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.