What is the difference between a voucher and a scholarship?

In an article published in this morning’s Australian about the university reform proposal (pdf) launched today by the Group of Eight, journalist Dorothy Illing wrote:

AUSTRALIA’S most powerful block of universities has thrown down the gauntlet to the major parties to introduce a radical new model for higher education underpinned by student vouchers and price deregulation. ….The centrepiece of the Group of Eight plan … is a system of portable government-funded scholarships that would shift control of demand for university places away from the commonwealth. (emphasis added)

Is there a difference between ‘vouchers’ and ‘scholarships’? Politically, they have different connotations. Vouchers have long been associated with plans to end central control of public education, and the very word triggers knee-jerk negative reactions from some leftists. Scholarships, by contrast, are generally associated with reducing the cost of education to people judged academically able or financially needy. Most people intuitively think that is a good thing. It is no surprise that the Group of Eight chose the term ‘scholarships’ over ‘vouchers’.

Conceptually, however, what the Group of Eight is proposing is closer to vouchers. Both vouchers and scholarships are subsidies aimed at individuals, as opposed to the block grants used to finance Australian universities before 2005. Scholarships are usually awarded to individuals to attend a particular school or university. The key idea behind vouchers, by contrast, is that the beneficiary of the subsidy also gets to choose where it is spent. The ‘scholarships’ suggested by the Group of Eight could be redeemed for any accredited higher education course in Australia. Just like vouchers, they are aimed at creating a publicly-subsidised market.

Yet there is also one aspect of the Group of Eight policy that picks up on an idea more commonly associated with scholarships than vouchers. The Group of Eight scholarships are to be awarded by the federal government on academic merit, the same basis as many of the existing university scholarships.

Voucher schemes generally avoid centralised selection criteria. In part, this is due to their political history. Voucher proposals were an attempt to find more efficient ways of distributing a universal entitlement to schooling. But the market thinking behind vouchers would also suggest that centralised selection criteria be kept as minimal as possible, on the grounds that the relevant knowledge is more likely be found at the level of producer and consumer than in the bureaucracy.

I have reservations about the Group of Eight scheme on just these grounds. Academic ‘merit’ is difficult to define, and I don’t think it can easily be reduced to the tertiary entrance ranks that the Group of Eight suggests. Year 12 results have predictive value, with the published studies suggesting overall correlations of 0.3 to 0.5 between school results and first-year university results. But many students do better or worse than their Year 12 rank would suggest.

At the margins, this ranking scheme would produce arbitrary results, with some students getting subsidies and others having to pay full fees based on differences in admission scores that in fact do not reliably predict differences in subsequent performance. In this respect, the Group of Eight proposal would replicate one of the faults of the current system.

The bigger issue is whether we should be so concerned with academic merit at all. From an egalitarian perspective, it disadvantages the poor, whose children’s school performance is below average. Because there is evidence that the school results of people who have been to non-selective government schools under-predict their subsequent academic peformance, universities routinely let in low SES students on lower marks than other students. That practice may have to be curtailed under the Group of Eight policy.

From a workplace perspective – relevant to virtually all students – attributes other than school results might be more important to selection. Admittedly, this would only be relevant at the margins. Beyond the government’s cut-off point, universities could still apply other selection criteria. But it again highlights the arbitrary nature of any cut-off point the Commonwealth may set.

In my view, the Group of Eight should have gone for a full voucher scheme, with students and higher education institutions left to make the final decision about who should and should not be admitted. On my calculations, it would not cost much more than what the Group of Eight is proposing anyway, and it would avoid the problems its ‘scholarship’ package would create.

17 thoughts on “What is the difference between a voucher and a scholarship?

  1. Andrew Norton wrote:
    From an egalitarian perspective, it disadvantages the poor
    Is that you? Have you had a blow to the head or something? I thought the poor were meant to be disadvantaged because they are too lazy to send their kids to private schools?

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  2. Andrew, the point about standardised entry is a valid one, and applies also to the non-school leaver merit list (and problems are sharpened for portfolio-based arts courses or others with specialised entry requirements – perhaps not a problem if we all go Melbourne Model!). However how do you avoid the open-ended nature of voucher commitments? At present demand and supply match, but Treasury would not like basing policy on currently buoyant economic conditions and consequently slack uni demand – or indeed on some universities willingness to limit themselves.

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  3. Lawrence – The spike in applications during the last recession suggests that some people do try to sit out downturns at university. That’s already a greater possibility now than then, because FEE-HELP is universally available (provided the student hasn’t reached the lending limit).

    It’s a question, I think, of whether we want to ration with prices or quotas. My view is that prices are likely to be the more efficient mechanism.

