Higher education reform clarifier #2: Are students facing $100,000 degrees?

There has been a lot of speculation about students facing $100,000 degrees if fees are deregulated. However, my view is that this is very unlikely outside small areas such as medicine, dentistry or veterinary science.

While we are still planning much more work on pricing issues, international student fees provide a a guide to the outer limits of what is likely to be possible – what universities think that the market will pay. Where there are deregulated markets for both internationals and domestics, in the private sector and at postgraduate level, our research is yet to find any cases in which domestic students are charged more, and many cases in which they are charged less.

Our methodology in collecting fees was to look at university websites and compare similar courses across universities. This was done for all the universities in 2013, although not all teach all the covered courses. We then deducted tuition subsidy amounts, as a guide to how these might bring fees down. The Guardian published the results.

The totals vary considerably, but most full courses would end up costing between $35,000 and $60,000 on a simple average of quoted fees. Students would have to decide whether or not the more expensive courses were value for money.

  1. Hi Andrew,

    Do you think there is a risk that fee deregulation could be used as a backdoor way of shifting what are currently private costs for students on to the HELP system? For instance a university could increase fees and use the proceeds to heavily subsidise student housing and offer all students stipends. Students would be willing to accept the additional fee debt as they don’t have to pay for housing and living costs now. Is there anything in place that would prevent this from happening?

    • Andrew Norton

      Nick – HELP is paid for a ‘unit of study’, but money is fungible so other things could be bundled up with it. For example in full fee markets we already see student union fees bundled in. However, I don’t think we are likely to see things like student housing bundled in, as that would require high overall fees that would put off prospective students who don’t want the housing service.

      Variable pricing with and without housing would be too blatantly not for a ‘unit of study’.

  2. Peter Bentley

    Hi Andrew,
    Thanks for your analysis. I agree that int’l fees are an upper limit and the $100,000+ university courses will be the minority and it will take some years to reach these levels for most courses. However, even though these are a minority, I think most people are concerned that potentially lucrative courses will become less accessible to certain students. For example, students from wealthy families are in a better position to take risks on high-cost high-return courses, though the HELP system will still make them accessible.

    In terms of your analysis, if I were to use int’l fees as a benchmark for $100,000 degrees I would look at the debt burden rather than fee structure. Maybe you included this, but the impact of compound interest is one of the core changes proposed in the budget. Students will pay compound interest from their first year onwards, so the total cost would include 3-4 years of compound interest. Secondly, and correct me if I am wrong, but you imply that international fees will be the same in 2016 as they are in 2013. If you are estimating domestic fees in 2016 and using int’l fees as a benchmark, a more reasonable assumption would be that 2013 international fees would have grown between 2013 and 2016. I don’t know the past trajectory, but maybe compound 5% p.a.? This is what Unimelb give as a guide to international students on their website.

    If you were to calculate your estimates on the basis that: (a) international fees increased by 5% p.a. from 2013-2016, (b) domestic fees were set based on int’l fees in 2016, (c) domestic fees increased by 5% p.a. from 2016 onwards, and (d) compound interest was charged at 5% p.a., then average costs upon graduating would be considerably higher. For example, in 2016 int’l fees would be $29,453 in Science ($25,442*1.05*1.05*1.05). Based on the $11,212 Cth contribution in 2016, tuition fees would be $18,241 in 2016 (yr 1 of a 3 yr degree). Assuming 5% p.a. fee increases for the next 2 years, the annual fee would be $19,153 in 2017 and $20,111 in 2018. Adding 5% compound interest onto each year’s cumulative HELP debt, at the end of 2018 the 3 year degree would have led to a $63,349 debt (technically the indexation would occur in mid-2019). This is not $100,000, but it is substantial.

    More generally, I think the deregulation and introduction of interest payments will have bad consequences for the academic profession. In my above example, if a science graduate went on to pursue a masters and PhD, their debt would easily exceed $100,000 by the time they were ready for a post-doc position, which would very likely pay less p.a. than their total student debt. In effect, it would make choosing an academic career very unattractive. Of course, you are right that the int’l fees are an upper benchmark, but most aspiring academics come through the high-cost Go8 route.

    Peter

    • Andrew Norton

      Peter – While (fortunately, given how things have turned out!) we have collected quite a bit of historical data on international student fees, we have not done much analysis. However a 5% increase on average looks plausible on quick examination of the numbers, with a range from 0% to 10% over 2011-12.

      Analytically I think we should separate the price from total study costs, which will vary hugely from individual to individual depending on their opportunity cost and repayment period. But you are right that long haul study will became less economically sensible for the individual.

  3. I have seen reference to a cross-subsidy in universities from undergraduate programmes to post-graduate and research. But I have seen no figures.
    Do you have anything on this?

    • Andrew Norton

      There is only one paper I am aware of on this issue, unfortunately now removed from the web. While it could not prove the relationship beyond correlation, there was a large correlation between international student fees and research activity (.8+ depending on research measure).

  4. Peter Bentley

    Perhaps this paper by Frank Larkins on the LH Martin Institute website is of relevance. Larkins compared the total research expenditure at all universities to total external research revenue and Cth support. Based on these results, only 60% of research expenditure can be attributed to direct research revenue. The implication is that the other 40% is sourced from internal funds, which include base funding for teaching (cross-subsidisation).

    http://www.lhmartininstitute.edu.au/insights-blog/2011/07/52-universities-cross-subsidised-research-activities-by-up-to-27-billion-in-2008

    If one looks at the annual reports and research block grant data for the University of Melbourne, in 2012 Melbourne received $192 million in research block grant funding and $376 million in research income ($568 million in total). In 2012, it had total research expenditure of $898 million. So, around 63% of its research expenditure can be attributed to research income and Cth research assistance. My understanding is the other 37% would come from general university funds, which would include teaching revenue from the Cth Grant Scheme and tuition fees, and other investment income.

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