Last year, like many Year 12 parents, I was involved in helping my daughter decide what university courses she’d like to apply for. Potential career paths were considered, the teaching and social experiences at various universities were evaluated. However, in all these conversations, there was no discussion of the financial implications, that her degree would cost “real money”, which she would eventually need to repay. In the pre-2014 budget context, course fees were not a significant consideration for undergraduate students attending public universities and there was a general climate of trust in the system.
The radical changes to higher education suggest the need for changes in university enrolment and communication practices. Currently, universities act as agents for the government, committing students to future debts in their student loan contribution repayments in an administratively smooth process. However, in the post-2014 budget context – now that tuition costs will be significantly increased - universities have an obligation to ensure that students better understand the financial consequences of their course choice, university choice and deferred payment decisions.
No-one mentions the high school students
There has been much post-budget commentary on the deregulated environment. Political justification is voiced in economic terms – the total cost of higher education; ideological terms – public versus private benefit of education; and the business case – eventual financial benefits of a degree over a lifetime. Some commentators consider the serious discriminatory aspects of the new fees policy – for example the potential higher cost to women, who according to economic modelling do not gain the same lifetime financial benefits of a degree as men.
Yet there appears to be little commentary on the issues affecting the people most likely to be detrimentally affected. Those who will suffer the most serious financial effects are the 17, 18, and 19 year old school leavers.
Teenagers making complex financial decisions
Despite their youth and inexperience with financial matters, these students are expected to make judgements on what is a complex financial instrument. The Australian student loan has very unusual characteristics, some of which are similar to that of a reverse mortgage where the amount owed increases over time. There are potential cases, particularly for women and others who have some break in their working life, where the total amount owed would continue to increase, even though the required repayments are being made. This is due to the higher compound interest rate that will be used.
In a deregulated fees environment, Year 12 high school students are placed in a position where their best strategy is to determine the business case for their proposed course choice – perhaps with a high school career adviser. If they do not undertake this analysis they may experience serious negative financial consequences later in life.
The deregulated environment and moral hazard
In addition to the complexities for school leavers, deregulation of fees and likely increases in the proposed “light touch” regulatory environment create the conditions for moral hazard. Applying this concept to the Australian university context, there may be incentives to enrol students in courses that may not be in their best interests. In this case, the university enjoys the benefits of increased income, and the student or graduate bears the negative financial consequences, such as a poor student experience or lack of demand for the degree qualification.
The concept of moral hazard co-exists with the concept of information asymmetry. One party to the transaction - the university - has far more information about the nature of the services than does the client – the student. Intentional misrepresentations would be unlikely. But this does not mean universities are providing potential and current students all the useful information they could, and in a way that is easily digested.
Should the new measures be passed by the senate, universities have an obligation to be far more explicit about student fees in the information provided to high schools, on information days, during orientation and to students throughout their degree.
What information would be useful to future students
If school leavers are to develop “business cases” for their preferences, there is a need to provide far more information than is normally included on university and ATO websites. Useful information would include total course costs, tables of total repayments at various salary levels, likely graduate career paths for each course, and employability and salary statistics.
Potential students would also benefit from detailed information about the student experience within their course: how do students learn, class formats and student numbers, how are they assessed, exams or practice-based assessments, pass rates, student satisfaction, and any social aspects of the course. In a deregulated environment, universities that communicate rich examples of a positive student experience are likely to have a competitive advantage.
What information would be useful to current students
For existing students the guiding principle should be “no surprises”. Each year students and graduates with student debt should receive a statement with a summary of their student loan debt. This should include tables that project the accumulated debt at specific periods – for example five years and ten years after graduation - at various salary levels.
There will be students who have a number of fails and repeats. Universities should develop alerts so that these students are invited to discuss their circumstances with appropriate staff. A number of disadvantaged students, even in the current context, have little idea of the debt they are accumulating through their study.
More contentiously, universities should review their approaches to the “subjects from hell”. There are occasional subjects with very low pass rates and repeated failures, which are anomalies within degrees. It is difficult to justify why students should pay repeatedly for tuition in a subject that appears to need a review. Where there are problems of educational delivery, students should not suffer the now significant financial consequences.
Read The Conversation’s coverage of fee deregulation and proposed changes to the sector in the 2014 federal budget here.