Category: Higher education

Where are the missing HECS debtors?

~ Andrew Norton ~ 12 Comments

Today the Australian National Audit Office released a ‘performance audit’ (pdf) of the Higher Education Loan Program, which supports the three types of student loans: HECS-HELP for Commonwealth-subsidised students, FEE-HELP for full-fee students, and OS-HELP, which helps finance study overseas.

The ANAO’s audit was a box-ticking exercise that found little wrong with the administration of HELP. What’s more concerning, as I argued in my paper on FEE-HELP (pdf) last year, is the overall design of the system, which controls losses by setting arbitrary loan limits, while losing or delaying receipt of lots of money that could be recovered with better policy design.

Publications released since then highlight the problem. The DEST Higher Education Report 2005 stated that 1,121,822 people had a HECS debt as at 30 June 2005. Yet the ATO’s personal income tax report reports only 250,085 persons making a repayment through the taxation system in 2004-05. Where are the other 871,737 people?
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Should the government increase funding for mining courses?

~ Andrew Norton ~ 13 Comments

The Australian Institute of Metals and Metallurgy says that there is a shortage of graduates for mining companies. Its analysis of why, reported in The Australian this morning, is this:

[AIMM chief executive] Mr Larkin said the federal Government had given a commitment to fund disciplines of national importance but, because of the Government’s philosophy to move to a user-pays and market-driven tertiary education system, that was not happening.

As readers of this blog know, a tertiary education system in which market price signals are banned and places allocated by quota does not constitute a ‘market-driven’ system. Students have had the downside of part-user pays, the added costs, but not the upside, the collective power to shape the system in their interests.

It could be, however, that price signals from government are affecting university behaviour in supplying places relevant to the minerals industry. With a few exceptions, they can move places between courses within the dozen funding clusters, and with declining real funding per student there is a strong incentive to put places in courses with lower costs. If the low number of annual graduates in metallurgy cited in the article is correct, then universities will have a problem achieving economies of scale.

AIMM’s solution is for the federal government to increase funding by $4,000 per student in minerals courses. But why should a massively profitable industry like mining receive an indirect subsidy? Price signals working back through salaries should be sufficient to persuade potential students with interests compatible with mining careers to allow universities to charge the fees necessary to make these courses viable, with far more scope for fine-tuning than a sum like $4,000, which seems based only on matching the subsidy for agriculture, and not on an real cost information.

The problem here is that Australian doesn’t have a market-driven tertiary education system, not that it does.

The university protectionists

~ Andrew Norton ~ 22 Comments

A week after the Group of Eight launched its higher education reform package, we start to get a backlash, as the anxieties of other universities appear in the media.

From University of Sunshine Coast VC Paul Thomas came a variation on that old favourite of protectionists, the infant industry argument, except his infant institutions would be approaching middle age before they could face competition:

younger universities needed to be given the same opportunity as their Go8 counterparts to build up over decades.

So a generation of students should miss out on choice in the (unlikely) hope that the University of Sunshine Coast can become like the University of Queensland. But why should USC be like UQ? It is one of the mysteries of Australian higher education that universities would rather open themselves to ridicule as implausible would-be research institutions than be good teaching and regional institutions.

From (somewhat surprisingly) Greg Craven of Curtin University comes the same preoccupation with university hierarchy: Continue reading “The university protectionists” →

The folly of higher education price control, part #3

~ Andrew Norton ~ 12 Comments

The Group of Eight’s higher education reform proposal (pdf) proposes a relaxation, but not abolition, of price control.

Instead of the current more-or-less picked out of the air maximum student charges, they propose a Productivity Commission study of the ‘actual and relative teaching costs by broad field of education’. Based on the ‘indicative cost’ determined by the Productivity Commission, universities could set fees up to a maximum of 25% more than that number. The only rationale given is to ‘avoid exploitative pricing’.

This is a rather curious admission. In Australia, the only universities for whom an even remotely plausible argument could be made that they have the power to price in an ‘exploitative’ way are, er, the members of the Group of Eight. Are they saying that they cannot be trusted not to exploit students, and must be constrained by regulation? There aren’t many interest groups that will own up to that.

