Big change in higher education, but not a revolution

by Andrew Norton

Published by The Weekend Australian, Saturday 31 May

IT has been a tumultuous few weeks in higher education. If the government’s radical policy agenda succeeds, hardly any aspect of Australian higher education policy will be untouched.

Students in future would need to make big decisions about what type of higher education they wanted, and how much they were prepared to pay for it.

The key changes affecting people considering higher education are bringing private universities, colleges and TAFEs offering degrees into the commonwealth tuitio­n-subsidy system, reducing those subsidies by an average of 20 per cent, removing price controls for domestic undergraduate students, and charging the 10-year bond interest rate rather than the consumer price index on outstanding student debt.

Compared with other countries and Australia before the 1990s, our higher education system is unusual­ly dominated by large public universities. They provide a reasonably good higher education system at moderate per-student cost but do not deliver all that students may want.

Students hoping for small classes and a chance to know the teaching staff typically leave disappointed. This is one reason private universities and colleges have found a market.

Dozens of them already exist and will expand if commonwealth tuition subsidies are extended to them, but none have the prestige or research strength of the leading public universities.

Fee deregulation is intended in part to allow some public universities to transform their teaching models, so that students can have the status and research environment of a top university without the 500-person lectures and 25-person tutorials.

With more income per student, universities would be able to offer smaller classes and other initiatives to improve the teaching experience. But many people worry that fee deregulation will price students out of the market.

Some claims about fees under deregulation are exaggerated. The typical student will not be leaving university with a $100,000 debt. While nobody can know exactly what average fees will be, we have already deregulated markets to guide our analysis.

International students in Australian universities have been in a full-fee market since the 1980s. Unsurprisingly, fees differ significantly between universities.

In business and commerce courses, for example, international students attending a “sandstone” university pay on average 85 per cent more than international students attending a regional university.

International student fees represent the most we may expect in a deregulated market for domestic students.

In already deregulated markets, in postgraduate courses and the non-university higher-education sector, domestic student are never charged more than international students.

In the vast majority of cases, domestic students are charged less than international students.

One possible reason for this is that public universities have missions to serve domestic students that restrict the fees they charge. This will be a factor if undergraduate fees are deregulated.

Many vice-chancellors are expressing reservations about the potential impact of higher fees on their students. They and their governing senates and councils will take these concerns into account when setting fees.

But lower fees for domestic students are more than just mission-driven altruism.

In the non-university higher education sector, for-profit companies also charge their domestic students less than international students. This suggests deeper market constraints on what domestic students will be charged.

While domestic students will pay less than their international counterparts, average fees at public universities will go up. Universities will need fee increases just to compensate for reduced tuition subsidies from government. Beyond those fee increases, most universities are likely to act cautiously to begin with.

Universities that charge more than their market value could quickly find empty seats in their lecture theatres.

Rather than risk losing enrolment share, they will slowly increase their fees to test what students are willing to pay.

In the medium term, however, typical total course costs that are now between $18,000 and $30,000 could average between $30,000 and $60,000, depending on what and where a student studies. Cheaper and more expensive options will be available outside these ranges.

Price sensitivity has not differed historically between socio-econom­ic groups. Research from the Longitudinal Survey of Australian Youth, which tracks young people from their mid-teens to mid-20s, finds that school results are the main influence on whether someone attends university.

Students with the same Australian Tertiary Admission Rank from high or low socioeconomic status families attend university at the same rate. People outside the higher education research community find this result counter-­intuitive.

But it is supported by other empirical research in Australia and by the recent experience in Eng­land, where applications from low socio­economic status students were resilient while fees nearly trip­led to £9000 at most universities, which creates total course costs similar to the range I expect in Australia.

What it suggests is that people who do well in school can make reasonably good judgments about their long-term interests. Students with high ATARs are almost always best off at university, and that’s what we see in applications for university. People with lower ATARs need to make more cautious choices, and we see that in declining application rates as ATARs decrease.

For students across the socioeconomic spectrum, Australia’s Higher Education Loan Program (formerly HECS) is critical. By allowing students to borrow while studying and repay later when their income reaches a threshold, HELP provides money when it is needed and manages the risks of repayment.

HELP is one of the big differ­ences between Australia and the US. In the US, students use a mix of parental support, subsidies, scholarships and loans to finance their higher education. In recent years, 10 per cent of American graduates who borrowed to fin­ance their studies have defaulted, affecting their general credit­worthiness. HELP removes these risks and complexities.

HELP is kept under the Pyne reforms, but students will be charged a higher rate of interest on the debt. This is an important new factor prospective students need to keep in mind. Because of interest, higher education will be more expensive for people who take a long time to repay their debt.

Although HELP is a good program overall, it is a weak point in the Pyne package. The government proposes abolishing the remaining limits on how much students can borrow. This encourages students to keep going deeper into debt when it is unwise for them to do so. It allows universities to charge excessive fees knowing that students have a lender who asks no questions.

It is also potentially very costly to taxpayers. Already, the government budgets more than $1 billion a year for money it lent students but does not expect to recover, as it does not collect HELP debt from people overseas or from deceased estates. That will go up substantially as fees increase.

Late this week, Christopher Pyne floated the idea of recovering HELP debt from deceased estates. His suggestion was based on a recent report I wrote for the Grattan Institute. Tony Abbott has ruled out this policy change. But without reform of HELP, deregulated fees will end up being expensive for government as well as students.