    We shouldn’t forget that even without market prices there is still opportunity cost. There are no upper limits on places at schools, but people still fail to complete Year 12, even when there are no jobs.

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  4. “how do you avoid the open-ended nature of voucher commitments?”

    It would also depend on the value of the voucher relative to the cost of the course. Presumably the vouchers would be less than the cost of even the cheapest course, leaving a student contribution that would be funded in a similar way to HECS. As Andrew says, aggregate demand would be determined by the assessments made by individual students as to whether they would get sufficient return on their own investment.

    I actually think vouchers are more egalitarian than the current arrangements, because I think that it is fairer for all students to get the same level of subsidy, unlike the current situation where students in high-cost courses like medicine and vet science (guess which SES groups they mainly come from?) end up with a far greater level of subsidy than students who do cheaper courses.

    You might then need another mechanism (industry-funded scholarships, perhaps?) to improve take-up in some high-cost courses if there is insufficient student demand to meet industry’s needs. But somehow, I think plenty of people will still want to do medicine and vet science.

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  5. BG – There is no intrinsic reason why vouchers need to be flat price. Indeed, I think this defeats the only potentially valid argument for university subsidies, that there might be a ‘market failure’ if only market prices prevail. What is required to correct that market failure will vary widely between disciplines. I suspect in law and commerce there is no market failure at all and no vouchers are needed. In low-salary professions such as nursing or teaching some subsidy is probably necessary to keep the flow of workers going. –

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  6. backroom girl wrote:
    You might then need another mechanism (industry-funded scholarships, perhaps?)
    Cadetships? I’m all for the idea of business shouldering the burden of educating people they get direct benefit from, but I can’t see it working unless you’d like to restrict them to particular degrees (I can’t see BHP sponsoring too many arts degrees for example, but engineering yes).

    Surely private industry could be encouraged to start their own voucher system via the already available full fee places with some appropriate tax break, although keeping your trained staff after they’ve graduated might be an issue.

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  7. I haven’t read the full text of the universities’ proposal, but I gather that the value of the ‘scholarship’ would vary from course to course. So presumably in order to control the overall cost to the public purse, the Government would need to provide only so many scholarships for each kind of course. So the only real portability to the money would be between institutions, rather than between courses? Or am I missing something?

    I guess when I mentioned cost in my original comment, I was really thinking about the fee that the university would charge, rather than the actual cost of providing the course, necessarily (though the second would presumably have some bearing on the first). And I also agree that some courses/students might need some other source of subsidy, whether from the universities themselves, from the industry that will employ the graduates or from public-minded philanthropists. (David – I certainly didn’t have in mind that BHP would be called upon to fund Arts courses, but if there is a shortage of engineers, it would seem to be in their interests to offer some additional subsidy to people studying engineering. To keep your staff after they’ve graduated, I guess you’ll just have to be a good employer.)

    As a mechanism for allocating Federal Government funding, I think I still prefer a flat-rate voucher, really. I’m not sure whether it would be necessary to draw a cut-off point somewhere for eligibility purposes – it would probably be more equitable to people just on either side of the dividing line not to have one, but I agree with you that demand for tertiary education is not likely to be all that high among people who did poorly at school.

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  8. “I suspect in law and commerce there is no market failure at all and no vouchers are needed. In low-salary professions such as nursing or teaching some subsidy is probably necessary to keep the flow of workers going. -”

    Shame Andrew! It’s not the Government’s job to pick which areas of study need assistance because of a lack of graduates, low salaries etc. If they have a flat voucher, and universities are allowed to charge top-up fees, low-demand courses (perhaps because of low salary after graduation) will have prices closest to the voucher value, and courses which have high graduate salaries will have higher demand and therefore charge the most top-up fees.

    Regardless, it is a welcome development from the Universities – a big step from the kind of thinking that pervaded campuses just 5-10 years ago. We should remember though that this is the G8, who would benefit most from a voucher/scholarship scheme, and not a group which represents smaller universities, who are likely to oppose such moves. Politically, it’s a step in the right direction – towards a comprehensive voucher system.

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  9. James – But if is not the government’s job to pick which areas of study need assistance, why do you think we need public subsidy (in whatever form – grants, vouchers, scholarships) at all?

    I don’t entirely agree the the Group of Eight have most to gain from a voucher system. So far as I know, none want to expand and I would not be surprised if most would rather be smaller (though they may prefer to diversify risk, and take fewer international and more domestic students).

    Institutionally, the biggest winners are likely to be private higher education providers and perhaps places like RMIT, which have strong demand and are not concerned to protect their ‘exclusive’ nature.

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  10. I didn’t like this bit of the proposal (at the bottom of page 46):

    “We envisage that individuals wishing to undertake additional studies, beyond those supported through national scholarships, should have access on a fee-paying basis, with loan assistance available up to the cap of $80,000.”

