The longer-term effects of upfront discount rates

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”

Should the upfront student contribution discount be halved?

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?”

Is arriving by boat a good proxy for refugee migrant quality?

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?”

Why are English uni students going to be charged so much?

To great controversy, England is lifting the cap on university fees to £6,000, with charges up to £9,000 if access measures are put in place. To the government’s unpleasant political surprise, most are going to the full £9,000 from 2012. This is similar to the experience in Australia in 2005, when universities were permitted to charge up to 25% more than the previous HECS rates (except in education and nursing). Pretty soon all were charging the maximum fee.

While not all these fees are rip-off prices, given the cuts to tuition subsidies, I don’t think this is a very good outcome. Even on zero subsidy, in some courses £9,000 in income would translate into significantly more than cost, if Australian costs are any guide. So what’s going wrong?

Without being expert on English higher education, the mistake appears to me to be partially deregulating prices while regulating supply. In the UK as here in 2005, when the government restricts supply to well below demand it’s a licence to increase prices. If people want a degree, they will have to take what is offered even if it is over-priced (though we are yet to see if in practice demand will dip in the UK). Uncapping supply and letting new entrants into the system would create more pressure to keep fees down. Continue reading “Why are English uni students going to be charged so much?”

Crowding out and in

In the 1990s I was interested in the social capital literature, as a way of empirically addressing some of the ‘communitarian’ criticisms of liberalism that I was writing about in my eventually abandoned PhD. Social democrats – such as Eva Cox in her Boyer lectures A Truly Civil Society – thought that there was a positive relationship between big government and social capital. I thought the opposite was more likely.

Over Easter I read this article by Isabelle Stadelman-Steffen using OECD social spending data and the results of European and World Values Survey questions on volunteering.

Overall for ‘social’ volunteering – for social welfare, health or community action on poverty, employment, housing or racial equality purposes – there was clearly a negative statistical relationship with public welfare spending. This is consistent with the ‘crowding out’ hypothesis, that to some extent the state displaces voluntary activity. In further support of this hypothesis, a large welfare state had no statistically significant crowding out effect for other voluntary activities. Continue reading “Crowding out and in”

Our ‘over-enrolled’ universities

Some Vice-Chancellors will be relieved that tertiary education minister has issued a media release talking up the promised demand-driven funding system. It is an obvious savings measure for a cash-strapped government, with no parliamentary approval required for delay and few punters having any idea what it is.

Data released by Evans’ office (though not in the link above) can be compared to funding agreement data to see university ‘over-enrolment’ levels. Under a phase-in to the demand-driven system, universities can receive government tuition funding up to 10% more than their agreed amount for 2010 and 2011 (up from 5% under the previous government). For students enrolled above that, they get the student contribution amount but not any direct Commonwealth tuition subsidy.

Though we can’t directly extrapolate from student numbers to $ amounts, 23 universities have hit 10% undergraduate over-enrolment, and 7 have hit 20% undergraduate over-enrolment. Australian Catholic University is a staggering 41% over-enrolled. Across the whole system, over-enrolment is at 13%.* Continue reading “Our ‘over-enrolled’ universities”

When might big-spending campaigns work?

The commenters on yesterday’s campaign finance post think that big ad campaigns don’t always work. That’s certainly the finding of the US literature on this subject – not that money never makes a difference, but that it interacts with so many other factors that there is no stable or predictable relationship between political spending and political outcomes.

Generally speaking, I believe the chances of any campaign over-turning stable elements of public opinion in the short to medium term are very low. The Howard government’s propaganda campaign on WorkChoices was doomed because the unions could tap into deep elements of public opinion. The importance of the union campaign against WorkChoices wasn’t that it changed minds, but that it kept the issue in people’s minds until polling day.

The more interesting campaigns are on unfamiliar issues, where public opinion is to a certain extent up for grabs. The mining tax was an example of this. Given existing tax and spend polling the issue could have headed in several directions if it had continued – we are generally in a pro-tax part of the political cycle if consequent spending the public approves of is emphasised, but opinion is also highly sensitive to situations in which workers may lose their jobs. Another factor in the mining tax case was that the government advertising in response to the miners was terrible, an off-putting lecture that did not hit existing pro-tax intuitions. Continue reading “When might big-spending campaigns work?”

The media gatekeepers vs free speech

Katharine Murphy’s Age column yesterday attacking big ad campaigns against government policy is the third such argument I have seen from journalists in the last six months or so. George Megalogenis made a similar argument in his Quarterly Essay (though for reasons I did not entirely follow, he thinks campaigns are ok after laws have been passed), and Peter Hartcher argued that ad campaigns threaten economic reform.

Murphy says:

We have a choice. We can either bump along and slide into a combative political environment where vested interests set the agenda, or we can stop, think and consider the alternatives.

Should there be full public funding for elections, ensuring that politics is left to the politicians? Should we require truth in political advertising?

Or should we do nothing, and wake up in a decade to find that politics can’t do anything; that politics is now solely about carving up the spoils, that reform has become impossible?

Though I strongly disagree with the Murphy’s views, she does more or less correctly describe what campaign finance reform is about. Its purpose and effect is to insulate the political class from the views of those who disagree with them or might challenge them. Continue reading “The media gatekeepers vs free speech”

Planned outage this Sunday

Hello all, your friendly Ozblogistan tyrant here.

To perform some important maintenance on the site, it will be necessary to deactivate all Ozblogistan blogs temporarily on Sunday afternoon. I am expecting to take the site down around 2pm, central standard time, for up to two hours.

Dubious ideas submitted to the higher education funding review, part 3

Of all the dubious ideas likely to be submitted to the higher education funding review, the most dangerous because most likely to be accepted is that deregulated supply – from next year, the Commonwealth is scheduled to abolish the controls that currently tell unis how many students to take and broadly what disciplines they will be in – should be combined with capped prices.

That however is the message of the higher funding review submission of the Innovative Research Universities lobby group.

For them the price per discpline would be simplified version of the current ‘cluster’ funding model, with many disciplines given the same funding rate, and a flat maximum student price.

It would be a blunter price mechanism than now when we need a sharper one. Continue reading “Dubious ideas submitted to the higher education funding review, part 3”