When should education subsidies stop?

In yesterday’s Age, Sarah Blackman, who already has university degrees in arts and education, is reported as complaining that she will have to pay full fees for an RMIT course on writing and editing (this one, I think). This makes it about ten times more expensive than a subsidised place.

The requirement to pay full fees is, as I understand, part of the Victorian government’s reforms to their vocational education system. They have lifted quantity constraints on places available to students taking initial or upgraded qualifications, but are not subsidising people taking lower qualifications than those they have already.

Higher education also has restraints on subsidies. Sometimes these relate, like Victoria, to the student: limits on the number of years of subsidy. Sometimes it relates to the course, with most postgraduate coursework degrees being offered on a full-fee basis only.

In principle, these seem like fair ways to ration limited resources. In Victoria, the savings from not subsidising a would-be triple-dipper like Ms Blackman are being redirected to people who have had far fewer opportunities. People with postgraduate qualifications have typically already enjoyed significant subsidy and are in a better position to finance further study.

However, the Gillard reforms would abolish the 7-year limit on receiving government higher education subsidy. There is a legitimate argument that the bureaucratic cost of administering the limit exceeded its benefits. It requires the government to eventually keep track of the consumed subsidised study time of millions of current and former students. It requires higher education providers to continually check on entitlements. It may well be cheaper to allow a relatively small number of ‘perpetual students’ to continue drawing subsidies.

Nevertheless, the principle of limiting subsidy is sound and if there was a more efficient way of rationing spending then we should do it. I think there is. This is to cap the HECS-HELP loans scheme, so that a student could borrow so much but no more (or combine HECS-HELP into the existing FEE-HELP scheme, which is already capped). Since the outstanding HELP debt needs to be recorded anyway, this uses existing information for a dual purpose. It also limits the costs associated with HELP itself.

15 thoughts on “When should education subsidies stop?

  1. The idea sounds sensible, Andrew, (in a second-best world) but how well would it work in practice? If I understand it correctly – which I’m not sure I do – what you propose would mean capping the amount a person could borrow from the Commonwealth Government at nil real interest rates (leaving aside the issue of the HECS up-front discount). Presumably this would need to accommodate, at a minimum, 5 years of undergraduate Medicine. At a current maximum annual contribution of $8,677 pa , this is $43,385. That is equivalent to over 10 years of Education, Nursing, Maths/Stats and Science (at a maximum of $4,162 pa) or over 8 years of humanities (at a maximum of $5,201 pa). Someone in Sarah Blackman’s position would just about be able to squeeze in her third subsidised degree.
    If HECS-HELP and FEE-HELP were combined, the problem would be much worsened.
    More broadly, there is the injustice that an accounting HECS debt reflects much less of a subsidy than a HECS debt accruing from a science-based degree. But I suppose that is a whole separate issue.


  2. Rajat – I agree that if Sarah Blackman were to do a federally susbsidised course she could triple-dip under this scheme – though the undergrad/postgrad distinction could trip her up. And there is the problem of trying to fit very different cost structures into a single loan scheme (which FEE-HELP deals with by having different maximums for high-cost courses). Perhaps there should be a maximum subsidised loan with an unlimited additional component based on individual assessment of students, as with normal loans. Say $50-60K of subsidised loans no questions asked. That would cover subsidised u/grad courses + a low cost postgrad course. Anything more, you have prove you are a good credit risk. People doing courses like medicine would normally be classed as low risk – high completion rates and high earnings.


  3. “It requires the government to eventually keep track of the consumed subsidised study time of millions of current and former students”
    Given that all goes through the tax system, I imagine it would be pretty simple to track.
    On a different note, given the government’s mantra of “life-long learning”, perhaps they should think of resetting it somehow after some years. That would get rid of never-ending students but still allow people to change career later in their lives. At present, it’s too easy to find people who did degrees they didn’t really want to do in hindsight (which is generally encouraged by the government, otherwise we wouldn’t get not in education and training figures and also not have achievement targets) but get a bit more serious in life some years later.


