Category: Higher education

The $2.3 billion higher education ‘saving’ that nobody is talking about

Andrew Norton1 Comment

In April, there was fury in higher education circles over billion of dollars in cuts to higher education-related spending (how much depends on how many years of the forward estimates you count). But comparison of the 2012-13 and 2013-14 budget papers suggests that the government is anticipating another large saving that nobody is talking about – revised down estimated future costs of the HELP loan scheme.

The chart below shows that over the future overlapping years of the two budgets (2013-14 to 2015-16) the saving will total about $2.3 billion. A small part of this reduction is the announced removal of the discount for paying student contributions up-front and the bonus for repaying early. But most of it is a big reduction in future anticipated interest costs.

HELP saving

The method they use for calculating the interest cost is apparently in accordance with accounting standards, though it is very confusing and does not aid understanding of the policy issues. The method we have used at Grattan (pages 42-45) is more straightforward (so far we arrive at similar numbers to the Department). We look at the difference between the interest the government is paying on its debt and the CPI inflation interest they are charging on outstanding HELP debt. The difference between them is the interest subsidy (or profit; it’s happened once).

Essentially, the government is borrowing quite cheaply at the moment, and they anticipate that this will continue in the few years covered by the forward estimates. But due to the huge amounts outstanding on HELP even small movements in bond rates could have major cost consequences. At the end of the forward estimates period, every 1 percentage point gap between the bond rate and CPI would add around $500 million to the interest subsidy.

The loan scheme gets little attention from universities; money they or currently enrolled students don’t receive is invisible to them. But HELP is a major part of higher education funding, and controlling its costs needs to be part of an overall higher education funding policy.

Greg Craven on education and federalism, then and now

Andrew Norton1 Comment

Greg Craven on state government control of education, 2007:

Despite a total lack of experience in education, it [the Howard government] has created Commonwealth Technical Colleges, tried to control state school curricula and muttered darkly about controlling state education systems.

Canberra has only been able to intrude because it has the money, not the authority. Perhaps it should leave the money and run. Is it really impossible to argue that an elected Victorian government has a genuine interest in the education of Victorian children and that – horror – it might even bring local insight to the process? …

The mantra “Trust me, I’m with the Commonwealth” has the plausibility of a four-dollar note.

Greg Craven on state government control of education, 2013:Read More »

Science demand keeps increasing, despite a higher student contribution

Andrew Norton1 Comment

Science has been one of the most popular university courses over the last few years, with strong increases in applications year after year since 2009. The demand shift coincided with a slashing of student contributions by about 40%. This had seemed to be a possible exception to the general empirical rule that changes to student contributions don’t affect demand (some of the history is in Graduate Winners, pp 77-79).

As part of a long series of measures to reduce higher education spending, science student contributions were put back up to pre-2009 levels for 2013, an 80% price increase in one year. If the discount was driving demand, we would expect to see higher student charges reduce demand. New statistics released today show that this has not happened.

In fact, as can be seen in the chart below, numbers continued to grow strongly. They were up another 4%, in a market that was up only 0.5% overall. Only agriculture grew by more in percentage terms, and only health grew by more in absolute numbers. Science offers increased by 3.3%, with overall offers up 0.6%

science appsRead More »

Increasing higher education spending, even after cuts

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The higher education budget papers let us see in more detail what is going with spending after last month’s cuts.

The chart below tracks successive budget forecasts on the core tuition subsidy program, the Commonwealth Grant Scheme, since the demand-driven system was announced. In the early years especially there was a significant under-estimate of costs. Cuts announced over the last 6 months essentially put the budget back on the trajectory it was on in 2011. Over the forward estimates to 2017, spending on the CGS will still increase by an estimated $945 million on 2013.

CGS

The trouble with these open-ended programs is that a government can spend nearly $1 billion more and still get condemned for cuts, because the new places are not ‘announceables’. This chart puts the increases in Commonwealth-supported places into historical perspective, going back to 1989. Uncapping of CSPs has led to a massive increase in their numbers. They are up 23% between 2009 and 2013, and expected to be up 35% between 2009 and 2017.

CSPP 89-17

Most HELP debtors are not currently repaying

Andrew Norton2 Comments

Yesterday the ATO released tax statistics for the 2010-11 financial year. With the education department seemingly no longer publishing its annual higher education report the ATO tax statistics are the main source of information on some aspects of the HELP loan scheme.

