The Economic Value of International Students

30 August, 2012

Summary

1. Migration Watch UK has reviewed the methodology used to calculate the value of international students. It has also found that the true value to the UK of those students subject to immigration control is significantly less than often cited. The value of international students in 2008/09 was £4.3 billion to the UK or 1.1% of total UK exports, rather than £7.9 billion often claimed by the university lobby. Adjustment for inflation and the increase in the number of international students gives a figure of £5.76 billion for 2010/2011. Clamping down on bogus students will not have a detrimental economic impact. Future projections of the value of higher education to the UK economy are based on the assumption that the number of higher education international students will almost double over the next 13 years. This would have significant consequences for net migration and, therefore, for population growth.

Introduction

2. Over the last year, the government has sought to reduce abuse of the student immigration route to ensure that the immigration system is controlled and robust yet responsive to the needs of business and the education sector. In response to the changes announced by the government^[1] , Universities UK have claimed that higher education is worth almost £8 billion to the economy, and potentially worth £17 billion by 2025. They have also suggested that students should be removed from the net migration statistics.^[2]

3. This paper examines the calculation of the value of the education sector to the UK economy and will demonstrate that although the entire sector was worth £8 billion to the economy in 2008/9, this figure should not be used to discuss immigration control. We offer an alternative of £4.3 billion as the value in that year of foreign exchange earnings of non-EEA students subject to immigration control, a sum unlikely to be dented by tightening up on bogus students.

Previous Estimates of Value of International Students

4. The most recent assessment of the value of the education sector is a report by the Department for Business Innovation and Skills entitled ‘Estimating the Value to the UK of Education Exports’^[3] . The report is an assessment of the value to the UK of the exports of the entire education sector - not just of international students, as is often implied. The report estimated that the education sector as a whole was worth £14 billion to the UK economy of which almost £8 billion (£7.9 billion) was attributed in 2008/9 to higher education – universities and a few other institutions which provide third level education. (See Annex A for the full table) This figure of £7.9 billion, if correct, would be two percent of the total exports of goods and services in 2009.^[4]

The Value of Higher Education

The BIS report estimates are set out in Table 1 below.

Table 1. Value of Higher Education Sector in Exports, 2008/09.

6. However, a significant proportion of these earnings are largely unrelated to the number of international students that enter the UK each year. Income from transnational education (£211 million) is that accrued from UK universities that have overseas campuses. Students pay fees to the university and study in their own or a third country; the student does not enter the UK at any time and is therefore not subject to immigration control. This income is not therefore a function of the number of foreign students admitted to the UK. Likewise, income from research grants and contracts (£648 million) is not related to the number of students that enter the country to study. Rather, it is related to the quality of the institutions and of their output. Similarly, income from licensing intellectual property (£46 million), from consulting, facilities and equipment (£85 million) and other income from overseas (£61million) is not related to, or dependent upon, ever greater student numbers. Income from overseas alumni should be included as an export earning related to international students, however this income is not shown separately from international charitable organisations.

7. These sums total over £1 billion. Since they are not materially affected by or, indeed related to, the number of foreign students, they should be excluded from the calculation of the benefit derived from international students.

8. Moreover, the BIS report is an assessment of the value of all non-UK students and thus includes students from within the European Union. However, this debate is about the impact of immigration controls on the foreign exchange earnings of the Higher Education sector. Since students from within the EU are not subject to immigration control, the money they contribute would not be affected and is therefore not relevant.

Migration Watch UK Estimate of Value of Higher Education International

(a) Tuiton Fee Income

9. The report states that in 2008/9 £2.492 billion was paid by all international students in tuition fee income.^[5] Of this £292.6 million was paid by EEA students, who pay the same amount in fees as home students. This leaves £2.199 billion. However, £49.9 million was awarded in scholarships by various UK based agencies to non-EU students.^[6] This should be subtracted from the benefit of non-EU students bringing their contribution to £2.149 billion in 2008/09.

(b) Income from Other Spending

10. In addition to tuition fees, international students contribute significantly in terms of the money they spend on living expenses, accommodation, books and leisure etc., while they are studying in the UK.

11. The BIS analysis states that international students in total were worth £4.344 billion to the UK economy. Of this £2.685 was spent by non-EEA full time students as shown in Table 2 below. The contribution of EU students - £1.053 billion – should be discounted since they are not subject to immigration control.

Table 2. Other Spending of Full Time International Students, 2008/09.^[7]

12.The other spending of part time EEA students can also be excluded as unaffected by immigration policy changes. – the BIS report estimates this to be £612.4 million.^[8]

13. Again, there are maintenance grants available to non-EU students – in 2008/09 these were worth £6.2 million. This sum should also be subtracted from the benefit of their spending bringing it to £2.679 billion in 2008/09. These numbers are set out in Table 3 below.

Table 3. Breakdown of Other Spending 2008/09

14. However, not all of this money would have originated from overseas. Part of it would have been earned by the students themselves through paid employment during their studies and therefore is not an export earning. The BIS report recognised that some international students work, however it assumed that only part time students work. Full time students at public institutions are allowed to work for up to 20 hours per week during term time and full time during their holidays. The government chose not to remove these rights from students at public institutions when the student route was tightened up in 2011, so it can be assumed that it is a valued right and one taken up by most students.

