IN A crowded field of U-turns and climb-downs, the government's bid to reform university finance has earned special distinction for its mix of unpopularity and unintended consequences. Last year, in a bid to transfer most of the spiralling costs of tuition from the state to students, the Conservative-Liberal Democrat coalition raised the maximum fees English universities can charge, while slashing the exchequer's contribution to teaching. The aim was both to ease the pressure on the public purse from rising student numbers, and to create a market in which universities compete for students on cost and quality.

The plan failed on both counts—but ignited riots among students and ire among parents and lecturers. On June 28th the coalition unveiled new proposals to contain costs and facilitate choice, by letting both good and cheap universities expand.

At the root of the government's trouble has been a simple miscalculation. When, last year, Parliament voted to increase the maximum annual tuition fee from £3,375 ($5,400) to £9,000 from September 2012, David Willetts, the higher education minister, said the full whack would be charged only in “exceptional circumstances”. He was wrong. Most universities have chosen to ask £9,000; middling institutions have raised their fees in line with the elite, safe in the knowledge that demand for places is so strong that theirs will still be filled. The result is that, on average, university education in England will soon be as expensive as in America (Scotland and Wales have their own regimes).

Like the spiralling costs of health care, the upward trend in university-tuition fees is a global one. In America the price of tuition has risen faster than other measures of inflation for the past three decades: as high fees threaten to outstrip the returns to graduates in their later careers, there is talk of an unsustainable bubble in higher education. In Britain, the price will have increased eightfold over the 13 years to 2012. Fees are rising across Asia and Europe, too.

One reason for the expense is perception: students view price as a proxy for quality; universities worry that low fees will signal a second-rate product. Another is that, in many countries, the state lends students the funds to pay for their courses, with the effect of driving up demand even if prices become eye-watering.

The squeezed middle

One such place is England, where fee increases have stark consequences for the pinched Treasury. Under the system unveiled last year, the exchequer forks out for the fees; graduates begin to pay these loans back when they are earning £21,000. The sums owed by students and graduates are set to double to £70 billion in the next six years—and Mr Willetts reckons that 30% of all loans will be end up being forgiven, under rules that cancel the debts of low-earners after 30 years. Meanwhile demand for places continues to climb, driven, in the short-term, by a lack of jobs for school-leavers in the struggling economy and, in the long-term, by the growth of the aspirational middle class.

The solution unveiled this week is fiddly. For the past 20 years, the state has set a cap on the number of students that each university can accept. Mr Willetts intends to introduce a new contest, in which around 5% of the total places are available only to institutions that charge tuition fees of £7,500 or less.

Meanwhile those universities that attract highly qualified students—ie, those who get two A grades and a B or better in their A-levels, the exams most pupils sit at 18—can expand to take as many as they want. Some 20% of students attain these grades. The aim is to put pressure on mediocre universities to drop their prices, or risk losing both their clever students to their superior rivals and parsimonious types to the cheap-and-cheerful.

And Mr Willetts wants to entice more low-cost providers into the system. Students enrolled at for-profit institutions offering cheap courses will be eligible for state-supported loans. Local vocational colleges are to be allowed to teach degree courses, with the exams set by universities. Mr Willetts also wants to create more discerning, better-informed consumers: universities will be obliged to provide more information on how many hours they teach, and the careers and salaries their graduates enjoy. (More youngsters may one day infer that the investment of time and money is not worthwhile: according to Ian Walker of Lancaster University, even before the coming jump in fees a male arts graduate with a lacklustre degree would be better-off over his lifetime if he had gone straight into employment at 18.)

Will it work? Since the cost of educating an undergraduate at some of the best universities is not wholly covered even by the higher fees, some have no intention to expand their student rolls, so some high-achievers will be turned away. Declining student numbers at mediocre institutions that are unable to compete at either the top or bottom end of the market might in theory force them to close; but their importance to their local economies will make axing them difficult, and in practice they might be taken over by a neighbour.

There have been predictable objections to the plan, on these practical grounds and others. Although universities have, in theory, always been private institutions that compete to attract the best students, many lecturers resent the explicit involvement of market pressures. Others point out that the market will be rigged. Paul Greatrix of the University of Nottingham says “there is a paradox in these proposals, which talk the language of markets and deregulation but actually increase regulation.”

The grumpiness is not confined to bolshy academics and rioting students. University funding has created tension in the coalition: already embarrassed by their broken election pledge to oppose any increase in fees, the Lib Dems are irritated that these proposals only pay lip service to fair access for pupils from poor backgrounds. They want universities to admit more of them; policies intended to force them to will be unveiled later this month—to the chagrin of many Tories.

This is a volatile issue: Tony Blair's efforts to increase tuition fees were more contentious in Parliament than his decision to wage war on Iraq. There is good news, then, for those who enjoy parliamentary pyrotechnics: Mr Willetts's plan seems destined to protract the debate over university funding rather than resolve it.



