Author: Andrew Norton

What’s new in the university funding agreements, part 3: new rules on early offers

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Earlier this year I wrote a couple of blog posts on the 2024 university-Commonwealth funding agreements signed late last year. Revised agreements were signed in May 2024. These agreements include new rules on early offers. This post argues that early offers rules should be legislated separately and not included as a condition of Commonwealth Grant Scheme funding.

Restrictions on school leaver early offers

As foreshadowed by the minister in February, university funding agreements now restrict school leaver early offers. The basic rules are 1) No offers to Year 11 students; 2) No offers to Year 12 students prior to September; and 3) Offers must be conditional on successful completion of a senior secondary certificate of education.

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How reliable are Census educational attainment numbers?

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I am a big user of ABS data, including for calculating educational participation and attainment rates. Recently I have been using Census longitudinal data, which links records from a 5% sample of the Australian Census between different Census dates.

Due to respondent inattention to questions, or mistakes by family members answering for others, I would expect some inconsistent answers between censuses. But inconsistency rates for education-related questions are alarmingly high.

For the highest year of school education the ABS-reported inconsistency rate between 2016 and 2021 was 6.8%. For highest non-school qualification the inconsistency rate was 8.9% – meaning that a lower highest education qualification was reported in 2021 than 2016.

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A cap-and-trade system for international student places

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In an earlier post I argued that the government’s plans to cap international student numbers, including by education provider and course, would cause actual enrolments to fall well below the official maximum number.

This is due to the inherent weaknesses of bureaucratic systems of student place allocation. Even when meeting demand is a goal the limited information held by central planners, and the long time lags between allocations and enrolments, will cause student places to remain unused.

This post proposes a partial remedy to this problem, a cap-and-trade system for international student places.

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The legal detail of the government’s plans to cap international student numbers

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In an earlier post I criticised the government’s plans to cap international students by education provider and course.

This post goes through the capping legal detail of the Education Services for Overseas Students Amendment (Quality and Integrity) Bill 2024, which if passed would amend the Education Services for Overseas Students Act 2000.

The amending bill contains other provisions on education agents and education providers designed to limit misconduct in the international student market. This post does not cover these provisions, but Tracy Harris discusses them here.

In this summary, unless specified otherwise, the sections mentioned refer to the amending bill but use the section number as it would appear, if passed, in a revised compilation of the ESOS Act 2000. I also refer to the bill’s explanatory memorandum, which explains the intent behind some provisions. It can be downloaded from the bill’s webpage. The Parliamentary Library’s bills digest is also helpful.

Italicised phrases other than section headings highlight powers that give the minister wide discretion. I see this as a significant problem over-and-above the direct consequences of capping.

On what can international student enrolment limits be imposed?

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2024 funding by university for Commonwealth supported places

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The Universities Accord final report noted the problem of ‘no consolidated source of government expenditure by higher education provider and program (such as the Commonwealth Grant Scheme)’. It is one of the many reporting and data availability issues that make understanding Australia’s higher education system unnecessarily difficult.

CGS revenue by higher education provider

In January, after a laborious process of transcribing information from funding agreements, I published the ‘higher education courses’ and ‘designated courses’ funding allocations. To this I have now added funding determinations information on demand driven Indigenous funding, the medical student loading, estimated HECS-HELP lending as of May 2024 and estimated upfront student contributions, also of May 2024. You can download the spreadsheet here. [Update 17/06/24: with revised funding agreements, 15 universities have increased higher education courses funding. The updated spreadsheet can be downloaded here.]

The chart below aggregates the programs into their two main categories, the CGS and student contributions, and ranks them from the largest recipient of funds, Monash University at $722.4 million, to the smallest, Charles Darwin University at $157.8 million.

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Limits on international student numbers could reduce enrolments to well below the official cap

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I am not opposed to changing international student migration rules and education provider requirements to moderate problems long associated with international education, including “dodgy” colleges, inadequate student preparation, student poverty, student exploitation and “permanently temporary” migration.

Multiple steps towards minimising these problems have already been announced or taken, with increased financial requirements for a student visa added last week. Most changes announced before last Saturday are justifiable.

But capping international student numbers including down to a course level, as announced over the weekend, is a bad move.

The caps will face all the problems I have identified with bureaucratic allocation of domestic student funding. Because numbers will be allocated between universities and courses according to a politician or bureaucrat’s view of where students should enrol, rather than where students want to enrol, actual enrolments are likely to be well below the capped level.

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Bruce Chapman’s multi-rate marginal HELP repayment system – the PM’s ‘simpler’ option?

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Last week the prime minister was asked about changes to the HELP loan system.  In response he referred to Accord recommendations that ‘the system can be made simpler and be made fairer’ (emphasis added), and that ‘we’ll be making announcements pretty soon on that’.

