Pricing education in an era of increasing competitiveness and student expectations

At a time when educational options for young students are more numerous and varied than ever before, institutions and schools are under increasing pressure to:

• Set effective, sustainable tuition policies;
• Justify their tuition fees by demonstrating the “return on investment” (ROI) for students.

Concerns about the relative costs and value of postsecondary education are increasing at the same time as, in many countries, the cost of education is becoming prohibitive for growing numbers of prospective students. In the US, for example, one year of college can cost more than the average American salary, and yet, more than one-quarter of US university graduates are unemployed. Meanwhile, colleges and universities in leading destination countries are facing steep challenges to their ability to meet enrolment targets and generate operating revenue. Many institutions are turning ever more to international students to help with their enrolment and revenue goals, since in many cases, international students pay much more than domestic students do in tuition. However, this is not always the case. Some top-ranked universities offer the same tuition to international students as to domestic students, and some countries have tuition and grant policies that make it more affordable for international students to study at their institutions. And, tuition fees – and the affordability of education – matter to international students, just as they do to domestic students. The OECD’s Education at a Glance 2014 report reveals a diverse range of tuition policies in place for foreign students. These policies are already influencing current flows of international students across the globe, and with students’ increasing attention to the cost of education, they stand to influence them even more in the future.

Most OECD countries charge international differential fees

notes that in general, there is a trend among OECD countries to charge higher education fees for international students than domestic students. Examples of countries with such policies in place include:

• Austria;
• Canada;
• Denmark;
• Ireland;
• The Netherlands;
• New Zealand (with the exception of doctoral students);
• Poland;
• The Slovak Republic;
• Slovenia;
• Sweden;
• Switzerland;
• Turkey;
• The UK;
• The US.

However, in most EU countries, students from other EU states are treated the same as domestic students with regard to tuition fees. This is a significant boost to student mobility within Europe, and an important policy instrument in support of major mobility programmes, such as Erasmus. Meanwhile, in Finland, Iceland, Norway, and most recently Germany, international students do not have to pay tuition fees. University World News notes that this, “combined with the availability of programmes taught in English, probably explains part of the growth in the number of foreign students enrolling in some of these countries between 2005 and 2012.” As much as no-tuition policies may help to attract international students, however, they do mean that the public sectors of the countries with such policies have to shoulder a sizeable financial burden. Denmark moved away from no-tuition policies a few years ago, and Finland and Sweden are also doing so, though offering subsidies to help defray tuition costs.

Tuition levels and student decision-making

Needless to say, tuition fees are one of the primary revenue streams for most postsecondary institutions. Ideally, they enable institutions to operate in such a way that the quality of programmes and research output, the prestige of professors, the sophistication of campus infrastructure and technology, and the overall supports and services for students are so impressive that they attract substantial volumes and quality of students. All of this, in turn, enables universities to build their reputation and programmes and better ensure their long-term sustainability. But when tuition fees climb too high, without mitigating grants or scholarships:

• On the domestic front, they threaten accessibility to education for lower-income students;
• On the international front they may cause students to choose one country, and/or institution, over another, on the basis of affordability.

This, at a time when, according to the OECD:

“Collectively, students around the world invest about US$50,000 each to earn a degree. In Japan, the Netherlands and the US, average investment exceeds US$100,000 when direct and indirect costs are added.”

The OECD adds that direct costs such as tuition fees constitute roughly one-fifth of tertiary-level students’ total investment. So when variance in tuition fees occurs across countries, prospective international students at least take notice, and, depending on the degree of difference and/or the student’s price sensitivity such variability in tuition levels may be a significant factor in the choice of study destination. When tuition fees are perceived to be relatively high, international students will be interested in knowing whether there are grants or scholarships (and loans, to a lesser extent because they eventually have to be repaid) available to help make a programme more affordable.

Grants ease the impact of high relative tuitions

Notably, the leading destinations of the US and the UK offer sizeable grants to international students, which may be a key determinant of their ability to retain international student market share in the future. The OECD singles out the following countries as destinations where larger “grants effects” (that is, direct transfers to students in the form of scholarships or other grants to subsidise the costs of study) are present:

• Austria;
• Denmark;
• Finland;
• The Netherlands;
• Sweden;
• The US.

The OECD notes as well that the US and the UK are the only ones among the five countries with the highest direct costs (averaging US$20,000 or more per year) to “provide substantial grants to students.” Other leading destinations such as Canada, Australia, and New Zealand rely more on loans rather than grants as incentives for international students. Such measures reinforce the findings of a recent European Commission study that observed the tempering effect of increased student aid on tuition increases. More specifically, the study found that, when balanced with expanded financial aid for students, increases in tuition fees do not necessarily negatively impact higher education enrolment unless the magnitude of the price change is exceptional.

Pricing in Asian hubs

Asian students represent a massive 53% of international students around the world, with the largest proportions coming from China, India, and South Korea. Virtually every country invested in its international education sector is interested in gaining more market share of these students, and regional education hubs are gaining ground in such places as Malaysia, Singapore, and Hong Kong. As has often been observed, the emergence of these significant regional destinations is an important factor in the ongoing competitiveness of traditional destination countries like the US, the UK, Canada, and Australia, all of which are so dependent on Chinese and Indian students in particular. For example, students from China, India, and South Korea together account for roughly 50% of all international enrolment in the United States, and Chinese and Indian students compose 40% of the international student population in the UK. Already there are signs that China’s huge investment in its education system is beginning to position it not only as a major sending country, but also as a destination for study abroad. For example, China is drawing a very significant share of Korean students; in 2012 China trailed only the US as a study abroad destination for Koreans. And recently, China became the third most popular study destination in the world. However, fees are a factor in regional mobility, and Singapore provides a recent, cautionary example in this respect. University World News reports that Singaporean universities have implemented tuition fee increases of 11–17% for international students in the past year, and notes: “Singapore is now one of the most expensive countries globally to obtain an undergraduate degree once the high cost of living in the city state is taken into account. Foreign student numbers have fallen as fees have been rising – and at a much faster rate than those for locals.” Immigration statistics from Singapore indicate that the country hosted about 75,000 students this year compared to 84,000 two years ago (and against a goal of attracting 150,000 students by 2015).

Other strategies to attract and retain international students

Of course costs of study alone are not the only consideration of international students: ultimately for many of them, it is the longer-term return on investment of their education post-graduation. Specifically, will their education pave the way to their desired career, in a country they enjoy, and provide them the income they aspire to? For this reason, international students will also be looking very carefully at destination countries in terms of their policies enabling – or preventing – exciting post-graduation work and immigration opportunities. Canada has been a leader in developing progressive work and immigration policies for international students, which is catching the attention of Indian students, among others. Australia, too, is benefiting from Indians’ growing perception that the UK, a preferred study destination for many years, is unwelcoming to international students; Indians are once again growing as a proportion of Australia’s international enrolments. On an institutional level, ties to relevant professional organisations and companies, in terms of co-op and internship opportunities, are of growing importance to international students. For more on examples of strategies being used in various countries to entice international students to remain in a country after they graduate, please see our previous article “Increasing the stay rate of international students.”