Public vs private benefit: what do subsidies for university fees pay for?

Asking what higher education students should pay is a deceptively straightforward question. University image from

The Grattan Institute’s most recent report Graduate Winners by Andrew Norton has generated valuable debate about what financial subsidy government should provide for university students.

But before adjusting public policy settings, we should take pause to consider what we think public subsidies for university tuition pay for.

In particular, what are the public benefits and the broader “public good” created by university study and who should bare the cost?

Public good from the public purse

The report focuses on a narrow measurement of public benefit, those direct benefits (financial and otherwise) that education provides for the public. These include more volunteering, greater tolerance and civic engagement.

The report concludes that where students pay a greater proportion of their tuition (and enjoy an income-deferred loan, HECS-HELP) they are still likely to attend university. This means that these benefits for the wider public can be safely subsidised by students because they retain the great private benefit from their degree.

The report’s argument is meticulous in its execution and makes a case for why the measurable benefits do little to justify present arrangements. Nevertheless, we should be very cautious before Australia considers radically reducing the public subsidy for tuition of less than 1% per cent of GDP.

For one thing, there is the tricky issue of “the public good” created by higher education. Over millennia, higher study has been a central goal of diverse polities, from the Middle East, to China to the United States. And while this was not often undertaken in what we now call university, these contemporary institutions are largely the standard bearers for long traditions of rigorous intellectual inquiry for the benefit of all.

Studying at university is to participate in and add to this long tradition, to contribute to “the public good” in this sense.

What makes university subsidies different?

Unsurprisingly though, some people remain unconvinced. What about the cost they ask? What about the unfairness of someone getting private benefit from taxpayers’ money?

Because these are difficult questions, it is seductive to focus narrowly on the public benefit we can quantify.

We should acknowledge that Australia subsidises many activities not easily showing immediate and quantifiable public benefits. Every year these subsidies keep industries afloat and ensure major events come to Australia, but their justification for public money rarely stand up to scrutiny.

With over 800,000 domestic students in higher education, there is a clear case that benefits are spread at least as widely as other activities we publicly subsidise. Is spending on university students really that much less worthy than other public subsidies?

Arguments in favour

But demanding another “dip in the public lolly bag” just because others continue to, does not make for good public policy. The fact that we subsidise industry is not a sustainable case for doing so for students.

At least two considerations suggest we should continue to subsidise tuition publicly.

First is the challenge in measuring public benefits. Just because perceived public benefits are elusive, does not mean they do not exist. As the maxim goes, the absence of evidence is not necessarily evidence of absence.

Much research is still to be done, but many believe that higher study does serve the public, and the state should contribute as a matter of principle and not leave the burden to private students alone.

Should we bravely ignore lessons from other higher education systems, such as those in Europe and America?

Second is risk. What if a completely student funded tuition system does not attract enough students to remain financially viable? What if $6 billion less in public funding means the decline of universities in Australia? Can we cope with the task of reinvigorating such a system when it takes many years to train academics?

The bigger picture

Australia is a wealthy nation and the cost of a cautionary approach for higher education’s long term future is public spending of a very small proportion of GDP. A reasonable share given that universities help build national productivity, preserve cultures, refine expertise and develop new knowledge. Most countries in the OECD spend much more already.

All this is to suggest that asking what students should pay is a deceptively straightforward question. The assumptions we make and what follow-on questions we ask bears greatly on the answers we find in the debate over public subsidies for education.