19
May
2014

Record education reforms for a generation

by Andrew Norton


Published by The Australian Financial Review, Monday 19 May

The higher education reforms announced on budget night are the biggest in a generation. They would let public universities set fees for all domestic undergraduates for the first time since 1973. And also for the first time, all students outside the public universities would be eligible for tuition subsidies.

The two reforms are complementary, setting up competitive pressures intended to moderate fee increases in public universities. We already have TAFEs offering degrees and private higher education providers with cost structures that will let them compete on price, with more market entrants expected if the higher education reforms are passed by the Senate.

Despite these competitive pressures, some universities will charge much more than they do now. One rough guide comes from the already deregulated international student fee market, which suggests there would be a wide range of fees. For international students, the cheapest course is often half the price of the most expensive course in the same discipline.

Fee data collected from university websites in 2013 suggests average annual fees for undergraduate international students range from $20,000 to $27,000 for most disciplines, with medical courses costing more. If these were applied to Australian students with tuition subsidies deducted, they would be in the $12,000 to $16,000 range for most disciplines. This compares to $6000 to $10,000 now.

These are the upper limits. In deregulated postgraduate markets, Grattan Institute research has so far found no examples of domestic students being charged more than international students.

How Australian prospective students will evaluate fees is the big unknown. Past fee increases suggest low price sensitivity on whether or not to attend university, as the money can be borrowed under the income-contingent Higher Education Loan Program (HELP). But this does not tell us how prospective students might choose between differently-priced courses leading to the same qualifications and careers.

LIMITED RESEARCH

To help inform these choices, we need more research into whether where someone goes to university makes a significant difference in the long run. The limited research to date, only of recent graduates, suggests surprisingly small employment and income advantages from attending a higher-prestige institution. What a person studied matters much more than where they studied it.

Prospective students will need to understand the consequences of borrowing more. While annual student loan repayments will not change much, the number of years of repayment will increase. How long a debt will take to repay is especially important as the government wants to increase the student loan debt interest rate from CPI inflation to the 10-year bond rate.

There are also substantial costs to government from additional HELP lending. Before these reforms, the Australian Government Actuary estimated 17 per cent of HELP lending would never be repaid.

The government deserves credit for announcing competitive mechanisms to help keep fees down. Universities offering reasonably priced courses can emphasise their superior value for money and the risks of borrowing too much. But more thought needs to be given to how HELP interacts with flexibility on fee setting. Without HELP reform, higher fees will cost taxpayers as well as students.