Uncapping education fees and unleashing the unscrupulous

In the new uncapped fee environment, there seems little to stop door-to-door sellers targeting the ill-informed. Image sourced from www.shutterstock.com

The federal budget proposal to uncap university fees could be taken as a blank chequebook for both universities and self-accrediting colleges offering higher education services.

On the ABC’s 7.30 program last week, in response to Sarah Ferguson’s question: “How high could those fees go?” education minister Christopher Pyne answered:

Well that’ll be a matter for the universities to determine and obviously the market will ensure that those prices reflect what students are prepared to pay…

They’ll earn 75% more than people who don’t have university degrees and they can borrow every dollar from the taxpayer, whatever the fees.

Both public universities and the lightly regulated, for-profit educational sector are likely to be positioning themselves to capitalise on this structural change, but there could be serious unintended consequences to both consumers and the government’s budget bottom line.

In 2012, for example, evidence emerged of unscrupulous vocational education (VET) providers in Victoria whose state-funded training consisted of a series of photo shoots staged to garner more money.

Other evidence emerged of VET providers signing up students to 24-hour long courses by offering to pay the student A$300 and promising the student another $50 for every person he or she brought with him.

In the new uncapped fee environment, there seems little to stop door-to-door sellers targeting the ill-informed. Unemployed young people might be offered a 12 month diploma in “Work Readiness”, along with a $500 per week stipend, paid by the provider. The program fee would be $100,000 per year, but this would only be repaid after the student earned more than $50,000 – a sum well beyond their experience and indeed their wildest dreams.

Around the dinner table, the conversation might conclude with – it’s a big debt, but we’ll almost certainly never have to pay it back – so why not!

Risky business

Recent US experience should provide a warning for a structurally-led spike in loans. At the height of pre-GFC US debt bubble, NINJA (no income, job or assets) loans were easy to get for homes, but also for cars and for other purposes. Borrowers and lenders colluded to declare false assets and incomes (potentially not necessary here, as assets and income are not relevant in the mooted policy). The debt bubble grew rapidly, the component of bad debts grew, and it all ended in disaster.

Even if this worst-case scenario is unlikely, the chance of problems is high. Students will commit to very expensive programs that are ill-suited to their capabilities. If they complete them, they will struggle to find work that pays sufficiently well to justify the massive educational expenses they have accrued.

The budget papers acknowledge as much – the Commonwealth expects 23% of this new debt never to be repaid.

Even that percentage may be conservative, however, if the industry really ramps up growth. The budget estimates are based on Commonwealth Supported Places (CSPs) growing from 544,000 to 621,000 between 2015-16 and 2017-18, and average debt growing from $18,600 to $21,500. If the expanded sector grows to say 700,000 CSPs and average debt grows to $25,000, the Commonwealth will need to find an additional $4.18 billion, around $1 billion of which (by its own estimates) will never be recovered.

This uncapped funding of unregulated fees in an under-regulated segment of the higher education sector has all the makings of one of the worst public policy fiascos ever envisaged. The irony is that these changes are proposed as a means of controlling Commonwealth expenditures - an example of fiscal rectitude no less.

The Commonwealth will point to TEQSA, the accrediting agency that is in place to ensure quality provision among higher education providers - public and private. What extra resources, you may ask, was TEQSA provided in the budget to monitor this emerging higher education “wild west”?

The answer is zero. In fact the government is looking to decrease the administrative overheads of the agency and has therefore reduced its funding commencing on a staged basis from July 2014 (saving $31.1 million over four years), stating:

The Government has directed TEQSA to focus on its core quality assurance activities of registration and accreditation and conduct its activities in keeping with the principles of necessary, proportionate and risk–based regulation.

Public investment in education is a precious national resource. Applying it optimally can have far-reaching impacts on individuals and the wider society. It should never be squandered. The proposed funding arrangements need much more thought before they are implemented if we are to avoid a boom and bust, and massive waste, that the education sector, and the nation, can ill afford.