Should scholarships be exempt from Centrelink income tests?

One popular theme in the submissions to the Bradley review of Australian higher education policy is that scholarships paid by universities ought to be exempt from Centrelink income tests. The problem is that if the scholarship gives a student on Youth Allowance more than $118 a week it will be caught by the YA income test, and so the scholarship saves the government 50c in the YA dollar. The universities reckon that this provides a disincentive to provide income-support scholarships.

While the frustration of universities is understandable, there should be no special treatment of scholarship income. The main function of scholarships is positional competition between universities. Mostly they compete for the very bright students. Often these students come from privileged backgrounds, but even when they do not their high intellectual ability means that they are likely to do very well in life whether they get a scholarship or not. The public policy case for sending special extra financial rewards their way, through exempting them from welfare reductions that all other students must suffer, is very weak. Indeed, exemption would be a particularly egregious example of the generally regressive nature of higher education subsidies.

But universities also compete for very poor students, to make their ‘equity’ statistics look good. Though these scholarships don’t increase the number of ‘equity’ students at university – eligibility starts only after the decision to apply has already been taken – they do make life easier for their otherwise disadvantaged recipients.

While exemptions from the income test to this group would not be as bad as general scholarship exemptions, this is not the path the government should take. There would still be a significant unfairness in that the kids who work at McDonalds – or even (gasp!) prostitute themselves – lose welfare despite providing useful services, while those contributing nothing get extra cash.

The preferable policy change is to increase the threshold at which earnings start reducing welfare benefits. This would prevent some scholarships from taking away YA benefits, but in a way that was consistent for all students, rather than giving additional advantages to those students who had already been lucky enough to get money given to them by the university.

9 Responses to “Should scholarships be exempt from Centrelink income tests?

  • 1
    James Simpson
    August 12th, 2008 20:43

    Andrew, do you suppose that prostitutes really declare their income to Centrelink?

  • 2
    Andrew Norton
    August 12th, 2008 22:36

    Probably not! Though the legal brothels would have to have some proper payroll to avoid too much scrutiny, and that would mean paying some of the girls and declaring that to the ATO.

  • 3
    charles
    August 13th, 2008 09:08

    When it comes to higher degrees do what you like, but the simple fact is bright students are not doing Phd’s because they are bright enough to realize the lost_income/future_income ratio sucks. The days when you can use the Phd’s students as research slaves are coming to an end.

    Went to a graduation ceremony recently (IT), 8 to the 10 Phd graduates where women, it may be because women are brighter than men or that prostitution is a profitable business, but I doubt it.

  • 4
    Andrew Norton
    August 13th, 2008 09:15

    Charles – I was talking about undergraduate scholarships. At postgrad level the issues are very different. For would-be undergrads, the opportunity cost of bright students not going on to uni is very high. Therefore most will do it with or without a scholarship. For would-be postgrads, the opportunity cost of continuing with study is very high, since most could earn good salaries by going straight into the workforce. For the universities, postgrads as you suggest also do a lot of work and are necessary for the university’s future workforce, so they have an interest in funding them properly.

  • 5
    charles
    August 13th, 2008 14:47

    For undergraduates I agree. Given that I went through just after Whitlam I think HEX sucks. The baby boomers took from their parents for their education and taking from their children for their retirement.

    You can however argue if your bright and determined you may owe some money but you can get a degree no matter what your background, and as you say the returns on a degree are quite reasonable.

  • 6
    charles
    August 13th, 2008 17:40

    Just had a thought. Do you remember studentships :- we pay for your education if you work for us for a while otherwise pay it all back. The universities could do the same :- we pay for you education if you stay and do a phd otherwise pay it all back.

  • 7
    conrad
    August 14th, 2008 06:36

    Charles — most people doing PhDs already get paid. The problem is that getting one does very little for your future prospects in many areas, it takes 3-4 years, you often don’t learn a lot (many people use students as lab slaves), and has a very high chance of failure. In many areas, for example, a university in Australia can only offer a worse paying job in worse conditions than what you could get in even the public service, let alone private industry. So it simply isn’t worthwhile , even if you were paid a normal wage (as happens in Germany, and the Netherlands) versus a studentship. Universities in the US have tried to solve this problem by simply getting students from China (they’re now the biggest group that gets PhDs in the US — bigger than US born). This applies to staff too — if it wasn’t for Chinese and Iranians, many universities wouldn’t even have engineering departments. Of course, as wages go up in China, many of the Chinese people might well decide to stay at home, so it will be interesting to see what will happen — China already starts trying to get people back via Western style wages.

  • 8
    derrida derider
    August 19th, 2008 20:07

    Andrew, are you drawing on inside knowledge from your time in Kemp’s office? I recall exactly these arguments about means test exemption when the unis tried this on in the mid 90s (I know – I wrote my Dept’s co-ord comments on the Cab Sub). Then again it might have been in the Keating govt – all past Ministers’ offices blur into each other when you’ve been dealing with em as long as I have.

    But you’re right that the real issue is the mess with YA – as I’ve said elsewhere, that program has the worst-designed means test of any in the whole welfare system.

  • 9
    Andrew Norton
    August 19th, 2008 20:24

    DD – No, social security had responsibility for YA policy while I was with Kemp. It was given to education after I left. But as the same bad ideas keep circulating in higher education policy, I would not be the least bit surprised if it went back to the Keating years.