Is a university degree good debt for the graduate and for society?

Three years after the unsuccessful higher education reforms in the 2014 Budget the government has attempted to clear the decks and start again with a more modest recalibration in reforms announced on 1 May, a week ahead of the 2017 Budget. Full fee deregulation for domestic students is abandoned, as is the threatened 20 percent cut to university teaching grants.

Budget repair of a net $2.8bn is achieved mainly through:

  • An efficiency dividend of 2.5 percent for each of the next two financial years, which is then built into the base for future years
  • An increase in real terms in domestic student fees of 1.8 percent for each of the next four years, cumulating to 7.5 percent
  • A lowering of the threshold at which students begin to repay their HELP debt and a tightening of repayment rates.

The combined effect of the first and second of these is a net reduction in university income on Commonwealth supported places of 2.8 percent.

Some smaller, but still significant measures, include:

  • Improved support for regional higher education, with $15 million to fund up to eight community-owned regional study hubs
  • Changes to equity funding for low SES and Indigenous students, on balance increasing it
  • Extension of commonwealth support places to sub-bachelor courses (diplomas and associate degrees).

The government has returned to the policy of withholding a portion of grants, to be distributed partly on performance and partly on compliance. A total of 7.5 percent will be withheld to create a pool of $500 million to be distributed according to performance measures yet to be finalised. Transparency of information about admissions, costs and research will also be required.

Politically, it is likely the Senate will agree to these measures, after some arm-wrestling. The groundwork has probably already been done, the flashpoints of the 2014 proposals have been removed, and the feeling that “it could have been worse” will make the proposals more palatable.

Opposition has also been weakened by publication of its generally strong financial performance in 2016 and an analysis of per student costs which shows these have risen by less than revenue (9.5 percent compared to 15 percent).

From a fairness point of view, Australian students are already amongst the highest proportionate contributors to their degree costs in the OECD, possibly sixth highest. However on average they will still only pay 46 percent by 2021, compared with 42 percent at present, and it is hard to argue with precision for any specific split between the public good and private gain components of a degree.

From an equity point of view, increased tuition fees mean longer repayment periods, but there is little evidence that this yet deters students from aspiring to university.

It is true that graduate unemployment is currently above the long-term trend, and the lifetime earnings premium on a degree has probably come down, but it is still a good investment for those inclined to a profession rather than a trade.

A HECS debt seems still to be good debt for the graduate and good debt for the country.

From a long-term perspective, however, there is something worrying about the financing of higher education. Domestic teaching grants are being used to subsidise research. Research helps improve universities’ international rankings, which makes them more attractive to international students. Higher levels of international student fees enable governments to pare back on per capita domestic student funding. This puts further pressure on universities to increase international student fees to keep research levels up.

If there were to be a dramatic turn of events leading to a drop in international students then some institutions would be in real danger, possibly precipitating a domino effect.

The obvious answer is to fund teaching and research wholly separately and prohibit cross-subsidisation, dealing separately with any undesirable consequences in a transparent way.

Standing back from it all, total expenditure on tertiary education in Australia may be at about the OECD average, but the public contribution is at the low end and the private contribution is at the high end. The risks in this are two-fold. First, the country may not be investing sufficiently in specific skills and disciplines for the future, as technology throws up radically new challenges for the workforce. Second, by relying on this level of student contribution, the market might fail, with some students acting rationally from a personal perspective and foregoing tertiary education, leading to under-investment in the general public good component of education and training.

The problem is that we might not realise this has happened until too late.


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