Only about a quarter of HELP debtors, or 383,000 out of 1.57 million, made a repayment in 2010-11. The ATO classifies 593,000 people as ‘paying off’ their debt, presumably counting people who have made a repayment but have since fallen back below the threshold or have disappeared overseas (the number of people who are listed as overseas or with an unknown postcode more than tripled to 32,365, but I think this number is unreliable).

The reason is that HELP debtors are clustered in the lower income groups, as seen in the figure below. Many of them will still be students, but the largish number (122,000) in the $40,000-$49,999 range suggests that fiddling with the threshold for repayment, which was $45,000 in 2010-11, might substantially increase the number of people repaying. At the other end of the income spectrum, 5 HELP debtors had taxable incomes exceeding $1 million.

HELP debtor incomes 2011

The number of HELP debtors with $50,000+ debts increased from 15,143 in 2009-10 to 23,664 in 2010-11. This probably reflects FEE-HELP borrowers and more people staying in the system for long periods of times, such as those doing initial professional entry qualifications under the Melbourne Model.

Repayments through the tax system are increasing, as seen in the figure below. Repayments increased by more than repayers (7%/3%). But there is still far more being lent than being recovered (they don’t report on financial years, but I would estimate $3.5 billion in lending versus $1.3 billion in compulsory repayments).

HELP repayments

Should unis voluntarily cap student numbers?

Andrew Norton7 Comments

From my perspective, the demand-driven funding system is Labor’s main higher education achievement (it’s described at pages 56-58 of this report). Over time, I expect it will drive a more efficient allocation of student places and through creating competition improve teaching and student services. Already we can see that a student’s chances of getting an offer in their first-preference field of study has improved in most disciplines:

offer rates
Source: DIISRTE. The figure shows offers in each field of study as a % of all first-preference applications for that field of study.

But uncapping the number of Commonwealth-supported students is costing a lot of money, a factor in recent higher education cuts. An article in yesterday’s AFR reveals that the universities want a de facto re-introduction of caps – not through changing the higher education funding legislation but through universities agreeing to constrain student numbers.

This would be a backwards step. The fear of losing students to competitors is a key driver of responsiveness to students, and a cartel-like restriction on places would be nearly as bad as the old regulated control.

Should higher education courses be tax deductible?

Andrew Norton3 Comments

The universities are calling for tuition fees to be exempt from the $2,000 maximum tax deduction for self-education.

The low tax deduction plus the more easily-defensible closing off of the voluntary HELP repayment bonus could have major effects on some students.

For a presentation I was doing at Swinburne today I prepared an example using a Swinburne Graduate Certificate of Engineering, a course marketed as professional development and therefore likely to have sufficient link to the student’s current employment to be deductible.

I assumed that the student was currently earning $75,000 a year, giving them a tax rate of 32.5% plus the 1.5% Medicare levy. I assumed they would take out a FEE-HELP loan and then repay it to claim the 5% bonus for voluntary repayments. As figure 1 shows, the two measures substantially reduce the effective cost of the course to the student.

Figure 1: Effective cost of course under current arrangements
swin 1

As figure 2 shows, with just a $2,000 tax deduction and abolition of the repayment bonus the effective cost of the course to the student increases by more than 50%, from $6,600 to $10,100.

Figure 2: Effective cost of course under proposed arrangements
swin 2

There are interesting conceptual issues here. The tax system is already biased against human capital investment, as students cannot claim a tax deduction for their investment in their future salaried earning power, though they could if they bought a range of physical assets to produce trading profits.

For undergraduates, arguably the public subsidy and the HELP loan scheme removes any bias against human capital investment. Most undergraduates cannot get easy access to other forms of capital. But in the largely full-fee postgraduate market many students would have alternative investments for the available cash.

There are complications in the argument. It is not always easy to distinguish ‘consumption’ and ‘investment’ higher education. It doesn’t seem quite right that with tax deductions the effective cost of course is much higher for someone on a 15% marginal tax rate than someone on a 45% tax rate. In a book I wrote a decade ago, I thought that maybe flat-rate subsidies were less distortionary than tax deductions.

I’m still not entirely sure how to deal with this issue. But we should watch enrolments in postgraduate courses very carefully.

Uni VCs should take some blame for consequences of latest cuts

Andrew Norton5 Comments

Well so much for the Universities Australia campaign for increased public funding of higher education, with another half-page ad in today’s Weekend Australian. The government has announced a new wave of higher education spending cuts.

