Category: Class and status

The history and politics of the first student debt repayment threshold

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The government’s HELP legislation, cutting student debts by 20% and introducing a new repayment system, was introduced into Parliament yesterday. While I have criticisms of the 20% cut, it will be implemented and once done cannot be reversed. The changes to the repayment system will pass now but can, and probably should, be changed at a later date.

In this post I briefly explain how the repayment system will change and then discuss the choice of the first threshold.

The current and proposed student debt repayment systems

Under the current system, repayments start at an annual income of $56,156, at which point student debtors repay 1% of their total income. From there the percentage of income repaid increases incrementally to reach 10% of income at $164,712.

Under the new system repayments start at when income exceeds $67,000. At this point a marginal rate of 15% of income above $67,000 applies up to $124,999, where a marginal rate of 17% applies for income of $125,000 or more. Unexpectedly the bill restores part of the old system with an annual repayment cap of 10% of total income. This avoids some high income earners paying more than now.

The new thresholds will be indexed to growth in average weekly earnings. The current thresholds are indexed to CPI.

The logic of the first threshold

As the chart below shows, in the black dotted line, the first repayment threshold has changed over time. The long-term policy/political tension is between the idea that graduates should enjoy some financial advantage before repaying their student debt and the idea that student debt should be repaid except in cases of financial hardship. The policy pendulum is currently shifting from the latter to the former.

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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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Is vocational education of lower status than higher education?

Andrew NortonLeave a comment

Earlier this month, Scott Morrison said that he wanted to raise the status of TAFE, declaring that “TAFE is as good as uni”.

On common status indicators, TAFE seems to come second to university education. There is status associated with academic ability, and TAFE requires lower school results for admission than university. The chart below shows the ATARs of students admitted to the two systems since the mid-1990s according to LSAY. Although almost all high-ATAR students go to university, the two sectors have long recruited in overlapping ATAR ranges. But the regular media stories about low-ATAR university admissions might have narrowed the historical status gap. ATAR range

Higher education also benefits from being the gateway to high- prestige and highly-paid occupations. But as graduates find it more difficult to find high-prestige or well-paid jobs, and  increasingly fall behind people with some vocational qualifications on employment and earnings, perhaps higher education’s status is slipping.

And there is some survey evidence that the status gap between the systems is not necessarily very large.Read More »

Higher education inequality: do graduate outcomes differ by socioeconomic status?

Andrew Norton1 Comment

In earlier posts in this series on inequality and higher education, I have suggested that the SES participation differences are largely driven by prior academic performance and that different SES groups seem to experience higher education in much the same way, but low SES students are less likely to complete their degrees. In this post, I will look at outcomes for the students who do complete their degrees.

First, are there differences in rates of getting a job? The 2017 Graduate Outcomes Survey finds that there are small differences. About four months after completing their bachelor degree, 73.6 per cent of high SES graduates who were looking for full-time work had found it, compared to 70.3 per cent of low SES graduates. However, of those who were working full time low SES students were slightly less likely to report not fully using their skills at work than high SES graduates (27.1 per cent compared to 28.9 per cent). It is difficult to say whether there is any direct SES effect in these results, as employment outcomes differ substantially by field of education, and SES differences in discipline choices could explain the results.

The Graduate Outcomes Survey also looks at starting salaries in the first full-time job after completing an undergraduate degree. Again, we find a small SES difference: the median starting salary for high-SES graduates in 2017 was $61,000, and for low SES graduates it was $60,000. This does not tell us whether there is any direct SES effect (such as not being able to access social networks to find professional jobs) or whether other factors such as discipline explain the result. A study using an earlier first year out survey had a limited control for discipline, as well as controls for weighted average marks, gender, and various other factors. It found no negative salary effect for low SES students, using a geographic measure of SES.

One possible cause of SES differences is that low SES students tend to attend the less prestigious universities, reflecting the school results issues reported in an earlier post. For example, 7.5 per cent of the University of Sydney’s students are low SES on a geographic measure, compared to 26.2 per cent of Western Sydney University students.

In theory, university attended should affect starting salaries. There are well-known differences in entry requirements between universities, which employers may take as a more reliable measure of ability than university marks, and employers may assume that the more prestigious universities have better teaching (can attract better staff, have more to spend – although student satisfaction surveys don’t support this conclusion). The first full-time job is when employers have to make greatest use of proxy indicators of potential, since most new graduates lack a track record in full-time skilled employment. Consistent with this, nearly 40 per cent of graduate employers say they have preferred institutions, mostly Group of Eight universities.

In practice, however, many studies have found no or small starting salary differences by university or university grouping (eg here, here, here, here and here). What course you take matters much more to your income than what university you attend. Read More »

Increases in low SES uni participation, 1991-2011

Andrew Norton2 Comments

Using the trend data from the chart below, it is often said that we are making little progress in increasing higher education participation for people from low SES backgrounds.

low SES trend

The chart shows domestic low SES students as a percentage of all domestic students. But the denominator is important: it means that low SES enrolment has to increase more quickly than enrolment generally for the percentage to go up.

A more meaningful indicator is low SES enrolment as a percentage of the relevant low SES population. This tells us whether people from low SES backgrounds are becoming more likely to attend university over time.

An interesting paper out from the Group of Eight today (disclosure: drawing on some of my work from a few years back) shows how, for the late teenage children of low SES workers, university attendance has become more likely over time.

For example, in 1991 16 per cent of the children of tradespeople were at university. Twenty years later that number was 26 per cent. The gaps between SES groups remain very wide, but with participation growth in the leading SES group, professionals, slowing down the gaps are not as large as they were in the past.

Census trends occupational partic

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Note: The data is drawn from the census, using 18 and 19 year olds living at home. At home is needed to determine parental occupation. According to the two latest censuses, about 80% of 18 year old university students and 70% of 19 year olds are living with their parents.

Are low SES people more worried about fees than other people?

Andrew Norton7 Comments

My new Grattan report, Graduate Winners: Assessing the public and private benefits of higher education was released tonight (Canberra Times covering it already).

The basic argument is that given high private benefits, higher education will generally be produced with or without a tuition subsidy. Therefore we can start phasing down tuition subsidies. I suggest 50% over 4 years for most disciplines.

The usual reaction to such suggestions is that the low SES people in particular will be put off higher education. I report the contrary Australian evidence. There is interesting English evidence in this report. What the English have done is far more radical than anything I am suggesting. Except for the clinical and lab subjects, they haven’t cut 50% over 4 years. They have cut 100% over 1 year. Combined with some scope for overall funding increases for universities, some student charges will nearly triple.

For the school leaver group, overall demand dropped by one percentage point of the age cohort compared to 2011, or about 15,000 people (like Australia before 2012, the UK has a capped system with demand exceeding supply, so this will have no effect on the total number of students). Read More »

On track for 20% low SES students by 2020?

Andrew Norton3 Comments

As education minister, Julia Gillard set a target of 20% of undergraduate university students coming from the lowest 25% of SES backgrounds by 2020. Some enrolment statistics released last week showed a 0.30 percentage point gain between 2009 and 2010 to reach 16.47%. This is the biggest increase since this time series began in 2001.

The figure below shows that if this growth rate was maintained for the decade, the target would come close to being met. On the other hand, if the growth rate was the average of 2009 and 2010 the target would be missed by a largish margin.

Which scenario is more likely? At least in the short term, there is a good chance that strong growth will continue. For commencing students, there was a .64 percentage point gain, so as this cohort moves through the system the low SES share will expand. We don’t have any detailed 2011 data yet, but with some expected additional growth in overall numbers I would anticipate that low SES numbers will again improve. Read More »