Category: Higher education

Is there an implicit subsidy in the HECS debt?

~ Andrew Norton ~ 16 Comments

Over at his blog, Andrew Leigh asks whether the OECD was right not to count an implicit subsidy in HECS-HELP in its figures on how much the federal government spends on higher education. The federal goverrnment argues that because the OECD only counts direct subsidy paid to higher education institutions, it understates total spending on higher education. This is a complex issue; I would welcome feedback on my analysis.

There are two possible subsidies in the income contingent loans scheme. There is the writing off of bad debt, about which I have written extensively (pdf). Lending to students that won’t be repaid should be classified as a higher education expense. And there is an interest rate subsidy, because HECS-HELP debts are indexed to inflation, but otherwise no interest rates are charged. There are direct and/or opportunity costs to the federal government in not charging interest on HECS-HELP debt.

Andrew L is questioning the implicit interest rate subsidy point. These are not his words that follow, but the reasoning goes like this:
Continue reading “Is there an implicit subsidy in the HECS debt?” →

Higher education ‘equity’ in the for-profits

~ Andrew Norton ~ 3 Comments

Amidst the pre-campaign barrage of media releases from Julie Bishop was one announcing funding for a National Centre for Student Equity in higher education.

“The Centre will develop best practice for attracting and retaining students from disadvantaged backgrounds and will provide outreach programs to universities, schools and the broader community,” Minister Bishop said.

This assumes too much. While we know the main reason low SES people don’t go to university, poor school results, we don’t know very much about the consequences for those who do decide to attend. Mainly due to being less academically prepared to start with, their completion rates are lower than for higher SES students. But is doing some university a benefit, even if it does not end in a degree? Are those who do complete getting jobs that match their qualifications, or are they over-represented among those graduates in sales and clerical work?

Our aim ought to be to help people improve their lives, not use them to help make society look more like the ideological preconceptions of the academic left.
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Do graduates from private schools earn more?

~ Andrew Norton ~ 10 Comments

In The Sunday Age yesterday, there was another article about private school students struggling at university. It was based on the numerous studies (I mention a couple here) which have found that, for a given ENTER score, kids from private schools, and also selective government schools where they have been examined, average slightly lower first-year university marks than kids who have been to government schools.

Though this finding has been repeated frequently enough for it to be regarded as a valid social science generalisation, it is also widely misunderstood as saying that private school students get lower grades at university. I haven’t seen that question specifically answered in research, but given that private school students have much higher median ENTERs that is unlikely to be the case. Though private school students are not as academically prepared as government school students who get the same grades as they do, disproportionately few government school students actually get those matching grades at the end of Year 12.

There is also the problem that the studies are all of first year students. It would not be surprising if the differences narrowed in subsequent years, as private school students adjust to the more self-directed study style at university and learn that university life doesn’t offer quite the same freedom compared to school at they might have first thought.

As an ACER study I blogged on in April found, private school students have a higher rate of actually completing university, though once starting ENTER scores are taken into account there are no significant differences betweens school sectors.

One issue we don’t know much about is the differences between government and private school students after university. I have been trying to do a little research on this using the 2005 Australian Survey of Social Attitudes.
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What effects would rising uni fees have on the labour market?

~ Andrew Norton ~ 27 Comments

The intuition that rising university tuition fees are a problem is a powerful one, but in need of persuasive theories and evidence to support it. As research cast more doubt on the idea that HECS negatively affected decisions to attend university, the argument switched to its effects after graduation.

The first serious attempt to do so was a paper in 2002 by a University of Tasmania academic, Natalie Jackson, suggesting that HECS might reduce fertility, as couples, and particularly women, postponed having children to pay off their HECS debt first. Though Jackson herself was cautious, given the data limitations, the idea was enthusiastically taken up by proponents of lower HECS, as I noted in my 2003 paper (pdf) criticising the idea. Subsequent analysis using HILDA data, published recently in the Journal of Population Research, showed that my argument was correct.

Another version of the argument is that, because of HECS, graduates will struggle to buy a home. Kevin Rudd has made this argument, effectively suggesting (as I pointed out at the time) that graduates be given a second first home buyers grant not available to the poor plebs who have to work to pay for their homes, rather than getting a wealth transfer from the Commonwealth.

A third version of the argument, which has come up this weekend in The Age and from commenter Matt, is that HECS debts will distort career choices away from public service type jobs towards employment that will generate the cash flow required to repay loans.

As The Age put it:
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Testing the waters on uni fees

~ Andrew Norton ~ 15 Comments

Basic economics tells us that students won’t just pay any price for a university degree. If market prices become too high, a case can be made, in theory at least, for public policy action to lower the cost to students, to ensure that the labour market has sufficient graduates or to target particular groups of people.

But how do we tell when we have reached such a point? Professor Simon Marginson seems to think that the theory above is sufficient for us to know. An article in this morning’s Age reports that the proportion of university students from a low socioeconomic background hasn’t changed in 15 years, despite two significant price hikes, but Marginson says:

there is a problem with extrapolating the results — if you keep lifting costs, there is likely to be a lag factor before you see evidence that parts of the community are being excluded. “It’s a pretty clumsy way to test the waters.”

In my view, theory can only take us so far in answering what is essentially an empirical question: at what prices will student (or prospective student) behaviour start changing in ways that are, from a public policy perspective, undesirable? We can be confident that we are not there yet. Total applications have dropped since their most recent peak in 2003, but demand still exceeds supply, and by very large margins in some courses at some universities. Demand would not exceed supply if prices were too high.
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Second-rate rent seeking

~ Andrew Norton ~ 6 Comments

The Australian Vice-Chancellors’ Committee may have changed its name to Universities Australia, but so far at least nothing else seems to have changed. Their recent media releases contain more of the second-rate rent-seeking that has long marred the organisation’s public advocacy.