I would have thought that with the portable scholarship (aka voucher) proposal in the Group of Eight package they already had two systems of price control, ie a market to keep sticker prices down and subsidies to further reduce the effective cost to students – though arguably the subsidies will push up fees as students will know they won’t have to pay the full amount.
Continue reading “The folly of higher education price control, part #3” →

What is the difference between a voucher and a scholarship?

~ Andrew Norton ~ 17 Comments

In an article published in this morning’s Australian about the university reform proposal (pdf) launched today by the Group of Eight, journalist Dorothy Illing wrote:

AUSTRALIA’S most powerful block of universities has thrown down the gauntlet to the major parties to introduce a radical new model for higher education underpinned by student vouchers and price deregulation. ….The centrepiece of the Group of Eight plan … is a system of portable government-funded scholarships that would shift control of demand for university places away from the commonwealth. (emphasis added)

Is there a difference between ‘vouchers’ and ‘scholarships’? Politically, they have different connotations. Vouchers have long been associated with plans to end central control of public education, and the very word triggers knee-jerk negative reactions from some leftists. Scholarships, by contrast, are generally associated with reducing the cost of education to people judged academically able or financially needy. Most people intuitively think that is a good thing. It is no surprise that the Group of Eight chose the term ‘scholarships’ over ‘vouchers’.

Conceptually, however, what the Group of Eight is proposing is closer to vouchers. Both vouchers and scholarships are subsidies aimed at individuals, as opposed to the block grants used to finance Australian universities before 2005. Scholarships are usually awarded to individuals to attend a particular school or university. The key idea behind vouchers, by contrast, is that the beneficiary of the subsidy also gets to choose where it is spent. The ‘scholarships’ suggested by the Group of Eight could be redeemed for any accredited higher education course in Australia. Just like vouchers, they are aimed at creating a publicly-subsidised market.
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Can business students do their sums?

~ Andrew Norton ~ 9 Comments

This morning’s Higher Education Supplement in The Australian gave the lead story to various interest groups complaining about the Budget decision to reduce Commonwealth subsidies to commerce students by about $1,000, with universities being allowed to increase student contribution amounts by about $1,200.

“It is hard for us to see how this is going to attract more people into doing those courses. In fact, it might turn them away.”

… said Geoff Rankin, chief executive of CPA Australia, which represents 112,000 finance, accounting and business professionals. …

It is a great worry to us,” University of Western Sydney vice-chancellor Janice Reid said.

“It will be a significant disincentive for students who might have seen a bachelor of business or bachelor of commerce as a viable alternative to a bachelor of arts or a general degree in the humanities.

As usual, these arguments assume that prices have a big impact on which courses students choose. Yet a study (pdf) released a couple of years ago put the average income premium from a business undergraduate degree, compared to a Year 12 qualification, at $542,000. The maximum extra cost that could be imposed on a student would be 0.66% of that. Prospective business students who can’t work out that the course is still a good deal have no aptitude for financial reasoning and – as Janice Reid suggests – should perhaps do Arts instead.
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The folly of higher education price control, part #2

~ Andrew Norton ~ Leave a comment

The people Bruce Chapman thinks should be allowed to set prices for full-fee students put their latest effort into the Government Gazette today.

Today’s announcement – not unexpected, given the Budget numbers last week – was that the price universities will take for Commonwealth-supported students, which includes the Commonwealth and the student contributions, will be indexed by 2%. This comes a couple of days after the ABS labour price index showed public sector education labour costs increased by 4.3% in the year to March 2007. Labour costs are well over half of the total expenses of universities.

2% is also below the general inflation rate. How many people know that the Coalition actually cuts higher education charges to students in real terms most years? Cuts in 1996, 1998, 1999, 2000, 2001, 2002, 2003, 2004, 2006, 2007 and for 2008, increases in 1997 and 2005 (yes, students are paying more, but not as much more in real terms as they may think).

Only the 2005 increase was actually passed on to universities, but all the cuts were (via the operating grant) so overall universities are worse off and still going backwards. This is the reality of higher education price control – not protecting students from being ripped off, but preventing them from being able to buy better facilities and teachers.

