An opt-in or -out system of fee deregulation will split the sector

Senator Wang has floated the idea of letting each university choose whether they want to take a government cut and set their own fees, or maintain the status quo. AAP/Alan Porritt

Earlier this week, Palmer United Party senator Zhenya Wang proposed an opt-in/opt-out model for university fee deregulation.

On face value it is an attractive proposal for many, but if introduced poorly it will come with nasty surprises for students and universities (much like cheap campus-based student accommodation).

The government has twice had their 2014 higher education bill defeated in the Senate. Senator Wang’s model was presented as way to break the legislative stalemate.

Something more widely supported than the current bill is definitely needed. The ALP remain opposed to the package, having effectively raised fears of widespread “$100,000 degrees”.

The crossbenches have had mixed (and at times changing) responses to the government’s plan. At various points there has been strong support (Senators Day, Madigan and Lyonhjelm) and at others there has been outright opposition (Senators Lambie and Lazarus).

But all indications are that Education Minister Christopher Pyne intends to press on with efforts to change Australian higher education. An opt-in/opt-out model of fee deregulation might be on the table before we know it.

Pyne has said he’ll press on with reforms. AAP/Mick Tsikas

Central to the proposal is allowing universities to decide whether or not to be part of the deregulated system - whole box and dice. Universities would determine their own fees but would incur a 20% cut to public funding for teaching. Universities that opted out of the system would not face a funding cut and remain under the current rules.

But such a scheme is far from simple and would need to be well crafted to avoid dramatic consequences. It could provide some stark choices for both government and universities, mixed with some tricky unknowns.

If the rules for deregulation remain the same as Pyne’s current proposal, then universities opting-in will have to increase their fees by roughly 30% on average just to make up for the cut. To make the choice worthwhile they will almost certainly have to go beyond that.

Any fee increase is a hard case to make to students, even under the current Pyne proposal where all Australian public universities will need to make up for the cut. It becomes even harder if only some universities have to make the case for higher fees and such a system may see few institutions join. Which begs the question: why implement such a system?

If the government offers a smaller cut to public subsidies than the present 20% proposal for opting-in, then it may provide little or no incentive for institutions to stay with the current capped system. If this is the case, why have a complex opt-in system at all, especially one that does little to put downward pressure on fees?

One of the risks with a badly designed opt-in scheme is that it will split the university system in a way few people would want. Over time Australia could see one group of universities with ever decreasing Commonwealth support but few ways to make up for it, while another group with even less Commonwealth support is forced to raise fees to a point where they are no longer attractive. This may be an unlikely outcome but far from implausible.

Getting the design right will be a challenging task.

It is not clear at this stage what the government may do to review or modify the package, if anything at all. But given the unwillingness of both sides of politics to commit to further public investment in the system, the need for a new coherent set of proposals is more pressing than ever.