  4. Conrad – The ATO doesn’t know anything about those who pay upfront, and and in any case records $$$ rather than time – I was suggesting in the post that maybe this could act as a cheaper proxy.

    There is some complex arrangement for adding ‘student learning entitlement’ for later in life, though it has never become an issue as the whole system only started in 2005, and so nobody is likely to have used their original 7 years.


  5. If we’re sticking with an administrative approach, why not just limit HECS-HELP to one completed undergraduate course? I presume that keeping track of people who have completed a degree would be easier than keeping track of the number of years of subsidised study they have enjoyed. If there are any positive social externalities from higher ed, they would largely be captured by the first degree. Everything else could fall under the FEE-HELP limit (which still provides an implicit subsidy anyway).


  6. So that people who fail lots of core subjects and have to retake courses get a higher subsidy than those who pass first time?
    I think 7 years is fairly generous, actually, but I suspect it is designed to accommodate the “Melbourne Model” that we seem to be moving towards.


  7. Cathy, I agree it’s perverse but I can’t see how any realistic cap on $$ would prevent students from failing and retaking heaps of undergraduate courses with the aid of HECS subsidies. For example, even a $40k cap on HECS-HELP would allow someone to take and re-take literally dozens of Arts or Science courses.


  8. Cathy – With some user pays, there is a financial disincentive for failing, but so far as I am aware full fees for repeat subjects has not been proposed.

    The 7 years was legislated in 2003, 2 years before the Melbourne Model was announced. It was going to be 5, with various ad hoc longer exceptions (eg medicine). My memory is hazy on why it was increased.


  9. So that people who fail lots of core subjects and have to retake courses get a higher subsidy than those who pass first time?

    In monetary terms the subsidy is higher, yet these individuals have to repay a bit more, have a fail on their transcript and also have a higher investment in time getting the qualification. All up a negative net present value proposition.


  10. Surely the point is that If Sarah wants to write, she can. I’m not sure how many Booker Prize winners have completed a professional writing and editing diploma – I suspect none – but if she has no talent as a writer no amount of diploma courses are likely to change that.


  11. just fyi Andrew, there still exists an ad-hoc system of exceptions for those studying arts/medicine and law/medicine, which has more than a 7 year FT load. (and a killer of a hecs debt, let me tell you!)


  12. I don’t know who Sarah Blackman is as I left RMIT 5 years ago, but we were producing about 8-10 novelists a year.

    Keep in mind that this was a diploma of art but about 60 percent of the students had a first degree. That was unusual and it was the key to the high productivity rate of the students.

    It’s a win for equity but a loss for creative production in Melb. Even so, it’s not devastating as there are other post graduate writing programs they can take.

    I would advise students to steer away from discipline smashing programs where they fold one discipline over another. You’ll pay top dollar in HECS and get little in return, either practically or theoretically.


  13. Malcolm, surely if people like Sarah are confident that the RMIT course would lead to success as a novelist then they should be willing to invest their own money into the venture rather than relying on others to subsidise them?

    Who would benefit from Sarah’s creative production? Most likely it would be her- in which case she should bare the cost. If she wants to find a sponsor she’s more than welcome to. But I don’t think the taxpayer should bare that burden.


  14. Alas Shem,

    ‘success as a novelist’ is far from assured. But you are right that Sarah shouldn’t use reverse articulation to take a junior qualification (at RMIT that qualification is pitched as post grad ‘finishing school’ type diploma).

    I had two concerns. One is that the level of novels produced will fall in Melbourne – although that may be just in the short term and that diploma teaching staff will be made redundant.

    re your second question, we’d all benefit from Sarah’s creative production. Darned if I know how we quantify that. Actually regarding research points, we don’t. Novels don’t qualify.

    Another problem I have is the auteur or ‘professional student’. I think, at least in Victoria, we can kiss those days goodbye. Thank goodness.


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