As usual with these weekend announcements there is not much detail available, and not all the numbers make sense to me on current information. For universities, the main impact will come from ‘efficiency dividends’ of 2% in 2014 and 1.25% in 2015. This will be the first cut to nominal per undergraduate student funding since the Dawkins reforms 20 years ago. [Mookster makes the point below that after indexation there will not be a year-on-year reduction, though I am anticipating that there will be a reduction to Commonwealth contribution amounts in the Act.]

Reducing public funding to higher education is not in itself problematic. But arbitrary changes to the prices universities receive for reasons which have nothing to do with higher education (funding Gonski is the claimed reason in this case) are not easily justifiable. In a more market-based system, we could see whether students would rather put up with cuts or pay more to maintain current services.

This outcomes highlights the political failure of the Universities Australia process that led to their current policy document. By maintaining an exclusive focus on public funding rather than building a political case for more fee deregulation they were always taking a big risk. The idea that a $5 million university advertising campaign could alter the political calculation that there are more votes in schools and health was always pretty fanciful. And so it has again proved to be, even sooner than I thought.

The reality here is that there are vice-chancellors who would rather undermine the services they can provide than concede an ideological point about student charges. They should take some of the blame for the problems these cuts will cause.

Is the University of New England’s MOOC legal?

Andrew Norton2 Comments

Update 21 February: UNE VC Jim Barber advises me that UNE Open students will not be enrolling at UNE, and that DIISRTE is ok with UNE Open. I still think that current regulation is poorly designed for innovation in higher education, but it looks like this venture is OK to proceed.

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Original 20 February post:

Today the University of New England announced an innovative new way of delivering higher education. Inspired by the MOOCs, it plans to unbundle its higher education services.

…through a new platform called UNE Open, UNE will [] begin offering a range of postgraduate and undergraduate units through open courseware…..UNE Open will offer a range of fee-for-service products alongside the open courseware, including tutorial support, examinations and, ultimately, students may choose to have their learning recognized for credit into a UNE degree

Vice-Chancellor Jim Barber’s op-ed on his plans is here. I think this is an excellent initiative. But in offering its services this way, UNE is moving into uncertain legal territory.

Problem #1 is that under section 19-85 of the Higher Education Support Act 2003 universities are supposed to charge every student who enrols in a unit of study. They can offer ‘scholarships’ to bring the price back down, but that significantly complicates this ‘freemium’ model.

UNE can argue that the open courseware is not a unit of study, defined as a ‘subject or unit that a person may undertake with a higher education provider as part of a course of study’. Just studying the curriculum materials online could not lead to recognition as a unit in a course of study, but if students have the possibility of examination and academic credit then arguably it is a unit of study.

Perhaps UNE could create a legal workaround in which students don’t actually formally enrol, they just take the unit without enrolling. However, even this is skating on thin legal ice. At a course of study level, enrolled is defined to include ‘undertaking’ the course of study. Again, we hit the problem of the closer the ‘undertaking’ gets to academic credit the more it looks like an enrolment and something to which section 19-85 applies.

Problem #2 is that under section 36-55 of HESA 2003 there is a floor price of the highest student contribution amount for a Commonwealth-supported student unless the student could not have enrolled as an award (ie degree) student. I’m not sure how this provision is intended to be applied. People already enrolled in degrees at UNE for which the unit in question is relevant are covered I think, but it seems to cover a broader group: anyone who might have been admitted. So if your ATAR was very low you can get a discount, but if your ATAR was high you can’t? Sorting out who falls within section 36-55 and who does not would be complex, and undermine a simple open enrolment model.

Problem #3 is that HESA does not support the unbundling of charges into separate components. Section 19-100 reads

A higher education provider must not charge a person a fee for a course of study that exceeds the sum of the person’s tuition fees for all of the units of study undertaken with the provider by the person as part of the course.

I think this makes it difficult to offer cheap, stripped down versions of units and then charge more later for examinations or academic credit.

A literal reading of section 19-90 suggests that UNE could have multiple different fees charged at enrolment depending on level of service. But that wasn’t the intention of the legislation – as I recall it, the purpose of this provision was to allow different cohorts of students to be charged different fees for the same bundle of services (for example, students who enrolled in a course at different times could be charged different amounts). And it undermines a key flexibility of the stated UNE model: that students can decide as they go what level of service they want.

I hope my reading of HESA is wrong, or that UNE can drive its open courses through the loopholes. But Australia’s system of higher education funding and regulation was designed to support an homogenised higher education service. It is poorly equipped to deal with innovative higher education business models. That the system is an obstacle to premium higher education services has long been well understood. But with UNE’s proposal, we are starting to see how it is also an obstacle to discount higher education.

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More detail here.