Category: Higher education finance

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 »

Which Labor education minister made the most difference for working class people?

Andrew Norton3 Comments

In education, nostalgia for the era of Gough goes on and on. This piece of it in The Age yesterday prompted several supportive letters today.

Access to higher education did expand under Gough, but his reforms was not as significant as many people imagine they were. Through a patchwork of scholarships and subsidies from both levels of government and from universities themselves, only a minority of students paid fees in the early 1970s. The average fee for those who did pay was $480, or $3,000-$4,000 in current dollars. Many also received financial assistance; Gough replaced this with a means-tested income support scheme TEAS, the predecessor of today’s Youth Allowance.

The clarity of what Whitlam did probably accounts in part for what people believe today. Though most bright school leavers who wanted to go to university would already have done so pre-Whitlam, the financial pathways were made much clearer by Whitlam’s reforms.

Overall, higher education enrolments expanded from 206,500 in 1972 to 287,700 in 1976 (first year of the Fraser government, but it came to power too late in 1975 to affect enrolments). Less than a third of the increase was in universities, with most new students going to the colleges of advanced education. Numbers had been growing steadily since the 1950s, so some of this growth would probably have occurred anyway.

A lack of consistent data makes it hard to tell exactly what opportunities Whitlam created for working class people. My reading of various sources is that the absolute number of working class students probably went up in the following years. But their proportion of total enrolments went down. The reason for this was simple. University entry usually requires school completion, and very few working class people did that. Therefore it was middle class people who were best placed to take advantage of expanded places in higher education.

The late 1980s and early 1990s were the turning point for improving working class higher education participation. School completion rates had increased dramatically during the 1980s, and the big HECS-financed John Dawkins led expansion in university places gave them somewhere to go. Dawkins and the most Labor state education ministers of the 1980s were more important than Whitlam in opening up education for people of all classes. Gillard is responsible for another wave of expansion since 2009, which also seems to be bringing in low SES students in large numbers.

Yet there is almost no nostalgia for Dawkins, and the state ministers are largely forgotten. Gillard’s time as PM will obscure her successful period as education minister. They all lack Gough’s charisma, and his simple message eloquently put.

Two views on prices

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[Tertiary education minister] Senator Evans warned that fee deregulation would increase costs to students and threaten access.

“Increasing fees is what deregulation is about,” he said.

“It is about allowing the universities to charge more.

“We would see a reduction in participation as people were priced out of the market’.

– The Australian, 6 June 2012

Ms Gillard says she wants to tackle rising childcare costs, but does not think capping fees will work.

She says that would prevent centres raising their fees if their costs go up for legitimate reasons.

– ABC radio news, 7 June 2012

All government-subsidised undergraduate science students to pay more

Andrew Norton4 Comments

Rather surprisingly, last night’s budget was pain free for universities. But their students were not entirely spared. The previously announced decision to restore previous student contribution amounts for new science students was extended to include continuing science students.

While in my view the discount for science students should never have been offered, the change again highlights the problems caused by the instability of higher education policy, with constant introductions and withdrawals of incentive policies. DEST/DEEWR/DIISR incentive programs rely on the naivety of the punters to work, because anyone who observed this policy area over time would assume that incentive policies lack long-term credibility, and not change their behaviour.

(Of course prospective students are unlikely to follow this detail, so temporary discounts may work. Oddly, a couple of articles (here and here) in today’s budget coverage repeat the Ian Chubb/ government line on science – too little demand for science university places, too little supply of university places, and too few scientists. The evidence does not support any of these propositions. A 2012 report on university applications showed not only that for the third successive year science experienced very large increases in applications and offers, but that science was doing exceptionally well in the 90+ ATAR group. And the argument that we are short of science graduates is not evident in any employment survey.)

Should the government redistribute student fees between universities?

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In an AFR op-ed today (not behind a paywall – things are improving), Macquarie Uni VC Steve Schwartz suggests some egalitarianism for universities.

If fees are deregulated, the more prestigious universities would charge higher fees than others. Schwartz suggests that if they did, their government subsidy should be reduced, and redistributed to other universities.

The reason is regulatory – the new Tertiary Education Quality and Standards Agency is imposing standards on all universities, but it is hard for the poorer universities to match the standards of the wealthier universities.

I doubt TEQSA will require all universities to be the same. A university licence to operate depends on meeting minimum standards, not being identical to all other universities. That said, there is a tendency in the standards released to date to codify common practices, some of which are of doubtful necessity. If this continues, the universities in the best financial position to try new things will tend to set the standards over the long term. Read More »

Department of Corrections

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For those who downloaded my Grattan report, Mapping Australian higher education, there was an error in table 8 on page 50 which lists funding rates for Commonwealth-supported places. The maths and science rates did not include $3,499 in transitional funding paid for students enrolled in 2009 or later, who paid a student contribution amount reduced by that amount. The correct numbers are in a revised version of the report.

