The uni reform plan that was never sold on merit

by Andrew Norton

Published by Australian Financial Review, Tuesday 6 October

Last week the Minister for Education Simon Birmingham accepted the inevitable. A higher education reform package with two Senate defeats could not continue. Both the policy and the politics require a reset.

The most controversial reform proposed by former education minister Christopher Pyne was deregulating fees for government-supported university students. Maximum fees range now from $6000 to $10,000 a year, depending on the discipline. Fee deregulation let Labor run a campaign against “$100,000 degrees”, a notion the government needs to discredit before the 2016 election.

Fees in already deregulated markets for international and domestic postgraduate students suggest $100,000 degrees would have been rare. But reform of higher education pricing needs more than casting doubt on a worst-case scenario. It needs positive reasons for change that were hard to find during the 2014 fees debate.

The most constructive argument for higher maximum fees is that students could benefit. As in other markets, students could pay more for an education that meets their needs or preferences more effectively than the current system.

The growing higher education sector outside the public universities shows demand for something different. The Liberals are still committed to making non-university higher education providers more accessible, by extending tuition subsidies to their students. Some additional fee flexibility for public universities would create a consistent diversity and choice message. This can be done without abolishing all limits on what public universities can charge their students.

Partly because Pyne’s fee deregulation plan came as a surprise, universities lacked clear plans for how additional fee revenue could improve the student experience. Most vice-chancellors supported fee deregulation to avoid the consequences of efficiency-dividend public funding cuts, not to change the student experience.

The resulting arguments for fee deregulation were half-hearted: we would prefer government funding but in its absence we support fee deregulation instead. This balancing-the-books argument might have convinced university councils and Senates, but there was not much in it for students or the general public.


These problems were compounded by unfortunate timing. The Pyne package arrived as years of rapidly growing higher education expenditure collided with the need to bring the budget deficit down. The government wanted to reduce student subsidies by an average of 20 per cent. Substantial fee increases would be needed to maintain current university income per student, before there was money for any new or better student services.

As the Grattan Institute report Graduate Winners argued several years ago, there is a case for reducing student subsidies. Typically these subsidies transfer money from taxpayers to students without producing significant public benefits. But by combining subsidy cuts and deregulated fees, the political message became confused. It looked as if students were going to pay more but not receive anything better.

This problem was exacerbated by another government decision. Universities were to divert 20 per cent of additional fee revenue into scholarships and other benefits for disadvantaged students. Why some students should subsidise other students was never clear. It contributed to the package as an exercise in income redistribution rather than educational improvement.

A politically realistic higher education reform package needs to separate fees and funding cuts, and do more to ensure that with added fee flexibility, students receive value for money.

In the first instance, the government should seek savings from the student loan scheme rather than the student subsidy scheme. Senator Birmingham is already across many of the issues. His time as vocational education minister was dominated by the problems of VET FEE-HELP, one of the family of student loan schemes descended from HECS.

Ending the write-off of HELP debt on death, charging all HELP borrowers loan fees and reducing the income level at which debtors must begin repaying can deliver substantial savings. Contrary to common misconceptions, limits on fee deregulation would also save money. Because not all student debt is repaid, higher fees would inevitably mean more bad student debt. Workable HELP reforms could be ready for the May 2016 Budget.

A new system of pricing student places, including the maximum fees payable by students, should be based on empirical analysis. Labor’s proposal for a Higher Education Productivity and Performance Commission is worth considering. It can advise on key issues such as how much money is spent on teaching, whether that money can be used more effectively and how much research we should let universities fund from student sources.

There is a political imperative to rule out fee deregulation. But there is no urgency on the detail of a new funding system. Universities do not have enough money to do all that they would like but they are not facing a financial crisis. There is time to get the policy settings right.