Daily Archives: December 18, 2014

Should uni students pay a fixed share of total course costs?

In a Conversation article today, Louise Watson revives an idea from the 2011 base funding review (on which she served): that the government and students should each pay a fixed share of the total funding rate for the course the students take. She says:

The wide variation in subsidy levels from 16% to 71% of total course costs is the product of incremental political decisions made by previous governments. Pyne’s proposal to cut government subsidies by 20% across the board does not address these anomalies. It would be fairer if all government subsidies met the same percentage of course costs, regardless of discipline, even though this would cause an increase in some students’ HECS liability.

In the base funding review a 40 per cent student/60 per cent government ratio was suggested; in today’s article Watson refers to a National Commission of Audit suggestion of 45/55.

My Graduate Winners report was a detailed critique of this idea from the perspective of using higher education subsidies to produce public benefits.

But I don’t think the fixed ratio idea is much better from Watson’s perspective of fairness to students. Under the current system, student contributions are mostly based on presumed private benefit from a degree, with a nod to cost differentials in delivering courses. This is how we get apparent anomalies – law has high private benefits but low delivery costs, and therefore the student contribution is a high percentage of the total funding rate.

While the private benefit categorisations are old and were always rather back-of-the-envelope, their practical effect is to even out the number of years it takes to repay a loan. The chart below shows, using 2011 census data, how long it would take male graduates to repay their HELP debt, if they were earning the median income for someone with a bachelor degree in their discipline.

HELP repay

Under the current student contribution system, most repayment times are clustered around the overall average of 10 years.

Under the base funding review flat rate subsidy recommendations, science and agriculture would become much more expensive, even though they already have relatively long repayment times. Law and IT would become cheaper, even though their graduates are already relatively quick to repay. It’s not obvious to me how this improves on fairness.

These issues arise because although we spend more than $6 billion a year on the main tuition subsidy program, nobody knows exactly why. But I think the main practical effect of this spending is that it shortens student debt repayment times, and keeps them clearer of the cash-constrained child-rearing years. This is one of the main things I take from this year’s debate on fee deregulation – while the arguments were often under-developed, people were expressing concern about women carrying debt while they were out of the workforce with kids, and about delays in the capital accumulation needed to enter the property market.

The current student contribution system helps with income smoothing, with graduates eventually paying via high marginal tax rates later in their careers. By causing already long repayment times to extend further, and already short repayment times to reduce still more, the Watson proposal would work against this policy objective.

Increases in low SES uni participation, 1991-2011

Using the trend data from the chart below, it is often said that we are making little progress in increasing higher education participation for people from low SES backgrounds.

low SES trend

The chart shows domestic low SES students as a percentage of all domestic students. But the denominator is important: it means that low SES enrolment has to increase more quickly than enrolment generally for the percentage to go up.

A more meaningful indicator is low SES enrolment as a percentage of the relevant low SES population. This tells us whether people from low SES backgrounds are becoming more likely to attend university over time.

An interesting paper out from the Group of Eight today (disclosure: drawing on some of my work from a few years back) shows how, for the late teenage children of low SES workers, university attendance has become more likely over time.

For example, in 1991 16 per cent of the children of tradespeople were at university. Twenty years later that number was 26 per cent. The gaps between SES groups remain very wide, but with participation growth in the leading SES group, professionals, slowing down the gaps are not as large as they were in the past.

Census trends occupational partic

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Note: The data is drawn from the census, using 18 and 19 year olds living at home. At home is needed to determine parental occupation. According to the two latest censuses, about 80% of 18 year old university students and 70% of 19 year olds are living with their parents.