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The price of prestige: how university status affects fees

More expensive universities aren’t necessarily better, but international students usually think so. AAP/Julian Smith

The price of prestige: how university status affects fees

Although removing the cap on undergraduate student fees remains controversial, deregulated fees are not unusual in Australian higher education. A third of public university students already pay market fees. International students make up the majority. The rest, around 140,000 domestic students, take mostly postgraduate coursework degrees.

Deregulated markets provide some insight into both how universities behave when allowed to set their own fees, and how students react to those fees. These are explored in our new Grattan Institute report, University fees: what students pay in deregulated markets.

The international student market

In the international student market universities aim to make money, and the main price constraint is what students in a global market will pay. The fees Australian universities charge international students are comparable to competitor universities in countries such as the United Kingdom.

In each country, we observe a wide range of fees for the same or similar courses. In Australia, it is not unusual for the most expensive university to charge double or more the fee of the cheapest university offering the same course. This does not deter international students. Despite the cost, in most disciplines expensive courses attract more students than cheap courses.

There are clear university patterns to international student fees charged: on average, the Group of Eight universities have the highest fees, followed by technology universities, the Innovative Research Universities which were typically founded in the 1960s and 1970s, and the Regional Universities Network members, which usually date from the 1990s.

Will Australian students see price as an indicator of quality? AAP/Julian Smith

University prestige is the main reason why some universities can charge much higher fees than others. Especially with the rise of research-driven university rankings, research has become an important university status marker.

All Group of Eight members are in the global top 200 research universities, while no other Australian university has yet reached this status. Other status markers are high entry requirements, and perhaps high cost in itself.

Students pay for prestige partly as an investment. It gets them into a university that potential employers have heard of and believe is of high quality. University prestige is a proxy indicator suggesting that graduates have attributes and skills employers are looking for. Graduates hope that this will help them get a good job.

In many disciplines, high prestige lets the Group of Eight universities charge international students thousands of dollars a year more than the technology universities. The cost difference with other universities is even larger.

In the domestic postgraduate market, however, prestige has less financial value. Domestic students never pay more than international students for the same course, and usually they pay significantly less.

In commerce courses, the most popular for international students, they typically pay about 20% more than domestic students. In arts courses, the difference is more than 40%. This is despite domestic students having access to the HELP loan scheme, while international students must pay their fees upfront.

While on average the Group of Eight universities charge domestic postgraduates more than the technology universities charge, the fee differences are small compared to the prestige premium paid by international students.

One reason that domestic postgraduate students pay less for prestige than international students is that they don’t need to. While for visa reasons few international postgraduate students work in relevant jobs, many domestic postgraduates work full-time while studying.

Employers can observe directly whether their staff have added skills as a result of their course. This is real information about what they looking for, not a proxy indicator.

Domestic student market

In the domestic market, prestige could be more significant for undergraduates than postgraduates. Like international students, most domestic undergraduates lack jobs relevant to their intended careers. They need other ways of signalling their skills and attributes to potential employers, such as attending universities with strong brands.

Domestic undergraduates may also be less price sensitive than postgraduates. For school leaver undergraduates HELP repayments are many years away, reducing their price sensitivity. Domestic postgraduates with jobs could start paying for their degrees before they graduate, focusing their minds on value for money.

Although prestige is likely to count more for domestic undergraduates than postgraduates, it will be less important than it is for international students.

Universities without high international research rankings have good local reputations, based on the experience of students and employers. International students and their prospective employers do not have easy access to this information. Many domestic undergraduate students with the marks to attend a Group of Eight university go elsewhere, confirming that prestige is not always decisive in student choice.

Research suggests that this local knowledge is as reliable as prestige in choosing a university. Student satisfaction with teaching is similar in low and high research departments. Graduates from different types of university have similar rates of employment, and only small income differences.

As undergraduate fee deregulation is unlikely to pass the Senate, the exact price of prestige will remain unknown. Our experience in existing deregulated markets suggests that it would be substantially less than what international students pay, but more than what domestic undergraduate students pay now.