Does the cost of going to university represent the value of money?

By Thu-Ha Hong

Indeed, the value of money is subjective as it is based on individuals’ differing values and financial circumstances. Individuals may want to study undergraduate degrees as they value education greatly and feel that it would be useful to them in the future. Yet, individuals with the creativity and academic ability, but not financial power would be discouraged by the massive burden of debt. This may be worsened by information failure if sixth forms and colleges do not encourage certain students to attend university. There are contrasting views concerning whether the increase in university fees represent value for money or not. It depends on what individuals’ perceive as benefits and costs of pursuing higher education.

Individuals may argue that trebling the price of tuition fees does represent extreme value of money as education is extremely expensive therefore valuable. Upon completion of degrees, individuals will be advanced in knowledge and skills, boosting their prospects as employees. University education is a key ingredient in a recipe to create well-rounded individuals that earn adequate or massive incomes.

University education may be value for money because it creates positive externalities: a positive effect benefiting third parties following production and consumption. Undergraduates are more likely to earn more money and assist citizens by contributing to boosting economic welfare and standard of living than individuals without degrees. For instance, students that become teachers would have steady incomes and would be able to educate students by sharing wisdom and knowledge. The social costs of higher education exceed the private benefits; therefore university education can be deemed as value for money. The positive externality diagram below illustrates my point.

Positive externality


The equilibrium is at point A, where MC=MPB: the marginal cost of production is equal to the marginal private benefit of consumption. Positive externalities exist when the social benefits are greater than private benefits. It is represented at point C, where MC=MSB: the marginal cost equals the marginal social benefit. Therefore, even though prices have increased from P to P1, output level would increase from Q to Q1 and welfare of ABC would be gained from university education which represents value for money.

Individuals studying at university represent value for money because there would be a healthy amount of workers in the advanced labour market. Great Britain would be able to supply more unique goods and services such as the ‘Blackberry’ and software packages to the domestic and foreign market. Employment and exports would increase, consequently stimulating economic growth in the long run. Although there has been a rise in tuition fees, university education is advantageous for the economy so does represent value for money. A production possibility diagram drawn below illustrates my point.

Economic Growth



The production possibility diagram represents the quantity of capital and consumer goods. If there is a sufficient amount of undergraduates, production may increase from PPB to PPB1 as educated individuals are able to create sophisticated goods which attracts demand from the national and global economy. The potential capacity to produce capital and consumer goods would increase from D to E, implying that economic growth can occur. Here, the UK economy can experience an increase in income, purchasing power and standard of living. There is also likely to be low inflation, ceteris paribus, as low business costs due to advanced management and efficiency, will be passed down to consumers in the form of low prices. University education represents value for money because it has the potential to lead to achieving the four macroeconomic objects (low unemployment, economic growth, stable balance of payments and low inflation).

Individuals that study economics will have learnt that university education is a merit good: a good that would be under-consumed in a free-market as individuals may not fully perceive the advantages gained from consumption. Undergraduate university fees are usually fixed amounts of £27,000 and food, travel and living costs add up to approximately £5,000 annually depending on the type of accommodation and region of the university. Hence the need for the continual financial support from the government and universities, provided in the form of grants, bursaries and scholarships to help fund university costs for undergraduates starting university in September 2012. So, it can be argued that the cost of attending university represents the value for money as the government is prepared to subsidise students’ living costs even though it needs to pay back its government deficit.

Although £27,000 is rather an enormous amount of money to pay upfront, individuals that appreciate education will keenly take out a student loan to fund tuition fees. In this case, the cost of going to university does represent the value of money. The increases in tuition fees would group individuals with equal minds and values, distinguishing them from individuals that are not willing to invest in university education. Also, universities in the UK such as London School of Economics and Political Science (LSE) attract many EU and overseas students. 64% of the student population in this university come from abroad, implying that students around the world are passionate about studying in our country. Non-EU students are prepared to pay enormous prices: around £15,000 annually in 2011 but likely to increase in 2012 due to the trebling of tuition fees for UK and EU students, from £3,000 to £9,000.

However, there are counter arguments which support the view that the cost of attending university does not represent the value of money. Practical eighteen-year-olds may argue that the exchanges of £27,000 are overwhelming amounts to gather. Instead of going to university, and getting burdened by debt, they may want to embrace well-paid apprenticeships and aim for promotion or create and run businesses if they have business acumen, making adequate or massive wages. They value money but not undergraduate degrees.  

As a result of trebling the price of tuition fees, a disincentive effect in studying at university may be felt by art and textiles students and students from low and middle-income earning families. They wouldn’t want to study undergraduate degrees because they are uncertain if they will secure adequate salaries after graduation to repay tens of thousands of pounds worth of debt. Individuals without degrees are likely to earn low wages compared to the potential wages they would receive if they had gone to university and graduated with a degree. Therefore, the cost of going to university does not represent value of money.

It would be more profitable for the UK economy if there was a replication of motivation seen in the Victorian era. Due to patriarchal values, it would have been a fantasy for females to be renowned in the field of literature. Yet, they weren’t discouraged to pursue their passion for writing. For instance, Emily Brontë, author of the classic novel, ‘Wuthering Heights’ had to publish her poems and novel under the male pen name Ellis Bell and so wasn’t recognised for her works of art. Applying this to the 21st century, due to individuals’ financial circumstances, university costs can be daunting but it would be worthwhile to read subjects which they are passionate about because in the process, they would blossom by learning and begin to achieve their full potential.

The UK has for a long period time, subsidised a reasonable amount of money towards funding university education compared to other countries such as the US, Iceland and Norway. In the US, in October 2010, a third of students attending independent private universities paid an average of £13,877 a year at the existing exchange rate. This is an enormous amount compared to students studying degrees in Cambridge and Oxford in the UK: students only paid a maximum of £3,070 annually. British students that understand the value of money would fund university costs themselves as money from government revenue need to be used to fund government deficit. The government has made cuts in other sectors, for example, in healthcare and police force, not only in funds for education. Therefore, the rise in tuition fees does not represent the value of money but David Cameron and Nick Clegg needing to repay debt following the excessive public spending when the economy was in the stage of a boom and the global financial downturn when the US housing market bubble burst.

On balance of all arguments, it is rational to conclude that the increase in university costs representing the value of money varies from individual to individual, but the government deficit and recession need to be taken into account. Cuts in government spending have to be made in order to fund our deficit so it represents value for money and necessity to repay debt. The labour market needs to be rationed according to jobs requiring different level of skills, as there is excess demand, to elevate from a recession to a recovery. The enormous increase in tuition fees mean that students from poorer backgrounds with the required entry requirements may be discouraged to study at university. As a result, market failure may occur in the form of a wide inequality gap and a ‘brain drain’. This may lead to a decline in economic growth, for example, resulting from a decrease in demand for financial services nationally and globally, such as accountancy and auditing, so university education may not represent value for money. According to the novel ‘The Return of Depression Economics’ by Paul Krugman, Japan is credited for having a ‘well-educated’ workforce and as a result, they have and still are experiencing economic growth. The UK may experience a decline in the number of well-educated workers and economic growth in the long run if students are unwilling to invest in university education resulting from the off-putting trebling of tuition fees.