Month: June 2023

Conflicting visions of higher education’s purposes

Andrew Norton3 Comments

I blurbed Mind of the Nation, Michael Wesley’s new book on universities in Australian life, with the statement that it ‘shows how rising and conflicting expectations of universities create controversies that will not go away’. His book is about the cultural and political position of universities rather than higher education policy as such, although policy provides evidence of how politicians and voters see universities.

University administrators – Wesley is a deputy vice-chancellor – are at the centre of these controversies, blamed by all sides for whatever is wrong with universities. Mind of the Nation explores why universities receive so much critique and so little love or (from a university perspective) public funding, despite many successes and contributions: life-changing experiences for students, moving from an elite to a mass higher education system, creating a new export industry, large increases in research aimed at solving practical problems, and engagement with local communities.

Wesley asks why Australians admire the successes of their sporting teams, musicians and actors but not universities.

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Free higher education as income and consumption smoothing

Andrew Norton2 Comments

The argument that free higher education would create additional higher education opportunities is empirically weak. History and international comparisons show that participation rates increase without it, and indeed due to budget constraints free higher education can lead to lower participation rates.

However there is another argument for free higher education which, while still contentious, has goals and likely outcomes that are consistent with each other.

Free higher education and income/consumption smoothing

The strongest argument for free (or cheaper) higher education is a better balancing of income and consumption over the life cycle. Needs are more consistent through life than income. Most people consume more than they earn when young and old and a large proportion earn more than they consume during their full-time working years. Smoothing these out is one of the principal functions of welfare states.

Compared to upfront fees or mortgage style student loans paid in instalments the HELP repayment system already has strong smoothing effects. It pushes the expense of higher education away from the years when full-time study limits scope for paid work. On low incomes no HELP repayment is required or repayments that are less than the minimum likely mortgage style loan repayment amount. On high incomes HELP repayments are more than the likely mortgage style loan repayment amount.

And higher education is already free for HELP debtors who persistently earn less than the first repayment threshold.

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Would free university increase or decrease higher education participation rates in Australia?

Andrew Norton5 Comments

In a previous post I argued that Australia’s practice of charging fees for higher education reflects its broader patterns of taxation and public funding of social services.

But we have had free higher education before, 1974-1988. For a government already spending over $600 billion a year the cost of free higher education is not beyond the feasible range. I estimate costs at $4.6 to $5.9 billion a year on status quo numbers of student places in public universities. The range reflects uncertainties about how domestic students currently paying full fees would be handled. The $4.6 billion transitions currently Commonwealth supported students to free, while the $5.9 billion fully compensates universities for lost fee revenue.

Of the arguments for free higher education the one that people find most intuitive is that it would increase higher education participation. People consume more when prices go down. But somebody is paying – the government on behalf of taxpayers – and so how they would respond is the key variable in whether the number of students would go up or down.

Debt aversion

Supporters of free higher education often make demand-side arguments, that fees or loans are a deterrent to higher education participation, especially to people from disadvantaged backgrounds.

As someone with working class origins free higher education advocate Duncan Maskell says he would not have gone to university if he had to take out a loan. Occasional school student surveys have picked up similar sentiments. But the ‘debt aversion’ hypothesis has always had trouble distinguishing between sensible prudence around taking out debt that probably is not worth it (good debt aversion), and over-caution in taking out debts that would probably lead to significant long-term benefits (bad debt aversion).

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Why do Australian university students pay fees?

Andrew Norton2 Comments

University of Melbourne VC Duncan Maskell secured some not always entirely positive media coverage today for his call to make university education free for domestic students.

University education is free or very cheap for students in some European countries and was also free in Australia between 1974 and 1988.

Why do countries differ on university fees?

My theory of why countries differ on this issue draws loosely on the work of Julian Garritzmann. We observe broad coherence between higher education finance systems in each country and their overall tax and social service/benefits systems. The chart below shows patterns in the OECD. Australia is in a cluster of countries in our region with government expenditure below 40 per cent of GDP and quite similar fees in $USD purchasing power parity terms. The countries with free higher education tend to have governments that consume more than 50 per cent of GDP.

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Is the NTEU exaggerating student debt repayment times?

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The NTEU has a new report out today forecasting some alarmingly long HELP debt repayment times, including over 40 years in some high student contribution courses. While I agree that this issue needs attention – and have proposed linking student contributions with expected repayment times to narrow the course-linked differences between them – I think the NTEU forecasts are much longer than will typically happen in practice.

The key problem is how the NTEU models expected graduate income. In their report they take starting salaries and then increase them each year by average wage growth over the last decade, 2.3 per cent on their figures.

However graduate incomes usually increase by much more than that. Indeed, the financial value of a degree is opportunities for continuing income growth when the wages of people without degrees tend to plateau after a decade or so in the labour force.

Graduate career wages

Recently the ABS added ATO and DSS derived income data to the Census dataset, allowing more detailed analysis of income than was previously possible. As the chart below shows for graduates at the median and 75th percentile income does not peak until age 45-49 years, after doubling between the early 20s and late 30s.

The next chart looks at median income by single year of age in the early career period when most HELP debt is repaid. Initial income levels look affected by people in jobs that don’t require degrees, but as professional careers start and graduates are promoted or switch to better jobs income increases rapidly.

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