Author: Andrew Norton

Why does the Universities Accord final report suggest repaying HELP debt on a marginal rate – a % of income above the threshold, rather than all income?

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One quirk of the HELP repayment system is that, on reaching each repayment threshold, the debtor pays a % of their entire income. England and New Zealand followed Australia in creating income contingent student loans. But their repayment systems are based on a % of their income above the threshold – they have marginal rate systems. The Australian income tax system also uses marginal rates.

The Universities Accord final report HELP repayment recommendations include ‘moving to arrangements based on marginal income’.

As explained below, this Accord change would reduce ‘effective marginal tax rates’ – the loss of disposable income on each dollar above the threshold. Under the current system, EMTRs can exceed 100% – so that earning an extra dollar reduces rather than increases a HELP debtor’s annual disposable income. The Accord final report calls this an ‘unfair situation’.

The Accord final report does not specify a marginal rate – an issue I discuss in another post. England and New Zealand have marginal loan repayment rates of 9% and 12% respectively above their repayment thresholds.

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Changing the HELP indexation date – 30 November?

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A common HELP indexation complaint over the last couple of years is that compulsory repayments during the financial year are not deducted prior to indexation. I explained the current system in this post last year.

In that post, I noted that one reason for not taking compulsory HELP repayments out prior to the current 1 June indexation date is that their exact amount is not yet known by the ATO. The repayment amount is calculated after the financial year ends, on 30 June, and during tax return processing. There are many reasons why HELP repayments sent via the PAYG system could be less or more than the final repayment amount.

The ATO has raised another administrative obstacle, which is that HELP repayments are not separately identified in the PAYG information it receives from employers. As the ATO collects salary information, and already knows who is a HELP debtor, it perhaps would not be that hard to infer why the amount withheld from an employee is higher than income tax rates require. But clarity on what is intended as a HELP repayment would require system re-designs for the ATO and employers. HELP PAYG information would still often vary from the final correct amount, so the system would need a reconciliation after 30 June, with corresponding adjustment of indexation up or down. This would add complexity and administrative costs. These practical issues rule out real-time reduction of HELP balances.

The Accord final report instead recommends another option, changing the date of HELP indexation. They do not, however, suggest a date.

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HELP debt indexation at the lower of CPI or a fixed maximum rate – giving HELP borrowers more certainty than the Universities Accord final report lower of CPI or WPI recommendation

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Over the last two years high CPI-driven HELP debt indexation – 3.9% in 2022, 7.1% in 2023, probably in the vicinity of 5% this year – has been a major issue. It has brought to public attention HELP debt issues that had been waiting for their trigger.

The last time HELP debt indexation exceeded 5% was in 2001, as the the new GST flowed through into prices and an indexation rate of 5.3%. At that time 1.1 million people had HECS (as it then was) debts of about $7.2 billion. A Factiva search shows that this unusually high indexation was newsworthy at the time. But with much lower HELP balances per person than now the average debt increase was only $350. The indexation issue then went quiet for two decades, except when the government wanted to charge more than CPI.

The reason for HELP indexation’s long low media profile was that between 2002 and 2021 it averaged 2.4%. It was below 2% between 2016 and 2021. This extended period of low inflation left HELP indexation as a latent issue, as increases in HELP debtor numbers and average debts gave it far more potential to cause significant personal cost and political trouble than it had in 2001.

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How would student places be allocated by the proposed Australian Tertiary Education Commission?

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Based on the Universities Accord interim report I was concerned that its proposed tertiary education commission would be highly interventionist, controlling university enrolments to meet the government’s equity, attainment and skills targets. I called it Job-ready Graduates 2.0.

The Australian Tertiary Education Commission proposed in the Universities Accord final report is – I think, a lot of detail remains to be seen – considerably better than the version of my policy nightmares last year.

The overall funding system would have more central steering than now, but on my reading ATEC probably will not routinely micromanage – that university A must offer B places in C course and fill them with students meeting criteria D, E or F. That was the approach of recent ad hoc student place allocations, such as the 20,000 new places for skills shortages and equity groups. The Accord final report admits that these places won’t be used. Even without recent soft demand, every condition added to a student place reduced the chance that a student could be found to fill it.

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Creating a better integrated education system – some notes on Rethinking Tertiary Education, a book building on the work of Peter Noonan

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Peter Noonan was a rare person with expertise across vocational and higher education, and an even rarer person who made significant policy contributions to both. Sadly he passed away in 2022 at the age of 67.

Rethinking Tertiary Education, co-edited by Peter Dawkins, Megan Lilly and Robert Pascoe, with sixteen others as co-authors, is billed as ‘building on the work of Peter Noonan’, and does so by exploring ways of making the component parts of Australia’s formal education sector – especially higher education and vocational education, but also schools – work together more smoothly than now. Pascoe also contributes an interesting biographical chapter on Noonan.

For historical and political reasons the vocational and higher education systems in Australia have quite sharp dividing lines in the nature of the qualifications they deliver, how they are funded, how they are taught, and with some exceptions the occupations they support. The book also looks at school credentials, especially the idea that they don’t measure all they should.

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What’s new in university and NUHEP funding agreements, part 2: Inappropriate use of the agreements to create a new equity program

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In a previous post on the new funding agreements, I looked at the 2024 Commonwealth Grant Scheme funding for higher education courses and designated courses, along with the amended rules for course closures. In this post I look at a novel funding agreement section, which creates a new equity program financed by under-spends on the Commonwealth Grant Scheme. This program has legal and policy flaws. I also examine some paperwork problems with the agreements for non-university higher education providers and private universities.

