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The Office for Budget Responsibility (OBR) and student numbers

  • 13 July 2015

It is said that replacing maintenance grants with bigger loans could lead to fewer undergraduates. That may prove a rash assumption. Against consensus opinion, the tripling of tuition fee loans to £3,000 in 2006 and again to £9,000 in 2012 made little difference to the behaviour of young full-time applicants.

But, even if there is no reduction in students, it is striking that the OBR (the Office for Budgetary Responsibility) chose the very day of the announcement on loans to increase their forecasts for future student numbers. They said:

We have revised up our forecast of student numbers since March [2015], which increases loan outlays. In part this reflects the latest data on student applications that indicate higher application rates in 2015-16 than we expected in March. In subsequent years, we assume that student numbers will rise a little further from this higher starting point as trends in application and acceptance rates more than offset the projected decline in the number of 18 to 20 year olds in the population. These changes add around £1⁄4 billion to lending by 2020-21.

Just a few months ago, in March 2015, the OBR had predicted the total number of entrants would be flat:

Student numbers in England were expected to rise this year following the removal of the higher education numbers cap, but have done so by considerably less than expected. The latest data on student numbers and applications indicate a more gradual rise than in the original estimate of the cost of this policy change. We originally assumed that student numbers would rise relatively quickly as excess demand was catered for, but there have only been around 10,000 new entrants this year and applications for next year suggest a similar rise in 2015-16. We therefore assume that student numbers will rise by a further 10,000 in 2016-17, to 375,000, but remain broadly stable thereafter. This would still represent a steadily rising proportion of 18-19 year olds. (The ONS population projections that underpin our forecasts show around a 10 per cent decline in the number of 18 year olds in the population between 2015 and 2020.) The forecast also takes account of new postgraduate loans, the introduction of which was announced in Autumn Statement 2014.

This, in turn, came on the back of the OBR’s December 2014 statement:

Student numbers were expected to rise this year following the removal of the higher education numbers cap, but have done so by less than expected. The original costing assumed the impact would peak in 2016-17, and it is unclear at this stage whether the latest data indicate a more gradual rise or a lower peak impact. We have reduced our medium-term assumptions slightly, but maintained the same profile. The forecast now takes account of the introduction of new postgraduate loans. Other underlying changes to loan outlays and repayments are small.

The OBR’s (pessimistic) chopping and changing reflects the genuine uncertainty that exists on future student numbers. It is an issue on which reasonable people may differ. Personally, I am at the more optimistic end of the debate because it seems unlikely that demand for higher-level skills tailing off (see our report on student number controls for a discussion of the arguments).

But, either way, it looks as if the OBR have been over-sensitive to short-term fluctuations in demand in its long-range forecasts while being over-resistant to other more robust evidence, including what happened when they removed student number controls in Australia. They should also take a look at the new WonkHE paper on the removal of student number controls to see the latest intelligence from inside institutions.

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