent in fees. An extra £200k - £700k per year – a 20% reduction on the cost of the building – wouldn’t mean a University could do much about fees.

And thirdly, the buildings are needed. The reason university campuses are building sites today is that many university buildings had become worn out and no longer functional. Without investment to renew and replace, campuses would become progressively less welcoming, and the impact on students and staff would be serious.

But all of these don’t add up to a good reason to ignore what students are saying: regardless of the reality of the costs of running a university, students don’t share the management’s perceptions about how to spend (their!) money. I think that the survey tells us another approach.

The survey shows that only 18% of respondents think that they definitely or maybe are given enough information about how fees are spent. But interestingly, 21% first years (who will have seen universities’ response to CMA strictures about information) feel that they have had enough information. If you know what the money’s spent on, it’s easier to come to a more reasonable conclusion about the proportionality of the cost.

It’s a baby step, but it’s a significant one (significant at 99% confidence, according to the report footnote). If universities want to address student perceptions of value, one thing they could do much more of is tell students where the money goes.