Category: Higher education

Do surplus HECS places mean full-fee places are not necessary?

~ Andrew Norton ~ 1 Comment

Swinburne University in Melbourne can be quite innovative. For example, it is planning to offer a joint Master’s degree with Northeastern University in Boston, so that students receive both Australian and American credentials.

But that’s for the deregulated postgraduate market. In the Australian undergraduate market, Swinburne’s Vice-Chancellor Ian Young sees students as playthings in an egalitarian ideological game. Back in April I had a go at him for opposing the University of Melbourne’s plans for US-style graduate schools (disclosure: the U of M is one of my employers). He thought that this would create inequality between universities – the educational benefits being of little relevance to Young.

Today he is quoted in an Age story on the regional University of Ballarat, which this year has not been able to fill all its Commonwealth-supported places (aka HECS places).

But with demand falling markedly, Professor Young said there was for the first time an oversupply of HECS places, making full-fee places unnecessary.

But aggregate supply of places was only ever one, and not the most important, use of full-fee places. Commonwealth-supported places are allocated under a quota system, with little or no regard for either supply (that is, a university’s willingness to offer places) or demand (applicants wishing to do the course). Full-fee places allow supply and demand to meet, despite the quota. Someone who wants to do Law or Medicine at the University of Melbourne would rather pay vastly more and do that then get a much cheaper HECS place at Ballarat – we know this is true, because anyone who can get into those full-fee courses at Melbourne already has an ENTER (95+) that would get them into almost any other course around the state at a fraction of the cost.

Perhaps Professor Young wants quotas abolished, but if so, why doesn’t he say so? But I suspect he does not. Most Vice-Chancellors quite like the quota system, since it protects them from the pressures of competition. Young wants full-fee places abolished because he puts egalitarian ideology over the course and career hopes of young Australians.

Update: The original last paragraph was based on what Young was reported as saying in The Age and his previous public statements. But I have now received a copy of a speech he gave last week, in which he gave as a possible response to excess places the kind of reform I have long advocated: giving students vouchers, lifting all controls on student numbers, and letting universities charge market rates. In that policy context, full-fee places are indeed unnecessary if it is a universal voucher scheme, rather than a more limited voucher scheme in which the government still decides who should and should not get a voucher.

This is an amazing turnaround by Young, given what he was saying as recently as April.

Norton vs the Arts lobby, again

~ Andrew Norton ~ 4 Comments

University of Sydney Dean of Arts Stephen Garton is again spruiking his courses under the guise of news. A story in the SMH, without giving a source or actual statistics, claims that that ‘classical studies – and the humanities in general – are booming’. Garton is reported as saying that:

students had returned to general degrees as they realised the changing nature of the job market. The dotcom boom had helped the humanities, he said, as when it ended it taught students a narrow expertise could be redundant by the time they graduated.

It’s true that commencing enrolments in ‘society and culture’ (which includes arts, but also law) were up between 2004 and 2005, though three vocational fields (architecture, health, and education) were up by more in percentage terms. But claims that student perceptions have greatly changed should be treated with scepticism. In reality, the ‘market share’ amongst disciplines is quite stable over time. Since 2001, arts share has fluctuated over the range 25.46% to 26.48%, with the latest share at 25.82%. In absolute numbers, they are down more than 4,000 on the peak year of 2003. It’s possible that particular universities are seeing an upsurge in applications, but there is no general change in thinking apparent in these figures.

Nor is there any evidence that acquring an arts degree, as opposed to some other degree, gives you generic skills that enable you to adapt better to the ‘changing nature of the labour market’ – though having an arts degree is more likely to mean that you will have to rely on generic skills rather than on the specific content of your course. The book How College Affects Students surveys the American higher education research literature, and struggles to find consistent differences between student majors in development of generic skills, except that quantitative courses tend to increase quantitative competencies (as one would hope). But the book says that the ‘evidence is less clear-cut for the acquisition of verbal skills’, with one study finding that social science courses improved them, but five others not replicating the finding (p.91). Similarly, the evidence on acquiring critical thinking skills is also inconsistent (p.175). It’s not that there aren’t usually improvements in these skills during the university years; it’s just that there aren’t reliable differences between disciplines.

When asked at the end of their course about their acquisition of generic skills, with questions about analytic, problem-solving and written communication skills, ‘society and culture’ graduates don’t stand out as having acquired unusually high confidence in their abilities. As reported in Graduate Course Experience 2005, 67.2% of bachelor degree graduates agreed that their generic skills had been improved (that is, on average they picked one of the top two points on a five-point scale). However, graduates in the sciences, engineering, and agricultural and environmental courses all showed slightly higher agreement. The lowest agreement was among architecture students, on 59.2%.

I have raised issues like this before, to which the Arts lobby has replied with rebuttals of arguments I did not make, anecdotes and methodological points: anything but social scientific evidence for their case. To make it clear – I am not arguing against arts degrees as such, though students need to be very careful in choosing their subjects. But I do think that universities should not make unsubstantiated claims about their services, and if they do newspapers should not simply report them without contrary comment.

Should education be tax deductible?

~ Andrew Norton ~ 14 Comments

Among the Australian Industry Group’s suggestions for spending $1 billion on skills (pdf) was one that gets surprisingly little discussion in the education sector: tax deductibility for education expenses.

