Since 1994 the total number of overseas students in UK universities has quadrupled. Currently there are 266,000 full-time overseas students studying in the UK. This is excluding the 110,000 students from the remainder of the EU who are counted as Home students for student financing purposes.
The postgraduate sector has seen the strongest growth in overseas students in terms of proportions and absolute numbers. There are now over five times as many overseas taught postgraduates than there were in 1994, increasing from 28,000 then to 140,000 by 20011/12 (Figure 1). They now represent 48% of masters students, and when including non-UK EU students this raises to 60%.
Its easy to see why universities like to recruit overseas students. Their fees are typically higher than domestic students (particularly for undergraduates whose fees are capped in the UK) so they can considerably boost funding at a university. The fees from overseas students now contribute 11.6% of the total income of the higher educational sector. Moreover their higher tuition fees make up 39% of all fee income despite only accounting for 15% of all student places.
A critical policy question therefore is, what impact has this rapid influx of international students had on the number of places available for domestic UK students? Have universities taken on overseas students at the expense of domestic students, or have they used this increased funding to expand the number of places available for domestic UK students?
Until recently, talented people born in one country were educated, worked, retired and died in that same country. For that country, financing higher education, through tuition fees paid by families, foundations or financial institutions providing loans, or through taxes, was an investment generating extra welfare for the local population: larger graduate income meant extra tax revenues, better wealth, improved productivity of both high and low skilled people. These positive externalities justified and even guided an efficient and fair sharing of the cost of studies between tuition fees and tax financed subsidies. That was the old paradigm.
Nowadays the story is different. Talented students are international. Cross border spillovers are at work: the country which hosts them for higher education is neither their place of birth and first education, nor of work after graduation. And the jurisdiction which finances the studies is no longer that which benefits from the enrichment of that human capital. Even more, studying abroad is a driver for subsequently working abroad.