Higher education open to scrutiny?

If Minister Pyne succeeds with plans to uncap fees for Commonwealth supported students, Australian public universities will need to set the price for their major undergraduate degree offerings for the first time in many decades.

One justification for such a widespread deregulation of student fees is that it will bring significant competition between universities and other providers. So will this competition emerge and what consumer protections exist for students?

Students, as consumers of an education product, are protected by Australian consumer law and the Australian Consumer and Competition Commission (ACCC).

In a deregulated market for undergraduate education, providers will likely face greater scrutiny over the protections which currently exist. Importantly this means universities will face scrutiny over competition and collusion in price setting.

Higher education providers are prevented from setting course fees in reference to agreements (formal or less so) with other institutions.

The consequences for a university of being pursued by the ACCC could be dire, for their reputation if nothing else.

These protections are important, because whether deregulation of the domestic undergraduate market will produce competition is as yet untested. However, there is at least some evidence that competitive pressures exist in higher education.

There is already significant price differentiation in both the international student market and the domestic postgraduate market where universities have significant experience. While few would claim this is a perfect guide, it does show that a market can operate under the right circumstances.

Australia’s previous brief experiment with limited full fee deregulation at undergraduate level in the 2000s gives some indication that competition will arise, even though there were different market settings then.

Nonetheless, missing last time was a crucial element now proposed: availability of unlimited HECS-HELP.

The limited evidence available suggests that students have been largely price insensitive to increases in the student contribution in the past, and this is commonly ascribed to the HECS system where it is seen to neatly break the price signal. But it is yet to be tested whether this price insensitivity will hold in a deregulated system. Widespread fee rises, where there are genuinely different options, may make prospective students think twice.

A key issue here is whether sufficient information will be easily available to prospective students regarding the outcomes from difference course.

Students don’t know what their experience of a particular course will be and so must judge by other means what benefit they think will come from study.

Universities know much better than students what the quality of their educational offering is, but face an obvious incentive to claim that it is ‘world class’ or some similar cliche.

Reputation and brand only act as an imperfect guide to quality of a higher education degree and the varied experiences it entails.

If information asymmetries in the market for higher education persist, current public universities in Australia have a clear starting advantage.

In a deregulated system consumer protections become all the more important.