Universities must carry the financial cost of their decisions, not the taxpayer. ... Retain university fee deregulation, but defer changes to loans Judith Sloan Contributing Economics Editor AUSTRALIAN JULY 19, 2014 I JUST loved maths at school. And I particularly loved learning about permutations and combinations — all those vast number of possibilities from a relatively small number of options. I was thinking of this the other day when I was reflecting on the uncertain outcome of the package of higher education measures announced in the budget. Recall that there are quite a few moving parts to the higher education package. Now, arguably, the sum of these moving parts will produce a degree of coherence that has been largely absent from higher education policy for some time. Still, there are quite a few changes being imposed on students, institutions and staff at the same time. Even graduates with unpaid student loans will be affected. This is why the issue of permutations and combinations is so important. Assuming that all the measures are not implemented, or are not implemented straight away, it is worth considering whether the outcome could potentially be worse than the starting point. Are there parts of the package that could be ditched in the short term, while the other parts proceed, that would still lead to a better outcome? It is worth outlining the key features of the higher education package, announced over two months ago. They are: • Fee deregulation. • Reduced tuition subsidies, averaging about 20 per cent overall with some alteration to funding clusters. • Equity scholarships, using a portion of the additional revenue generated from fee deregulation. • A higher interest rate on the Higher Education Loan Program based on the long-term government bond rate, with a maximum of 6 per cent. • Extension of tuition subsidies and access to HELP to students undertaking sub-degree programs and to students of accredited private providers. Arguably, this package of measures is the final end point for a system that has been constantly reformed and reworked since the Whitlam government effectively took over the universities and introduced free higher education for the lucky few. The central question now is whether this final transition to the end point can be undertaken in more bite-sized pieces, bearing in mind that the ordering of the changes makes a huge difference. The most obvious change to introduce immediately is fee deregulation. The demand-driven funding arrangement, which was associated with rising student numbers from 2010, was only one half of the equation. With escalating government expenses, there was a real question about whether scarce taxpayer funds could be used in better ways than paying for marginal students to embark on higher education studies at the fixed prices set by the government. By allowing universities and other higher education providers to set their own fees, there can be more assurance that students will face the correct opportunity cost for undertaking the courses they select. The magnitude of fee changes will vary according to course and institution. It is almost impossible to predict the exact fee landscape that will exist in 2016, when the new system is scheduled to start. Assuming the cut to the tuition subsidies to universities happens, the likely outcome is that most fees will increase. Private providers, however, may be in a position to charge relatively low fees for some courses. One new measure the government should consider is to transfer some of the risk of non-repayment (under the current or revised HELP) to the universities charging the higher fees. Without this, there are inadequate checks on universities raising fees in the knowledge that the government, rather than the universities, will carry the can when graduating students fail to repay the full amount owed. One of the anomalies of the proposed package relates to different institutions’ scope to offer equity scholarships. Clearly, some universities, mainly the older ones, will be best placed to use their reputations and locations to charge higher fees. Some of the others, however, will be constrained in the degree to which they can raise fees lest students be discouraged from enrolling in their courses. This will mean that the sandstone universities will have the funds to offer a large number of equity scholarships, while the others may be hard pressed to offer hardly any at all. This may well be an unintended consequence of the policy, because many of these newer universities have developed important roles in providing higher education to students from disadvantaged backgrounds. Is there a case for leaving HELP well enough alone for the time being? Recall that under the present arrangement, student debt incurs a (compounding) interest equal to the CPI, with loan repayments required only if the student’s income exceeds $53,345. Students also are charged a loan fee of 25 per cent and there is an overall limit of $96,000 (for most courses) that students can accumulate. Under the proposed new scheme, loan limits and fees will be removed, but students will be charged a higher rate of interest based on the long-term government bond rate. The argument is that the government is effectively borrowing to subsidise university students and it is only reasonable that the rate of interest that graduates are charged reflects the government’s cost of borrowing. It is still a good deal for students, particularly given the income-contingent nature of the repayment requirement. But there is no doubt that the combination of higher fees and the higher interest rate on HELP loans will mean that a greater burden of the costs of higher education is shifted to students and away from government. Even so, if we take a look at the budget forward estimates, we notice that the funding for student tuition does not actually fall. In 2017-18, $6.6 billion will be spent compared with $6.4bn this financial year. The extension of subsidies to sub-degree courses, even at a lower rate, and to private providers means the overall quantum of student tuition subsidies continues to rise. Note also that there are expected to be more than 80,000 more higher education students in 2017-18 compared with this year. The argument for pushing ahead with the changes to HELP is that the costs of this scheme, in terms of the interest subsidy and non-repayment, have escalated dramatically in recent years. Who knows what the higher education package will look like after it has been mangled in the Senate? My advice would be to retain fee deregulation, shift some of the risk of non-repayment to the universities, trim the reduction in the tuition subsidies, include subsidies for sub-degree programs and private providers and defer the changes to HELP. The alternative of doing nothing is that, in time, the demand- driven system will be abandoned and we will return to a highly regulated and restricted system of higher education.
Posted on: Fri, 18 Jul 2014 19:48:00 +0000
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