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Head-scratching: some want more transparency on the real cost of education

When Andrew Hamilton, the University of Oxford’s vice-chancellor, spoke last week about the annual £16,000 “real cost” of an undergraduate education at his institution, he will have known that the figure carries great political significance.

The £16,000 figure was the keystone in Professor Hamilton’s argument that the government should lift the tuition fees cap and allow England’s higher education institutions more freedom to set their own charges. So when Oxford cites its “real cost” figure, it matters for the whole of the English sector.

Meanwhile, the University of Cambridge recently revised downwards its estimate of the true cost of undergraduate education – from £17,100 to £14,800.

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While other universities do calculate real costs, mainly for internal purposes, Oxford and Cambridge give their estimates a public prominence that no other institution does. So how do they calculate the real costs of their education, and why?

According to one expert, the first “real costs” estimate at Oxford came in response to discussions around the time of Tony Blair’s government about whether the institution, along with other elite universities, could go private.

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David Palfreyman said that the Oxford Centre for ����Vlog Policy Studies, an independent thinktank of which he is director, was the first to carry out such a calculation.

“The history of it is that at one point Blair and Adonis [Lord Adonis, then education secretary] were talking about, ‘How much does it cost? Why don’t you guys [Oxford] go independent?’,” he recalled.

The suggestion, he continued, was that universities wanting to go independent would be given only core funding per student by the government. The universities would “sort out social equity on top and charge the rich kids what they deserved to be charged”, said Mr Palfreyman, who is bursar of New College, Oxford.

‘Realistic’ assessment lacking

The thinktank set out to estimate the cost of an Oxford education partly because “we’d picked up on those vibes” coming from the Blair government and partly because “we thought it was a bit weird no one had got round to crunching these numbers in a reasonably realistic way, which is a bit of an indictment of the sector”, Mr Palfreyman observed.

The “real cost” figure produced by the thinktank in 2004 was £18,600, which included teaching costs as well as some research costs.

According to Mr Palfreyman, the thinktank’s work “triggered” subsequent real-cost estimates from Oxford itself.

In 2010, Oxford’s estimate came to prominence when the university stated a “real cost” figure of £16,000 in its first submission to the government-commissioned review of undergraduate fees and funding chaired by Lord Browne of Madingley. The figure was part of Oxford’s argument that universities should be “free over time to set their own fee levels”.

In 2010, Oxford said that fees and public funds met about half the £16,000 cost, with the remaining £8,000 per student “funded from the university’s own sources, including endowments and benefactions”. Oxford stressed that it was competing against other world-leading institutions such as Harvard University, where fees are much higher and undergraduate numbers are smaller.

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On the calculations behind the £16,000 figure, Oxford told the Browne review only that the data were from 2007-08 and were “estimated using results from the university’s Trac(t) submission and a pilot survey of college teaching costs”.

The teaching branch of Trac, the Transparent Approach to Costing, is a national framework used by universities to help them identify the cost of their teaching activities.

It is not clear whether Professor Hamilton was citing the same calculations in last week’s oration.

����Vlog asked Oxford to furnish information on how it had arrived at the figure. The university did not provide an answer in time for our deadline.

Intensive approach

An Oxford spokesman pointed to the high costs of the “globally renowned” tutorial and college systems.

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“On average, an Oxford student receives more than 40 hours of intensive and personally directed tutorial teaching from senior academics in three eight-week terms – as well as practical classes, lab work, seminars and lectures,” the spokesman said.

He added: “Those who have been students at Oxford bring skills learned here into a wide variety of professions, making an enormous contribution to society and the economy.”

The Oxford higher education thinktank’s 2004 paper did not use Trac, which was introduced only in 2007-08.

It calculated an annual cost of £205 million for undergraduate education. Across the university’s 11,000 undergraduates, this came to a cost of £18,600 per student per year, the thinktank said. Of that figure, 49 per cent went on “instruction and student services (lectures, laboratories, libraries)”.

In his speech, Professor Hamilton said Oxford had to cover a £70 million funding gap each year as existing funding was not covering the real costs of education.

However, Oxford’s 2011-12 accounts record a surplus of £52.3 million. Across the university and colleges, endowments were valued at £3.7 billion in 2011-12.

To put that in some perspective, after Oxford and Cambridge, the University of Edinburgh has the next largest endowment of any UK university – £238 million.

And in 2013-14, Oxford will also receive £4.3 million in “institution-specific” funding from the ����Vlog Funding Council for England to support the additional costs of the tutorial system and its interviews for applicants. Cambridge is the only other non-specialist undergraduate university in England to receive money from this stream.

So it could be argued that Oxford can afford to bridge the gap to the “real costs” using income from its endowments and other sources. But the university warned in its Browne review submission that it was “increasingly diverting funds from undertakings that are a necessary investment in Oxford’s future to meet the recurrent costs of undergraduate teaching today”.

Refined calculations

At Cambridge, the first real-cost estimate, £17,100, was carried out in relation to the 2009-10 year “as part of the preparation for the setting of the higher tuition fee”, a spokesman said.

The spokesman said the new £14,800 figure, which uses Trac data, related to the 2010-11 academic year (the most recent for which the relevant statistics are available). “We have refined our methodology from when we first calculated cost in 2009-10, and we believe the new figures are more accurate,” he added.

“The tolerance is probably plus/minus £1,000, so our figures are consistent with Oxford’s,” he continued.

Gill Evans, an emeritus professor at Cambridge and an expert on higher education governance, said that Professor Hamilton’s call for higher fees was “definitely a calculated move…The question is whether it is a well-timed move. Cambridge conspicuously not joining in must be notable.”

Professor Evans argued that “the plain reality is that there is no way of calculating the cost of educating an undergraduate at a research-active university where academic staff are on teaching and research contracts”.

Cambridge’s Board of Scrutiny said in July that it was concerned by the university’s downward estimate of the real costs of education. The estimate, which is used to “justify” fees, “must command confidence, and so needs to be supported by a robust and clearly explained calculation methodology”, the board said.

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If Oxford and others continue to use their “real cost of education” estimates to press for higher fees, that call for transparency may become louder.

john.morgan@tsleducation.com