Further complicating matters, these student contributions will be put back up next year, so assuming that the required legislation is passed future calculations should take this into account. Other than via indexation the total won’t be affected, but the student contribution will go up, and the Commonwealth contribution will go down.

The HECS-HELP handout nobody is taking

Andrew Norton3 Comments

Back in 2007, I thought that Labor’s election promise to introduce HECS remissions for people entering specified occupations might have something going for it, at least compared to other mechanisms for steering labour market preferences via higher education funding.

It’s not paid unless the graduate actually enters the desired occupation, and provides near-term financial relief, which is more attractive than cuts to student contributions – which effectively mean that someone entering first year will typically gain financially in 8 to 12 years time (when they finish repaying earlier than they would have otherwise). (The ATO site on the scheme is here.)

However a report in The Australian this morning shows that only 405 people applied for the benefit for 2009-10, and only 232 were approved.

This is consistent with some analysis of graduate occupational choices by Graduate Careers Australia, done at my request comparing the first year of the program (2009) with the year before. Statistically, the two years were identical in the proportion of graduates entering the occupations being favoured by the government. I did not publish the data at the time because GCA argued that the scheme was new and that 2009 was a bad year for graduate employment, so more people could have tried to enter those occupations but failed (though if there are no jobs anyway, a policy aimed at increasing demand for non-existent jobs is not necessary).

The 2010 data should be examined, but the very small numbers claiming the benefit suggests that this scheme is so unsuccesful that the government can’t even give money away (far more than 232 would have been able to claim just for pursuing the career they were going to pursue anyway).

Perhaps this policy escaped the last couple of rounds of higher education cuts because its failure meant its costs were much lower than anticipated. But as the government is imposing cuts on the public service, getting rid of a complex and bureaucratic policy that is not obviously achieving anything would make sense.

Higher ed price problems not fixed

Andrew Norton1 Comment

The ‘demand driven’ funding policy starting next month combines deregulated places with regulated prices for student places. This is a potential problem. When the government no longer allocates places between institutions and disciplines the prices universities receive for each place are a key steering mechanism. If the price they receive is unattractive, they can not take Commonwealth-supported students.

The base funding review commissioned a study of costs, and it was able to shed some light on prices relative to costs, as they were in 2010. The figure below shows median, mean, maximum and minimum teaching and scholarship costs in a sample of eight universities.

Read More »

Why does the base funding review panel think lawyers should pay less for their education, and teachers and nurses more?

Andrew Norton7 Comments

The most contentious aspect of the base funding review report, released today, is likely to be its proposal to change the basis of public subsidy for higher education.

At the moment, the public subsidy is not explicitly based on public benefits. Effectively, it’s just what’s left after student contributions are deducted from total per student funding by discipline. Total funding is loosely derived from a study of higher education expenditure 20 years ago, while student contributions are loosely based on differential HECS introduced in 1997. Differential HECS was in turn based roughly on average private earnings of graduates in particular disciplines. So law and medical students paid the most because lawyers and doctors earn a lot. Education and nursing students pay lower amounts, because teachers and nurses have modest salaries.

According to the base funding review, public subsidy should be based on the government paying for public benefits. They say the public benefits are equivalent to between 40% and 60% of total annual expenditure per student. These public benefits are defined as miscellaneous non-pecuniary benefits to society, plus the ‘direct fiscal dividend’ from the additional taxes graduates pay due to their increased earnings.

Leaving aside whether these numbers are robust (I doubt it, but assume they are for the sake of argument), what is the justification for using public benefit as the basis for public subsidy? The base funding review offers two possibilities.

One possibility is that without subsidy ‘private benefits might not be enough to motivate a student to pay full fees’. So the logic would be that through subsidies the private benefits are increased to a point where it is financially attractive for students to enrol in higher education, and then go on to the produce the claimed public benefits. Read More »

Science degrees to cost $11,000 more

Andrew Norton2 Comments

One of the policy decisions in today’s Mid-Year Economic and Fiscal Outlook is to rescind Labor’s cut in the student contribution amounts for science, maths and statistics subjects.

While students starting before 2013 will be grandfathered, those starting in 2013 will according to the government’s estimates pay $3,662 a year more, or about $11,000 over a three year degree.

I opposed the cut to student contributions at the time, among other reasons because I doubted that it would increase demand. The MYEFO repeats this argument, citing the Bradley review of higher education policy.

The Bradley review, however, reported shortly before the cut to student contributions came into effect. The student applications data since suggests that my prediction, along with Bradley’s prediction, was wrong.

In the two years after the cut took place, demand for science courses increased 32% in a market that was up 12% overall. Though the slow-moving DEEWR bureaucracy hasn’t yet published the 2011 applications data, media reports earlier in the year from the tertiary admissions centres suggests that science demand was up again.

Given that science graduates were having above-average difficulty finding work on course completion even before the demand surge converted to more graduates, cooling demand is not a problem if that is what occurs.

Though we can never tell for sure simply based on applications, a drop in demand following a price increase would help increase our confidence that relative prices were a science demand driver.