The current rule is that you can claim self-education expenses related to your current job, but not for future jobs you might hope to get on the strength of new qualifications. According to an ABS survey (table 4) of reasons for study, that disqualifies most people from a deduction, even though three-quarters have at least some vocational rationale for their study. The AIG thinks that you should be able to deduct from current income for a future job.

The logic of tax deductibility for education is that otherwise the tax system is biased against spending on human capital. If you buy a physical asset you can normally depreciate it over time and claim the annual amount of depreciation as a tax deduction. Arguably, vocational knowledge is quite similar; it is an asset that helps you earn your income, but one that fades in value over time as technology, techniques and circumstances change. Yet unless you happen to be already working in your field of study, the tax system won’t recognise your spending as an expense involved in earning your income.

Like most aspects of education finance, these rules seem to reflect a past time. When education was free, obviously its tax status was irrelevant; similarly where there are significant subsidies it is hard to say that the government is creating a bias against human capital investment. And writing off the whole lot in one year looks like an accounting convenience from an era when education expenses rarely amounted to significant sums – just short training courses and the like, and not multi-year degrees.

When I wrote my book on higher education policy, which was published in 2002, I was sceptical of the tax deductibility idea. This was partly because I thought the progressive tax system introduced distortions of its own, as those on high tax rates would effectively pay less for their education than those on low tax rates. But the way the tax system has been reformed since reduces the impact of progressive tax, with people earning less than $75,000 a year paying 30c in the dollar. Back when I wrote the book the 30c rate ended at $50,000. With an average bachelor degree holder working full-time earning $64,000 a year, most of them will fall below the 40% tax rate, greatly reducing the potential distortions caused by the tax system.

If deductions were to occur, they should be depreciated, instead of the current – and AIG favoured – all in one year claim. The logic of human capital is that it is an asset that will earn income in the future, and therefore it should be deducted against that future income. From the prospective student’s perspective, if they plan to study full-time they probably won’t have any significant income during the study period, and so a one-off tax deduction is of no use.

The microeconomic attraction of deductibility is that directly tax-financed education is, for political reasons, bogged down in price control and Soviet-style allocation of places. By further facilitating the full-fee market through tax deductibility, more students could bypass the dysfunctional state sector and make a more appropriate investment in their human capital. In some disciplines, like law and commerce, the subsidies are down to such low levels anyway that most students would probably be better off paying full-fees in market rather than state-oriented faculties and deducting the cost later on. There are a lot of details that would need to be worked out – for example, how many years should depreciation be spread over, and its interaction with student loans schemes. But conceptually I think there is more to this idea than I did back in 2002.

What’s going on with graduate earnings?

~ Andrew Norton ~ 10 Comments

Jenny Macklin is using the latest OECD Education at a Glance to give the Howard government a ‘F’ for higher education. She says that:

??The Report … shows Howard Government HECS hikes mean Australian university students are now paying the second highest fees in the world.

Fees paid by Australian students are now second only to the United States ??? a higher education system which John Howard is hell-bent on copying here.
??

But if, as Labor MPs are fond of pointing out when it is taxpayers’ money being spent, education is an ‘investment’ then what matters here is not just what students spend, but what they get in return for their money. One reason US universities have been able to charge relatively high sums is that the income premium from having a degree is high in America compared to other countries. In Education at a Glance it is put at 81% more than people with ‘upper secondary and post-secondary non-tertiary education’, while Australian graduates in 2001 earned only 43% more. Australia’s high minimum wage is part of the explanation, but perhaps also a disinclination by Australian employers to pay too much for the standard-product Australian graduate.

Without any politicians noticing, the ABS has recently issued the latest Education and Training Experience survey, which we can compare with earlier surveys. Intriguingly, this suggests that the income premium for bachelor degree only holders over people with Year 12 education only (I can’t replicate the OECD comparison on the published figures) went down between 2001 and 2005, from 50% to 47%. Using the RBA’s handy inflation calculator I estimate that average full-time bachelor degree holders’ income went up in real terms by a miserable $4 a week in those years, compared to $21 for people with a Year 12 education only (2005 $).

What could be causing this sluggish performance in a strong economy? It is true that universities and the immigration department continue to push up the number of graduates in the economy. As the ABS Education and Work survey shows, the share of the workforce with a degree increased by about two percentage points in those years. And while the absolute number of graduates working in jobs that are very unlikely to require degrees increased by about 40,000, that was a slight decline in the overall percentage.

One possible explanation is not that under-utilised graduates are pulling bachelor-degree average earnings down, but that higher-income earners are being increasingly counted elsewhere, among those with a postgraduate degree as their highest qualification.

Like that other deregulated ‘US style’ market, overseas students, postgraduate enrolments have boomed over recent years. As DEST’s data shows, postgraduate course completions more than doubled between 2000 and 2004. And unlike bachelor degree holders, their weekly income did increase significantly between 2001 and 2005, by $86 a week.

This is probably not just the return on their human capital investment; it is also likely to be related to experience. Compared to 2001, the proportion of 45-54 year olds in 2005 with a bachelor degree as their highest qualification went down, while the proportion with a postgraduate degree went up. In the 35-44 age group both groups went up as a proportion of the total, but the postgraduate degree group grew more. So weak bachelor degree only earnings growth is partly because compared to the past they are, on average, a younger, less experienced, and perhaps less able population.