The Australian this morning runs a left-field editorial opposing the cut to the discount for paying student contributions upfront.
Completely ignoring the only compelling rationale for the discount, reducing the cost of the HELP scheme, the editorial drifts off into various social policy objectives: encouraging students to use some of their part-time earnings to reduce their debts, and encouraging the ‘responsible behaviour’ of families who assist their students by reducing their debt.
But why is increasing public debt to decrease private debt a good thing?
And if increasing public debt to decrease private debt is a good thing, why restrict it to families with university students?
No wonder we are sinking in a sea of debt when even the most economically rational newspaper resists sensible plans to reduce government spending.
The editorial also incorrectly states that the change will reduce revenue flows to universities. Instead, universities will get slightly more revenue directly from students and slightly less directly from government. We’ll have to wait for the forward estimates next week to see what the government thinks, but after factoring in some behaviour change I’d estimate a $70-80 million shift.
Rajat asks about deferral trends over time. The figure below is the percent of total student liabilities deferred 1989-2009.
Source: Higher Education Report 2009.
As you can see, the trend is consistent with discount rate having an effect. When it increased in 1993 from 15% to 25%, more people paid up-front and the deferral rate dropped. When the discount decreased from 25% to 20% in 2005, the deferral rate increased, ie fewer people considered it worth paying upfront.
The data is also consistent with the effect building over time. Continue reading “The longer-term effects of upfront discount rates”
According to media reports this morning, the government is planning to cut the discount on student contributions paid up-front from 20% to 10%.
According to The Age’s version of things, ‘the government will justify the cut on the grounds that the benefit goes mostly to wealthy families.’
But contrary to common impressions, the discount was not intended as a benefit to anyone other than taxpayers. Because it is very expensive to lend money at zero real interest, students paying up-front can save the goverment money. In a couple of scenarios I did last year, for male arts and law graduates earning median incomes in professional or managerial jobs, it was slightly cheaper for the federal government to pay the discount than to pay the interest subsidy on the HELP debt.
However, the economics of the discount depend on how long students would otherwise take to repay. For quick repayers (or people who would pay upfront anyway), the government would be better off not giving the discount. If students are going to repay slowly, the discount looks like a better deal for taxpayers. Another factor is that up-front payment removes the risk of non-repayment.
Whether or not halving the discount makes financial sense for the government depends on the behavioural response. Continue reading “Should the upfront student contribution discount be halved?”
While conservative elements of the Australian Right are strongly opposed to unauthorised refugee boat arrivals, there has been a quirky argument from its more libertarian elements that we should prefer them to migrants plucked out of refugee camps. Chris Berg made a version of this argument in 2009:
Aren’t people who are willing to risk their lives on boats propelled by motorbike engines to get to a society with social and economic freedom exactly the sort of people we want in Australia?
In other words, making it to Australia by boat is a kind of screening process, demonstrating some economic success at home to pay people smugglers, organisational skills, and willingness to take risks, all of which could be helpful attributes once they arrive. The people sitting passively in refugee camps may have shown some survival skills, but not much else.
It’s an appealingly counter-intuitive argument. Unfortunately the data in a report on humanitarian migrant outcomes (for people who had been here one to five years) published late last week (large pdf) leads me to the conclusion that it probably isn’t right. Continue reading “Is arriving by boat a good proxy for refugee migrant quality?”