With the introduction of university fees of up to £9,000 for UK domiciled undergraduates in the 2012-13 academic year, it is of no surprise that the number of students fell by 7.4%. However, a closer look at the figures shows a much more detailed picture with evidence of a flight to quality emerging.

Students are now faced with the prospect of taking on even larger debts to fund their university education. The scale of debt and forecasts for future earnings growth has led the Institute for Fiscal Studies to estimate only 73% of students will repay their loan in full.

Although employment prospects are now looking up, students are increasingly questioning the value for money they get from their education. This is both in terms of the quality of the teaching they receive but also the employment prospects the course/university offers.

As Table 1 shows, the falls in student numbers weren’t isolated to UK domiciled undergraduates. The only group to actually increase in number were non-EU domiciled undergraduates. However, the data also shows that these falls were much greater amongst part-time students where perhaps the costs of education are more likely to outweigh the benefits for some students.

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This trend is further highlighted when we look at student numbers by subject type (Graph 3) or by university ranking (Graph 4). Although UK domiciled undergraduate numbers fell in all categories, the trend is for much larger falls amongst lower ranking institutions. This may reflect higher instances of part-time education but the trend is clear: lower ranked institutions will struggle to prove their value for money in the new competitive environment. Additionally, the higher ranked institutions generally managed to increase the number of non-EU students studying. This helped to offset some of the falls in UK domiciled students.

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Courses focused on the sciences and engineering, which generally offer higher future earnings potential, have seen increases in undergraduate numbers. Meanwhile, courses focused on the creative arts and design had the largest contribution to the total fall in student numbers.

Looking ahead it does appear that the fall in student numbers was a short-term reaction to the increased fee levels. UCAS application data for the current 2013-14 academic year showed a 3.6% increase and early returns for 2014-15 show total applications are up 3.4% compared to the same period last year.

Based on previous trends, this would leave final application numbers approaching 700,000. This was the peak level seen in 2011-12 prior to the introduction of higher fees. Although the strongest growth is in students from the rest of the world (up 9.1%), applications from UK and other EU students are both up, at 3.2% and 5.1% respectively.

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Increased fees may have been the main cause of falling students numbers in the 2012-13 academic year but there are more significant demographic challenges ahead. For the last 15 years the university sector has benefitted from a growing number of young people, their increased participation in university education and a growing international student population. It will be difficult to substantially increase participation rates in the future (ignoring short-term fluctuations such as the recent surge prior to higher fees).

More importantly, we are facing a demographic crunch over the next eight to ten years. The number of people born 18 years previously peaked in 2012 (those born in 1994) at 750,000 and will have declined to 650,000 in 2020 (those born in 2002). This could reduce the potential domestic student population.

However, since 2000 the number of actual 18-year olds has been in excess of those born in the country 18 years previously. This reflects increased migration of both students for education and families with children. So far this has minimised any impact from the falling birth rate seen 18 years previously. However, it remains to be seen if government policy will have any further impact in this regard.

The good news is that by 2020 the demographic crunch will have bottomed out. With 800,000 children born in 2012, the highest since 1991, the demographic crunch will have turned into a boom by the time they turn 18 in 2030.

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Taken from
Spotlight: UK Student Housing 2014