15. In order to calculate the amount of money earned through paid employment by full time non-EEA students while in the UK, the following assumptions have been made. It has been assumed that all full time undergraduates and postgraduates worked for 10 of the maximum 20 hours per week (this is a conservative estimate given that have the right to work full time hours outside of term time). It is also assumed that postgraduate students earned the adult minimum wage (£5.73 in 2008/9 prices) and that undergraduate students earned the minimum wage for those aged 18-21 (£4.77 in 2008/9). It is assumed that postgraduates worked 48 of the 52 weeks that they were in the UK and undergraduates worked 38 of the 42 weeks of the year that they were present based on the assumption that they have 4 weeks of the year in which they did not work.

16. Based on the above assumptions full time non-EEA postgraduate and undergraduate students could earn the following in 2008/9.

Table 4. Annual Earnings of Full Time Postgraduate and Undergraduate Students, 2008/9

17. We estimate, therefore, that £498.3 million was earned through employment in the UK by full time non-EEA students.

18. Once earnings are subtracted from the amount that FT non-EEA students paid in maintenance annually (£2.679bn as shown in Table 3), income from outside the UK on maintenance costs is valued at £2.18 billion.

19. As previously noted (Table 1), the BIS report concludes that all international students spent £4.344 billion on other spending in the UK. This paper finds that non EU students - those relevant to any debate on immigration control - spent £2.18 billion.

Total Value of Non-EEA Students

20. In total non-EEA students were worth £4.3 billion to the UK economy in 2008/09 as set out in Table 5 below.

Table 5. Value of Non-EEA Students to the UK Economy in Export Earnings, 2008/09.

21. To put this in context, £4.3 billion is approximately 1.1% of total UK exports of goods and services in 2009. The purpose of recent reforms is to ensure that only genuine students enter the UK through the Tier 4 route. It is highly unlikely that preventing the entry of bogus students will have any negative consequences for the UK economy.

22. As yet there has been no assessment of the additional costs to the public services of international students. They, like everyone else, are entitled to use the National Health Service free of charge, they also require somewhere to live, and will use infrastructure such as water, roads, public transport. Those who bring their dependants with them will use the education system. There are costs involved in these increased pressures on services which have as yet not been factored into any proper assessment of the value of international students.

Value of International Students at Higher Education 2010/11

23. Since 2008/09, the number of international students has increased by 21%.^[9] More students of course mean greater income in terms of fees for the universities and revenue for local communities. Using the same methodology as described above, we have estimated the value of international students in the most recent full academic year 2010/11. HESA data shows that Non-EU students paid £2.94 billion in fees. The Foreign and Commonwealth Office and Department for International Development made £49.9 million available in bursaries and scholarships to non-EEA students in 2008/09. Funding of non-EEA students has been reduced significantly however for the purposes of this analysis, the same figure has been used so this is an overestimate. Fees were therefore worth £2.89 billion to the UK.

24. Adjusting for inflation, we have estimated that the average non-EEA postgraduate spent £14,830 and the average non-EEA undergraduate spent £11,978 amount per year on accommodation and living expenses. In total therefore £3.5 billion was spent by students on other spending in 2010/11. Using the same methodology as previously, we have estimated that non-EEA students earned £621.5 million in 2010/11 which must be taken out of the total spending of students as this is not an export earning. The amount available to non-EEA students in maintenance grants has been assumed to be the same as in 2008/09 Therefore in total students were worth £2.87 billion in other spending in 2010/11.

25. In 2010/11, higher education students subject to immigration control were worth £5.76 billion in export earnings.

Table 6. Total Value of Non-EEA Students to the UK Economy in Export Earnings, 2010/11

Future Value of International Students

26. The BIS report also included forecasts of potential earnings from the education sector in the future. In 2025 Higher Education could, it was claimed, be worth £16.9 billion to the UK economy, of which £14 billion could come from tuition fees and maintenance spending. This was based on a British Council forecast of future international student demand published in 2004 and shown in Table 6 below. This shows student numbers rising to 642,000 studying at higher education by 2025 of which 158,000 would be EEA and 484,000 would be non- EEA.^[10] However, the actual numbers of non EEA students have proved to be much higher. In 2010/11 (the latest available HESA data) the non-UK higher education population was 130,000 EEA students and 298,000 non-EEA students compared to the forecast of 198,000.^[11]

Table 7. Forecasts of demand for international student places in the UK (000s)^[12]

27. The implications for net migration – and consequently for population growth – of these forecasts are particularly worrying. A Home Office analysis of a sample of files found that 20% of students remained in the immigration system after 5 years; many of them will settle permanently either through the work or family route. In addition some may stay on illegally. With inflows increasing substantially, as implied by the BIS report, it is highly likely that net migration will also increase substantially.

Conclusion

28. International students are of value to the UK, they contribute to the local community and to campus life. This paper estimates that in 2008/9 they were worth £4.3 billion in foreign exchange earnings to the UK economy, significantly less than the £7.9 billion estimated by BIS and oft-quoted by Universities UK. In 2010/11 we estimate that they were worth £5.76 billion. Future projections of the value of international students are based on the student population almost doubling to almost 650,000 per year and continuing to rise. This would have significant implications for the provision of local services and, especially, for net migration and consequently for population growth.

Annex A

Value of Education and Training Exports to the UK, 2008/09

Annex B

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