Basic economics tells us that students won’t just pay any price for a university degree. If market prices become too high, a case can be made, in theory at least, for public policy action to lower the cost to students, to ensure that the labour market has sufficient graduates or to target particular groups of people.
But how do we tell when we have reached such a point? Professor Simon Marginson seems to think that the theory above is sufficient for us to know. An article in this morning’s Age reports that the proportion of university students from a low socioeconomic background hasn’t changed in 15 years, despite two significant price hikes, but Marginson says:
there is a problem with extrapolating the results — if you keep lifting costs, there is likely to be a lag factor before you see evidence that parts of the community are being excluded. “It’s a pretty clumsy way to test the waters.”
In my view, theory can only take us so far in answering what is essentially an empirical question: at what prices will student (or prospective student) behaviour start changing in ways that are, from a public policy perspective, undesirable? We can be confident that we are not there yet. Total applications have dropped since their most recent peak in 2003, but demand still exceeds supply, and by very large margins in some courses at some universities. Demand would not exceed supply if prices were too high.
We are also observing strong enrolment growth in the full-fee sector, where costs to students are usually significantly higher than in the publicly-subsidised, price-controlled places that most Australian undergraduates occupy. International students, most of whom come from countries with per capita income well below Australia’s, appear to believe that their fees are value for money. Are we to believe that Australian students are much more price sensitive to higher education than Chinese or Indian students?
Well, perhaps not all Australian students. Maybe it is just, as Professor Marginson suggests, ‘parts of the community’. Professor Bruce Chapman notes that university participation direct from school is dropping, particularly among country students. But this is far more likely to be due to alternative employment opportunities and maximising Youth Allowance eligibility than tuition costs, which can of course be deferred. The prolonged drought may also be causing rural rural student numbers to drop, as families cannot afford to send them away to study or need them to contribute to family income by working (this DEST indicator may not be reliable – we need to know whether there has been a decline in the youth population in the areas classified as ‘rural’).
And why would there be a lag? The history of HECS increases suggests the reverse; that there is a dip in total applications when cost increases are announced, but then recover once people realise that the sums still add up, that the graduate earnings premium means that courses are still bargains, particularly for school leavers who can gain benefits for the 40 or more years of their working lives. Admittedly, there is a lag in the national statistics becoming available, but universities can monitor the data constantly.
One of the many problems with the centrally-controlled higher education system is that experiments in student behaviour are system-wide. Markets by contrast constantly conduct thousands of experiments, seeing how students will respond to various prices for the courses on offer. If the price is too high, universities have quick feedback (empty places, lower revenue) and a strong incentive to think again.
Policymakers could make far better decisions if they were able to use this information generated in markets, responding to real problems rather than (probably) spending hundreds of millions of dollars to no educational or equity effect. It would certainly be a better source of information than the intuitions behind much public commentary on higher education.