Does FEE-HELP inflate fees?

In this week’s Higher Education Supplement in The Australian, higher education commentator Gavin Moodie offers the Liberal Opposition some policy advice. Some of it, such as introducing vouchers, unsurprisingly I think is sound. However there is also this:

There would have to be a cap on fees because the whole point of an income-contingent loan is to insulate students from the immediate cost of student fees, thus removing any price discipline on tuition fees as the US has found much to its cost.

This was an issue discussed at a workshop on the FEE-HELP loan scheme in Canberra this week. The idea behind a student loans scheme is, of course, to help students pay more than they would if tuition fees had to be paid upfront. To the extent that there is historic underinvestment in education, we would expect price increases when a loans scheme is introduced.

In the not-for-profit private non-university higher education sector this is what seems to have happened, with substantial fee increases observed in most of the institutions for which I have data in the year they received access to FEE-HELP, or the following year. But is this removing ‘any price discipline’? I doubt this. Their fees are still below what a public university would receive for a Commonwealth-supported place in the same discipline.
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