17
Mar
2015

Focus should now be uni funding certainty

by Andrew Norton


Published by The Drum, Tuesday 17 March

On Sunday morning, Christopher Pyne insisted that a $150 million research spending cut was necessary if his higher education reform package was not passed.

By Monday lunchtime, the research funding had a 12 month reprieve, and big tuition subsidy reductions had been deferred to another bill. The Government is proceeding, for now, with plans for fee deregulation and giving tuition subsidies to students in private colleges and universities.

The idea of splitting the higher education reform package into separate parts makes sense, as I said on The Drum in January. The package’s three main elements of budget savings, fee deregulation and extending tuition subsidy eligibility have distinct origins, and each is feasible without the other two. Putting them together in one bill jeopardised them all: senators had to vote against the entire package to defeat one element they don’t like.

Monday’s decision to split off the budget savings makes the reform bill less controversial. But it seems unlikely to change minds in the Senate. The most unpopular measure, fee deregulation, is still there. Uncertainty over future public funding would weigh on senators’ minds, as this issue is postponed rather than resolved.

Splitting the bill is still the right strategy, but it needs to be done differently. Despite various “compromise” proposals to deter excessive fee increases, fee deregulation is doomed in the current Senate. It needs to be delayed and separated from plans to extend tuition subsidies.

This would give time to hold an inquiry, as Senator Nick Xenophon has suggested. The inquiry should include people linked to Labor, so its findings might be acceptable to a future Labor government. Any reform that Labor cannot live with is unlikely to be effective. Prudent universities will not make major internal reforms based on a policy that could be repealed by Labor as soon as 2017.

Public funding issues, by contrast, should be dealt with sooner rather than later. The Government needs to put credible higher education numbers into the May budget. Universities could plan more effectively if they knew future public funding levels, even if these are lower than they would like. And it would help senators decide on per student funding rate policies if they know how much the Government would contribute.

Taking fee deregulation off the table would help with the budget numbers. Although deregulation is often thought of as saving the Government money, in reality it is expensive via the HELP loan scheme. The more debt students have, the larger HELP’s interest subsidies become. This is because the Government borrows money at a higher rate of interest than students pay on their HELP debt.

An even bigger cost is doubtful debt: money lent to students that probably won’t be repaid. The budget papers suggest that by 2017-18 23 per cent of new lending will never be paid back, up from 20 per cent in 2014-15.

The Government’s HELP budget model is not transparent enough to say how much would be saved by not factoring in fee deregulation. But Grattan Institute research into the causes of Doubtful Debt indicates that the savings from reduced lending for high fees are likely to be substantial. This is mostly to do with female graduates being more likely to fully repay their debts before they leave the full-time workforce.

There are a range of further things that could be done to control HELP’s costs. These include lowering the income level at which repayment is required, which the government is doing; imposing loan fees to partly cover interest costs and encourage upfront payment; collecting debt from graduates living overseas; and ending the write-off of student debt on death, something that happens to few other debts.

With HELP savings and possibly a smaller reduction in per student subsidies than the 20 per cent originally proposed, it would allow new spending measures. The most important of these, and the second bill in a three bill strategy, would be to proceed with the demand driven reforms recommended in a report I wrote with David Kemp. This would improve fairness in the funding system.

Higher education reform is rarely easy. But dealing with issues sequentially and separately will improve our chances of getting both the policies and the politics right.