    So if a teacher or librarian would like to add to their skills by enrolling, for example, in a language course, they would pay the whole full-fee amount, out of their not very large income. I would like to think that teachers (and librarians, and people in other professions too probably) could continue to study their whole professional lives, becoming better and better at what they do. You couldn’t do it under this scheme. We in Australia have enough wealth to have free education, and that’s what we should have.

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  11. Andrew I agree – a public subsidy for education is problematic, but a public subsidy where the government ‘picks winners’ is much worse. If you are going to have any subsidy at all, it should at least be consistent so as to avoid distortions in the market.

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  12. James – I’m not sure that this is ‘picking winners’, but more like the goverment buying a known product, such as teachers or nurses. From the state’s perspective, it may be more efficient to use education subsidies to churn out lots of teachers and nurses than to significantly increase salaries to encourage more people to enter and stay in these professions.

    Once people have the sunk cost (including the considerable opportunity cost) of having acquired the relevant skills, they are less likely to leave for another occupation even if their salary isn’t that flash, because they lack the credentials and/or experience to enter better-paid vocations.

    Your position seems to be that there is some kind of vague general public good from more graduates that would not be achieved without a subsidy. I seriously doubt that this is the case across all disciplines. If public money is to be spent, I want more evidence that some good will come of it.

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  13. “Once people have the sunk cost (including the considerable opportunity cost) of having acquired the relevant skills, they are less likely to leave for another occupation even if their salary isn’t that flash, because they lack the credentials and/or experience to enter better-paid vocations. ”

    That’s more or less the point I was making – and that it’s a bad thing. Do you think it’s OK, when we’re told everybody should expect to have at least 3 different occupations/careers in their lives, to make further education so expensive – ie full-fee cost? This new proposal seems to give people just one shot at tertiary education.

    Teachers, nurses etc who had the inclination would probably become better teachers and nurses by dipping in and out of continuing, part-time further education over their careers – something they won’t do if it’s so expensive.

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  14. Andrew Leigh’s research shows that teachers with postgrad qualifications don’t have better student outcomes than teachers without them, though there is always the possibility that they would be worse than average without them. I doubt many teachers or nurses ever pay full-price for their education, for the reason I mentioned above.

    The Group of Eight proposal gives seven years of subsidies, enough for two undergrad degrees (with a handful of exceptions). There is a bit of a debate about whether there are sufficient ‘perpetual students’ to warrant the bureaucracy involved in keeping track of how much of their 7 years students have consumed, though I have no in-principle objection to the limit (which is the same as current policy).

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  15. “Andrew Leigh’s research shows that teachers with postgrad qualifications don’t have better student outcomes than teachers without them, though there is always the possibility that they would be worse than average without them.”

    This was in regards to primary school teachers. I doubt it would be the case for secondary school teachers where a much greater mastery of subjects is required.

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  16. “We envisage that individuals wishing to undertake additional studies, beyond those supported through national scholarships, should have access on a fee-paying basis, with loan assistance available up to the cap of $80,000.”

    From having a look at the pages referred, I’m not sure if the Go8 proposal would preclude further study, what I saw that the scholarship refreshed when a student changes course, if it refreshes when a student starts another course then 7 years (full-time) is a reasonable time in which to complete a degree – I noticed it factored in a longer scholarship for medicine and longer degrees, and something similar I hope would be applied to double degrees.

    If it does refresh at the beginning a new course it isn’t much different from status quo. The only problem I can see at the moment is that one isn’t eligible for Austudy after completing a postgrad qualification, which automatically deters a lot of potential teachers from doing a DipEd, which could be the ideal qualification to offer some insurance for a graduate student considering entering the competitive field that is the academic job market.

    Also I can see there being situations like Russell mentioned, what if a teacher wents to reskill to become a Maths or Science teacher, they could run into problems. If the 7-year learning entitlement is per course I don’t have a problem with it, but I can see it in rare cases inhibiting some people from reskilling (although I believe at the moment universities are allowed to waive the 7 year requirement in some circumstances).

    Also I can see the bureaucratic mess the 7 year entitlement can place on unis, as Andrew says it probably costs more to police than it saves in costs. I doubt “perpetual students” are really that much of problem (apart from graduate students, who have high GPAs to be eligible for further study). Which leads me to believe this is largely a myth, as I can see little incentive for many people to complete more than two degrees (How many people are financially in the position to complete three or four undergraduate degrees – that’s nine to twelve years living on student allowance, OUCH!!!). Secondly, how many people would want to keep studying course after course without attempt to apply the skills they obtained in a market, other than a few academic types I think the numbers would be minute.

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