‘Fairer’ probably means a lower-of HELP debt indexation formula, moving the indexation date so that more recent compulsory repayments can be taken into account, and a marginal rate repayment system to remove high effective marginal tax rates.

But what did the PM mean by ‘simpler’? I’m guessing that this refers to moving away from the current 18-threshold and rate repayment system to a system with fewer thresholds.

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Lower-of CPI and Wage Price Index (WPI) HELP debt indexation – inherent weaknesses and design issues

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This morning The Conversation published my argument, made last month on this blog, that HELP debt should be indexed at the lower of CPI or 4%. I argue that this is better than the other suggested ‘lower-of’ options, such as the government bond rate, the RBA cash rate, or a wage increase indicator. The Universities Accord final report chose the last option, specifically the Wage Price Index (WPI). WPI measures changes in hourly rates in the same job.

All the CPI alternatives have a relationship with CPI

A problem with all the lower-of proposals, except a fixed maximum, is that they have a relationship to CPI. If inflation starts going up the RBA increases its cash rate and government bond holders want higher interest rates to protect their real value. Workers and unions, often supported by policymakers, seek inflation compensating wage increases.

For wages set nationally, the federal government wants the minimum wage increase linked to inflation this year. If the Fair Work Commission grants this increase, minimum wage and other CPI-driven wage rises will flow through to future WPI figures.

Real wage increases, over-and-above CPI, also push up WPI. Aged care workers have recently been awarded a large real wage increase. Statistics on enterprise agreements show wage increases returning to their normal pattern of exceeding both WPI and CPI.

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The politics of multi-rate marginal HELP repayments

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In a couple of previous posts, I examined reasons for moving to a marginal rate system for repaying HELP debt, as proposed by the Universities Accord final report, and what the rates might be.

Under a marginal rate system HELP debtors would repay a % of all income above a threshold amount, instead of a % of all income once a threshold is reached, as now. An advantage of marginal rate repayment systems is that they can reduce effective marginal tax rates. High EMTRs discourage people from taking on more paid work. In some cases under the current system EMTRs exceed 100%, so disposable income goes down despite nominal income going up.

The Accord final report and the minister, Jason Clare, also suggest reducing annual repayments, at least for lower income HELP debtors. Except for HELP debtors just above an income threshold in the current system (especially the first one, where there are very high EMTRs) this is not an inherent feature of marginal rate systems compared to current arrangements. But it could be a political selling point for a marginal rate system designed to reduce repayments.

To cut annual repayments for lower income HELP debtors without causing a major reduction in HELP repayment revenue the government would need to introduce a multi-rate marginal system. This is implied in the Accord final report discussion. Multi-rate systems progressively increase the marginal rate as income goes up. There are many possible sets of rates, but my previous post looks at 7%-17%-22% and 10%-15%-20% models.

This post goes through some of the political implications of moving to a marginal rate system.

How will the percentage numbers be interpreted?

One initial challenge will be convincing people that a 7% or 10% first marginal rate will usually reduce their repayments compared to the current seemingly lower rates. How can charging 7% increase disposable income compared to 1%?!

Of course the answer is what the percentages are of, but for people half paying attention, who have never thought about marginal versus whole of income rates before, a higher percentage rate reducing their repayments is going to seem counter-intuitive.

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Possible marginal HELP repayment rates under Universities Accord reforms

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The Universities Accord final report proposes changing how HELP repayments are calculated. It recommends abolishing our current system, which levies a % of all income once an income threshold is reached. It would be replaced with a system that charges a % of income above the threshold – a marginal rate system.

A major reason given for this change was to end the ‘unfair situation’ of some HELP debtors having very high effective marginal tax rates. These can exceed 100% in some cases, so that an increase in taxable income results in lower disposable income. In addition to the fairness issues, high EMTRs can lead to people working fewer hours and less income tax revenue.

Other Accord final report comments, however, suggest HELP repayment redesign with purposes beyond the EMTR issue. While not specifying thresholds or marginal rates, the report suggests a system in which the ‘majority of HELP debtors who make a repayment … would repay less in a given year’. They warn, however, that a ‘small number of higher income debtors (likely less than 10% of HELP debtors) [would] make higher repayments in a given year’.

Subsequent Jason Clare media interviews suggest that policy thinking on repayment systems has moved beyond a general preference for a marginal rate system. Referencing unpublished research by Bruce Chapman, Clare said on the day the final report was released that ‘someone on an income of $75,000 a year would pay every year about $1,000 less.’ He gave the same example again this week.

Speaking to the SMH, Chapman expanded on how the new system might work. He envisaged a multi-rate marginal HELP repayment system: ‘a person earning $86,000 would only be taxed the 5 per cent repayment rate on the income above the threshold at which the rate kicks in, being $84,430. All income below that threshold would be levied at the lower rates.’ A multi-rate marginal system is also consistent with the Accord final report reference to some HELP debtors repaying more each year than they do now.

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