Last week, in their tradition of ‘good first step’ reactions to government initiatives, they welcomed a small extension of student income support and issued a media release repeating their call for:

“Firstly all scholarships and bursaries (regardless of their source) to be excluded from assessable income for the purpose of student income support; and

“Secondly, a reduction in the age of independence for Youth Allowance from the current 25 years to 18 years over the next term of parliament,”

There is no mention (and nor was there when the proposal was first made in August) of how much these changes might cost, how important this proposal is compared to other higher education spending options (let alone other alternative uses of the money), or other implications of the changes.
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One expert does not back claims on low uni funding

~ Andrew Norton ~ 7 Comments

The Age‘s sub-editors must have concluded that I am not an ‘expert’ on uni funding. In an article this morning Simon Marginson and Barry McGaw said this week’s OECD report Education at a Glance, which reported declining public funding on tertiary education, was ‘reasonably accurate’. However I was reported as saying that ‘tertiary funding had returned to 1995 levels by 2006’. The headline was not however ‘Experts divided on uni funding claims’ but ‘Experts back claims on low uni funding’.

As it happens, I do think the figure quoted in The Age‘s article of a 4% drop between 1995 and 2004 is ‘reasonably accurate’ (it refers to this Excel table in Education at a Glance). Using the ABS Government Finance Statistics publication, based on Commonwealth spending, I get a 2% drop between 1995-96 and 2004-05; the difference with OECD could be using the financial rather than calendar year (there were subsidy increases for 2005) and/or using a different method of adjusting for price changes.

But by 2005-2006 the ABS clearly shows a surge in spending, so that Commonwealth spending is now well ahead (about $600 million) on 1995 levels, plus approximately $1.2 billion more in HECS revenue (my figure, based on DEST data).
Continue reading “One expert does not back claims on low uni funding” →

More bad reasons for reducing HECS

~ Andrew Norton ~ 26 Comments

Yesterday’s OECDitis seems to be spreading to the nervous Coalition backbench, with two MPs reported (no link, sorry) in today’s Australian as favouring reduced HECS.

West Australian Liberal Mal Washer made the old argument about HECS being a disincentive, plus one I had not seen before:

The reason for HECS originally was the assumption that people with university degrees have higher incomes. With the construction and mining boom, that is no longer the case. We should reduce it, we need to pull it back.

Like the ALP, Dr Washer is getting rather carried away with the importance of mining and construction. Fewer than one in ten Australian workers are employed in either of these industries. And as I noted last year, the relative income advantage of bachelor-degree graduates has declined only very slightly since 2001 (and may be due only to more able and experienced workers being moved to the postgraduate column).

South Australian Liberal Senator Cory Bernardi’s suggestion was no better. He suggested a reduction in HECS for students who undertook volunteer work in the community. But if they are effectively being paid via reduced HECS, it is not volunteer work, is it? And if we are going to pay people to do community work, why not employ the best applicants for the work, rather than the people who happen to have a HECS debt?

Sadly, from the Opposition leader to the government backbench, the higher education ideas offered by our politicians are either obviously daft (like Bernardi’s) or easily discredited (Washer, Rudd).

OECDitis

~ Andrew Norton ~ 13 Comments

The ALP came down with a bout of OECDitis yesterday, a condition that afflicts many politicians and commentators when they offer arguments assuming that whatever on average happens in other OECD countries Australia should do as well. The virus yesterday was the 2007 edition of the OECD’s statistical compendium, Education at a Glance (at 451 pages, it is very long glance).

The problem, according to the ALP, is that:

* Australia is the third worst of all OECD countries – ahead of only Korea and the United States — on public education spending as a proportion of total education spending;
* Public investment in preschool has languished at just 0.1 per cent of GDP, the equal lowest of all OECD countries with Korea; and
* Public investment in tertiary education has fallen by four per cent at the same time the average OECD investment increased by 49 per cent with Australia being the only country to record a drop in public investment.

Third worst of all OECD countries on public spending as a proportion of all education spending? Continue reading “OECDitis” →

Do gap years improve marks?

~ Andrew Norton ~ 5 Comments

As I have noted in several posts, there is a clear trend towards school leavers starting university at a slightly older age. My hunch has been that this is not necessarily a bad thing, but there has been little evidence either way.

Research based on UWA students reported in today’s SMH suggests that there may be academic advantages. Taking a ‘gap’ year correlates with higher marks, with gap year students on average getting marks that are 2.4 percentage points greater than other students.

The gains are largest for students with lower ENTER scores. Someone entering on an ENTER of 80 received average marks 4.2 percentage points higher if they had taken a gap year, while the difference is only 1.3 percentage points on an ENTER of 98.

What isn’t entirely clear here is whether the gap year’s main effect is to remotivate people burnt out after year 12 – as seems to be the case for Jerome Doraismy, written up in the SMH story – or whether the positive results are due to other causes, such as removing from the pool students likely to do badly, better choices of courses or institutions, or improved finances due to savings and Youth Allowance eligibility lessening the need to work long hours while studying.

The fact that the benefits are greatest for students with lower marks who are at greater risk of doing poorly suggests that there might be a selection effect, but that there is some advantage (though not a large one) even for the most able students suggests that the year off confers some benefits even for those who were always likely to study and do well. It is, of course, possible for all factors to make some contribution.

Like virtually all the literature on school to university transition, this study focuses only on first-year university results. It would be interesting to see if the benefits persisted into second year. My guess is that they don’t; or at least not on the same scale. By then other students will have achieved a better match of course and institution, and after twelve months the positive effects of a holiday from study probably start to wear off.