Tuition fees in times of austerity. The Italian case

Civera A., Cattaneo M., Meoli M., Paleari S. (2017, working paper)

The challenge for sustainability in Higher Education systems (1/2)

On the one side… indiscriminate cuts in public funding

Anglo-Saxon context: United States: -14% over the period 2007/08 – 2014/2015

United Kingdom: -13% over the period 2008 – 2015

Southern Europe: Greece: -56% over the period 2007/08 – 2014/2015

Italy: -8% over the period 2007/08 – 2014/2015

Spain -7% over the period 2007/08 – 2014/2015

HIGHER EDUCATION RESEARCH 2

Source: Public Funding Observatory, EUA and Eurostat data

The challenge for sustainability in Higher Education systems (2/2)

On the other side… a substantial increase of tuition fees

HIGHER EDUCATION RESEARCH 3

Italy as a case study

And Italy is no exception

Italy is an example of the complex situation in the South ofEurope, the area most affected by the crisis and governmentcuts (Public Funding Observatory, 2015)

HIGHER EDUCATION RESEARCH 4

The aim of the study

HIGHER EDUCATION RESEARCH 5

This study aims to analyse the following relations:

1. The substitution effect: tuition fees per student decrease whenthe university's main public funding source (FFO) increases

And during the crisis, tuition fees increase with FFO decreased

2. However, this is not the case at local level (i.e. the area where theuniversity acts) where the competition effect is noted: averagetuition fees per student decrease with increasing the competition,intended as the number of universities in the same area*

*This is in line with the content of the Higher Education White Paper, entitled Success as a Knowledge Economy:Teaching Excellence, Social Mobility and Student Choice edited in UK in May 2016

The Italian context

HIGHER EDUCATION RESEARCH 6

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Δ%FFO (mln) 6,160 6,457 6,907 6,874 6,978 7,264 7,187 6,913 6,746 6,743 6,418 6,732 6,664 +8

FFO (base 2003)* 6,160 6,331 6,666 6,494 6,491 6,568 6,405 6,077 5,804 5,626 5,240 5,464 5,415 -12

Fees (mln) 1,093 1,158 1,198 1,250 1,343 1,394 1,445 1,455 1,512 1,508 1,476 1,477 1,545 +39

Fees (base 2003)* 1,093 1,135 1,157 1,181 1,249 1,260 1,287 1,279 1,301 1,258 1,206 1,198 1,255 +14

Inflation (%) 2.7 2.2 2.0 2.1 1.8 3.3 0.8 1.5 2.8 3.0 0.,2 0.2 0.1 -2,6

Students (mln) 1.76 1.75 1.74 1.73 1.73 1.70 1.68 1.66 1.62 1.57 1.53 1.50 1.48 -16

15%

17%

19%

21%

23%

25%

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Fees/FFO

In Italy in the last years the state Universities’ public financing (FFO) hasdecreased as well as the number of students enrolled. When the FFO wasstabilized tuition fees raising was interrupted

Source: MIUR Statistics

* Real values referred to base year 2003

HIGHER EDUCATION RESEARCH 7

We analysed the average value of fees per student and theirvariation covering 59 Italian public Universities over the period2003-2014 (data available) with the aim of:

Assessing through the average values the impact of the average public financing(FFO) per student for each University, of the financial crisis (starting year 2008)and of the competition for students (competitors’ proximity index)*

Verifying through the variation analysis the existence of a saturation effect bywhich the Universities charging high levels of tuition fees over the time tend toincrease them less

Empirical analysis:

We make use of a multivariate regression analysis controlling for both theinstitutional features (e.g. size, age disciplines, reputation) and the regionalcharacteristics where the university is (e.g. the right to study, the GDP per capita,the geographical position)

Methodology

* The competitors’ proximity index indeed measures the specific market pressure of each University compared to all other competitors, by adopting the sum of distances, weighted by the number of student enrolled at each University, from one institution to all others

HIGHER EDUCATION RESEARCH 8

5000

5500

6000

6500

7000

7500

FFO FFO_adj

+7.8%

-11.8%

1000

1100

1200

1300

1400

1500

1600

FEES FEES_adj

+39%

+14.3%

The reduction of public funds and the raise of tuition fees disclose a potential substitutioneffect and the growing importance of students’ contribution to the challenge for Universitysustainability

Source: MIUR StatisticsNominal (FFO and Fees) and real (FFO adjusted and Fees adjusted) data. The real data are adjusted for the inflation referred to the year 2003 in million Euro

Results – Substitution effect of FFO with tuition fees

HIGHER EDUCATION RESEARCH 9

Results – Average fees and their variation before and after crisis

Although the average tuition grows both in the period before crisis (2003-2008)and after crisis (2009-2014), the growth get slower year by year after crisis. Thisis an apparently counterintuitive trend, since after 2008 Universities are capableof even less financial resources, probably due to the system’s efficiencysearching

0%

20%

40%

60%

80%

100%

0

200

400

600

800

1000

1 2 3 4

Average fees Variation (%)

Before crisis After crisis

HIGHER EDUCATION RESEARCH 10

Results – Average fees before and after crisis per competition level

Fees before crisis (€)

Fees after crisi (€)

Delta (%)

High competition

773.94 966 24.8

Low competition

436.90 691 58.2

The slow growth of the tuition fees is an indication of some other factorsmoderating the effect of financial crisis and keeping prices down. Such factorconsists of local competition that measures the competitiveness of the area wherethe University acts. Attracting students has become a strategic lever of primaryimportance for Universities, more important than the monetary remuneration. Theresults therefore show less price elasticity

0

200

400

600

800

1000

Pre crisi Post crisi

Alta competizione Bassa competizione

Conclusions

HIGHER EDUCATION RESEARCH 11

Under the same conditions, it is possible to note a:

1. Substitution effect: the Higher Education system receiving less publicsupport (FFO) increases tuition fees at the aggregate level

2. Financial crisis effect: the financial crisis led Universities to charge a higheraverage level of tuition per student. This is because after crisis the publicfunds (FFO) has been further reduced, accentuating the substitution effectof the FFO with the tuition

3. Competition effect: after crisis Universities under competition observe aninferior growth in their tuition fees with the aim of attracting more students

4. Saturation effect: public Universities charging high levels of tuition feesover time tend to increase them less. This indicates a country specificity forwhich the tuition fees’ growth margins are modest, with significant impacton the demand