What usually happens if universities under-enrol?

Due to weak student demand some, quite possibly many, higher education institutions will under-enrol in 2024 – that is, take Commonwealth-supported students valued at less than the maximum funding they can receive for higher education courses according to the funding agreements – this year a $7.24 billion pot of money.

By law, under-enrolment results in CGS grants being reduced – higher education providers are paid the lesser of the value of student places (on an EFTSL * relevant Commonwealth contribution formula) or their higher education courses maximum basic grant amount: section 33-5(2) of the Higher Education Support Act 2003 for Table A institutions and section 33-5(7), using the terminology of ‘total basic grant amount’ for other higher education providers receiving CGS funding.

Under section 164-10(1A) of HESA 2003 any overpayment is recovered by reducing grants paid to the under-enrolled provider or as a debt to the Commonwealth. Clause 4 of the funding agreements reiterates this requirement.

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What’s new in university funding agreements, part 1: Commonwealth Grant Scheme funding and course closure rules

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The 2024 university and NUHEP funding agreements were released earlier this month. These documents are the legal basis of most funding from the Commonwealth Grant Scheme, the main tuition support program. I have created a spreadsheet with institution-level funding, available here.

Overall funding levels

Any total CGS comparison with 2023 is approximate at this point, as we don’t yet have estimated payments for demand driven funding – 2024 is the first year that metropolitan as well as regional Indigenous bachelor-degree students are financed on this basis. This creates disruptions to the time series for two of the three main CGS pots of money – demand driven and ‘higher education courses’, which covers all Commonwealth supported students except Indigenous bachelor-degree students and medical students.

Higher education courses are by far the largest CGS category. In 2024 maximum higher education courses funding will be $7.24 billion, $452.2 million or 6.7% more than in 2023.

Table A providers (i.e. each government-created university plus ACU and Notre Dame) get 99.5% of this money, while nine other providers get the remaining $34.3 million.

For designated courses, currently medicine only, the 2024 total is $413.97 million up 8.1% on 2023.

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The 2003 Cabinet papers and Brendan Nelson’s higher education reforms

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In the history of Australian higher education policy Brendan Nelson, the Liberal minister for education from 2001 to 2006, is perhaps under-rated. Several student funding structural changes he legislated 20 years ago are still in place. These include:

  • Student contributions set by universities up to a legislated maximum and going to universities (previously HECS was a fixed government charge);
  • A per full-time equivalent student Commonwealth contribution based on subject field of education (previously universities received an overall operating grant, which although informed by an early 1990s costing exercise did not directly tie money paid to discipline-level enrolments);
  • Commonwealth-university funding agreements as a method of allocating student funding to institutions, which made funding arrangements more transparent (but also turned into a backdoor instrument of policy and regulation that bypasses Parliament);
  • Through FEE-HELP, extension of student loans to full-fee undergraduates and students in private higher education institutions (the more limited Postgraduate Education Loan Scheme, PELS, was already supporting university full-fee postgraduates).

The 2003 Cabinet papers

The annual National Archives release of 20-year-old Cabinet papers, with the 2003 papers released earlier this week, gives us a look behind the scenes as Nelson’s reform package was developed and debated. Three digitised Cabinet documents record proposals and decisions, but not the Cabinet discussion. Sometimes, however, Cabinet thinking can be inferred from requests for further work and contextual material in the submissions.

This post focuses on changes to income contingent student loans.

The loan scheme that did not make it through Cabinet

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What’s going on with domestic undergraduate numbers? Part 1, Demographic differences

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Higher education enrolment data for 2022 was released on Monday. Overall enrolments fell 3.2% in 2022 compared to 2021. A 1.9% increase in international student numbers partly offset a 5.1% decline in domestic numbers. In 2021 overall enrolments also fell, with the opposite dynamic – an increase in domestic students partly offset a decline in international student numbers. The 2021 and 2022 enrolment decreases were the first total enrolment reversals since the early 1950s.

Domestic undergraduates

This post focuses on domestic undergraduates, the subject of many media inquiries and much speculation. The chart below shows that enrolments started growing in the late 2000s, at a fast rate during the demand driven funding era, before entering a more subdued phase in the late 2010s and then the decline discussed in this post. Sub-bachelor courses are a larger share of the total more recently than in the 2000s.

Overall domestic bachelor enrolments decreased 4.9% in 2022 compared to 2021. Despite a 2 percentage point increase in attrition rates for commencing 2021 students into 2022, the continuing cohorts offset a larger fall in commencing bachelor-degree students of 8.6%. That’s more than double the previous largest commencing student decline this century, in 2003, when the then-minister cracked down on over-enrolments. Sub-bachelor numbers are down around 4% for both commencing and total.

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The revised support for students policy

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The draft support for students guidelines received significant negative feedback from the higher education sector. As I wrote in a couple of blog posts, the guidelines interfered in matters of academic judgment and interacted with existing regulations in ways that create duplication and confusion.

Academic judgment

I’m glad to say that the interference in academic judgment provisions have been removed in the enacted support for students guidelines.

Regulatory overlap

The support guidelines explanatory statement discusses their relationship with the higher education threshold standards, which are administered by TEQSA. It says that the threshold standards set the ‘minimum’ requirements while the support for students policy, which is administered by the Department of Education, sets ‘additional, complementary requirements on providers to support their students.’

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