Which cap fits? Putting a ceiling on university fees

Should we put a cap on uni fees? Shutterstock

In all of the debate about the government’s plans for higher education, what people seem to worry about most is the prospect of ballooning student fees, with predictions of A$100,000 degrees or more. So why doesn’t the government just cap fees? It seems simple enough, but the reality is more complex.

There are basically three views on capping fees.

1. They’re not required in a market

This theory says institutions that charge excessive fees will lose students to those that charge lower fees. This view has been put by Education Minister Christopher Pyne many times. Most recently, when he was asked about the possibility of fees in the hundreds of thousands of dollars, Pyne replied:

That’s not possible because the competition won’t allow it to happen. If a university decides to charge exponentially higher fees they will have empty lecture theatres and empty tutorials because part of this of course is the expansion of competition, the capacity to compete on price. If a university charges fees that are too high, people won’t go to that university and because we have so many universities and so many private providers, there will always be other options.

This argument has also been put in The Conversation and in many other places, where fees for international students and for domestic fee-paying postgraduate students are given as examples of fee markets working appropriately.

But international student fees are not backed by income-contingent loans and a relatively low proportion of domestic postgraduate students take out loans, for various reasons. These are therefore not good models for unregulated fees for domestic undergraduate students backed by universal and unlimited loans.

2. They’re not needed as universities are socially responsible

The second position acknowledges that higher education is not a classic market but asserts that Australian higher education providers are too responsible to charge excessive fees. But this is belied by universities’ practice, as shown by a quick review of the MyUniversity site.

Even before loan borrowing limits are removed the total fees for Bond University’s law degree are over A$130,000. Total fees for The University of Melbourne’s graduate entry law degree are about A$110,000 after completing an undergraduate arts degree, for example, where total fees are currently capped at about A$18,500, or undergraduate commerce where total fees are capped at about A$31,000.

3. Caps will ensure students aren’t overloaded with debt

The third position is that neither the invisible hand of the market nor the silent voice of conscience will limit institutions’ fee increases enough to avoid students incurring excessive debts which they won’t be able to repay fully, thus increasing government subsidies of the most expensive programs. This position argues that the government should cap fees or fee increases. There are several ways this may be done.

Some point to the government guidelines that prevent institutions charging domestic students more than international students, whose fees are disciplined by an international market. But, as others have observed, this is not an effective cap. For example, institutions may set very high international fees and either accept fewer international students or discount fees for the international students they want to enrol.

Another possibility would be to set new fee caps higher than the current caps. But the new caps would have to be very much higher to get the competition on price that advocates of fee deregulation so ardently desire.

The Australian government increased the fee cap for the most expensive programs by 125% in 2005 yet all institutions soon charged the maximum fee for all programs. The UK government almost tripled maximum fees to the equivalent of A$15,850 a year in 2006, yet in 2015 76% of institutions will charge maximum fees for at least some of their programs and 25% of institutions will charge maximum fees for all of their programs.

A third possibility would be to cap annual fee increases by a percentage or dollar amount, as is done by some Canadian provinces. This is unlikely to satisfy those who want big differences in fees charged for domestic undergraduate students.

A fourth possibility is to cap student loans, which is preferred by HECS architect Bruce Chapman. This seems the most likely option, although it would be more regressive than alternatives. Students taking a FEE-HELP loan currently have a lifetime borrowing limit of $120,002 if they are enrolled in medicine, dentistry or veterinary science, and $96,000 for students enrolled in all other programs. The government proposes to remove these borrowing limits.

As I suggested soon after the government announced its plans in the May budget, it would be better to apply lifetime borrowing limits to all HELP loans. Even if borrowing limits were increased substantially, some institutions would probably continue to charge fees for at least some programs which couldn’t be covered by the loan limits. This requires students of these programs to rely on their parents or other private resources or loans to pay their fees, thus restricting enrolment to students with access to private resources.

While this would be regressive, it would preserve fee competition. That seems to be the government’s core aim in deregulating fees, and it would protect the HELP scheme from unviability, which seems a major risk of uncapping both fees and loans.