Fee deregulation: what does it mean for Australian higher education?

The budget has revealed students will have to pay more for their degrees, what does this mean for the higher education sector? AAP

The message for universities from this budget is, “Fend for yourself.” Over the three years from 2015, $1.1 billion will be withdrawn from higher education by decreasing the Commonwealth’s contribution to undergratuate student places. The actual amount that will be lost to the university sector will in fact be far higher, as funding for government supported places will be extended to non-university higher education providers (TAFE and private colleges). The pie will become smaller, with many more at the table to eat.

The government rhetoric paints a different picture. The changes will

for the first time enable competition based on quality and innovation in the higher education system

And innovation there will need to be – in spades. For the first time since Whitlam, universities and other providers will be able to charge what they wish for a place at the table. Caps on fees are gone.

In essence, the public contribution toward a person’s education will shrink, and the private contribution will rise to what the market will bear. This will be good news for prestigious institutions, which will get a solid return on their name and the social status it denotes, but it is unclear how deregulation will play out across the sector as a whole. Quality control will be essential if we are to avoid the worst elements of the US system (yet funding for the quality regulator, TEQSA, has been reduced).

Students will continue to be able to defer repayment of their fees under HECS (and in a small concession the modest start-up fees on these loans will be scrapped), but in a truly startling move the cap on what an individual can borrow (presently $96,000 to $120,000) will be removed. These loans will also be subject to interest - at the moment they are adjusted only in line with CPI. Interest will be tied to that of ten-year government bonds, with a cap of 6%, or about the rate charged on the average mortgage.

What does this mean for Australian higher education?

Be in no doubt that this is a major shake-up. These changes throw the logic underlying HECS, and the policy settings of the last quarter century, out of the window. HECS was introduced on the assumption that the benefit of a higher education accrues about 30% to the individual (primarily in the ability to earn a higher wage) and about 70% to society (in sharing the benefits of the graduate’s knowledge, and the higher taxes they pay, for example). So the HECS a person accrued was the cost of about a third that of their overall education.

This equation was muddied somewhat with the introduction of different levels of HECS for different courses, but the overall logic remained. The reforms announced tonight will lower the amount the Commonwealth contributes, but set free the total amount charged. Any thought of relative proportion or benefit is gone. Ironically, this budget measure is subtitled, “Sharing the cost fairly.” It is hard to say whether it is fair or unfair, since the long established policy definition of ‘fair’ for higher education has been abandoned.

How much are students willing to pay?

We also do not know how a radically uneven distribution of fee levels will affect participation. Research undertaken by Bruce Chapman and his colleagues at the Crawford School has consistently shown that fluctuations in HECS fees do not deter students, regardless of their socioeconomic status. Of course, debt at these levels is untested.

Further, the flip-side of Chapman’s research is that it implies a non-rational market in higher education, that will likely be exacerbated when fees are unequal between institutions. Consider, for example, the big companies advertising retail goods as ‘buy now, pay later.’ They do this because they know consumers make less rational choices, and spend more than they otherwise might, when they can put off payment. Similarly, a student may be unlikely to choose a more affordable course, all other things being equal in terms of quality, if they perceive added prestige in a more expensive course and payment is deferred anyway.

There is a very tight, but complicated, synergy between what students will pay, how much they can borrow, and what institutions will charge. The history of changes to HECS levels shows us that students will pay as much as they can borrow, and that institutions will charge as much as students will pay. A potential outcome of today’s new world could be an upward spiral, where price could become a de facto signal for quality, but no genuine connection between cost and true quality.

The scope for massive debt to government from these loans is difficult to guess at. How un-repaid loans will affect the budget, and the general instability this will cause, are also difficult issues. Perhaps another line from the budget papers puts it best, that it will be “the decisions of students, the needs of employers and the initiative of our academic leaders [that] drives the future of our higher education system.” Government has stepped away from the table.