Who should set prices for full-fee students?

~ Andrew Norton ~ 6 Comments

HECS architect Bruce Chapman has consistently opposed universities being free to set their own fees. An article published in this morning’s Australian Financial Review, co-authored by Chapman and ex-bureaucrat and now-consultant David Phillips, suggested that

there is a case to question whether publicly funded universities should be free to set whatever price they choose for this one group [ie full-fee] of Australian undergraduates.

They noted that it seemed to be ‘highly inequitable’ that full-fee and Commonwealth-supported students pay very different prices for the same course.

Chapman and Phillips go on:

As well, some universities have strong reputations as a result of over 100 years of public sector subsidies, and they don’t pay rent, both factors implying that allowing an uncapped [a reference to the proposed abolition of the 35% limit on Australian full-fee payers] number of full-fee paying students will deliver disproportionate benefits to a minority of universities with no corresponding implications for increased competition.

Chapman has been saying similar things for years. In this 2004 radio interview he remarked:

The basic problems are that the universities don’t pay rent so we don’t have a level playing field to begin with and also some institutions have had 150 years of public sector subsidies for their reputation. We are not starting here in a vacuum. … You basically are allowing, under this particular scheme, universities price discretion or the capacity to charge whatever they like, which has got very little to do with competition. The number of places is still restricted so there won’t be great competition coming from this. What there will be is the delivery of very large profits to some institutions from minority students.

In an article published in the Australian Economic Review in 2001 he elaborated slightly on his objection to ‘unfettered price setting’, noting that as well as not paying rent some universities have prime inner city real estate and that ‘playing field is not level’.

Unfortunately, Chapman has never explained at any length the logic of his position – not even in his recent book, which at US$145 certainly shows that there is no price control in the publishing industry. But let’s try to unpack the various points he seems to be making.
Continue reading “Who should set prices for full-fee students?” →

The government’s full-fee student policy

~ Andrew Norton ~ 6 Comments

The government’s policy on full-fee university students has received a lot of coverage this week, leading to some confusion on both sides of politics. First Kevin Rudd attracted headlines for showing some hesitation on Labor’s consistent opposition to them, which ended with more clarity than we have had in the decade that this has been their policy – full-fee undergraduate places will be phased out rather than abolished immediately.

On the Coalition side, they have been trying to deal with the possible scenario I outlined on Budget night, of universities handing back Commonwealth-supported places through the new flexibility proposed for their funding agreements with the government and replacing them with full-fee places. The government is backing away from this possibility, including this rather imaginative story in today’s Age suggesting that it threatens the University of Melbourne’s long-term plans.

That the government has gotten itself into this debate shows that despite the symbolic shrewdness of the Higher Education Endowment Fund it remains much better at Budget politics than at higher education politics. Though the 35% cap on full-fee students is arbitrary and silly, it also isn’t much of a practical problem. It affects a handful of courses only, since most people can get HECS places for the courses they want. Politically, it isn’t worth re-opening this issue to gain a minor policy advantage.

Indeed, the government could have abolished the full-fee undergraduate political problem entirely. If it had gone for a voucher system instead of the added bureaucratic flexibilty it chose instead, there would have been no need for the full-fee places. Universities could simply have offered whatever number of places they wanted to in each course, instead of being restrained by their funding agreements.
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The hoarded tax Labor won’t touch

~ Andrew Norton ~ 7 Comments

The $5 billion Higher Education Endowment Fund announced in last night’s Budget has given the government what it has long lacked in higher education – an iconic policy. University leaders have been fulsome in their praise, and the media coverage has been overwhelmingly positive.

It fits into a pattern I noted last month of some of the most attention-grabbing things in higher education happening almost by accident. I can’t now find his analysis on Crikey’s hard-to-navigate site, but I think Sinclair Davidson had it right this morning – the Higher Education Endowment Fund is less about a government change of heart on higher education than their desire to stash the proceeds of excessive taxation somewhere Labor won’t be able to get it without significant risk. Like an evacuating army, the Coalition is setting political booby traps in the edifices it might leave behind.
Continue reading “The hoarded tax Labor won’t touch” →