Pyne package linking domestic and international charges is about subsidies more than fees

When announcing its higher education reform package, the government said that international student fees would be a cap on domestic fees. This idea has been criticised regularly since, including today by Gavin Moodie who notes that such a rule could easily be gamed.

But the draft guidelines released with the reform bill version 2 last December show that legislation is not mainly about capping total fee levels, but trying to ensure students benefit from tuition subsidies.

The problem here is not that domestic students are likely to be charged more than international students. At Grattan we have collected fee information for both domestic and international students for hundreds of courses where there is no regulation requiring domestic students to be charged less than internationals – for postgraduates in public universities, and in all full-fee courses in non-university higher education providers. There is not a single case where domestic students are charged more than internationals, and only a handful where they are charged the same. Presumably a mix of underlying cost differences, market forces, and mission considerations mean that domestic students are not charged more.

There is no practical need to cap domestic fees with international fees, and that isn’t what the government is trying to do. Rather, it is trying to ensure that its tuition subsidies benefit students instead of providing super-profits to universities. So what the guidelines say is that tuition fees for non-Commonwealth supported students (which includes internationals) must be at least the student contribution plus the Commonwealth contribution, in some disciplines a much bigger number than just the student contribution.* It is phrased as a floor price for international/other full-fee students rather than a maximum fee for domestic students.

Take an engineering degree at a Group of Eight university, where we calculate that the average annual international student fee was $33,000 in 2014. If the rule just said that international student fees were the cap for domestic fees, a university could in theory charge a domestic student $32,900 and then add the $12,000 tuition subsidy, giving them revenue per student of $44,900, way more than they get for an international student. Even if we assume a more moderate domestic fee of say $26,000, with the tuition subsidy added that still leaves the university with revenue of $38,000 per student, $5,000 more than for an international student.

However, under the rule as drafted the university could not get domestic fee revenue of $38,000 ($12,000 subsidy plus $26,000 fee) per student without lifting international student fees to $38,100, which might price them out of that market. A university might be prepared to take that loss in courses where there are few international students. But in courses where there are significant numbers of internationals the rule will ensure that domestic students benefit from the tuition subsidy bringing down the fees they pay, rather than delivering windfall gain revenue to the university.

The proposed rule on fees for full-fee students has weaknesses as a guard against excess fee charging. But I think it is at least interesting in thinking about what subsidies are for in a fee deregulated system. It takes international student fees as a rough guide to the true market worth of a course, and then tries to ensure that the tuition subsidy brings down the price to domestic students.

* The legislation uses the term tuition fee rather than student contribution now, but I will keep the old language to separate the concepts more clearly.

  1. Andrew

    Are you really surprised that no Australian uni currently charges domestic students more than international students for a full-fee course. Might I suggest that has probaly got more to do with public relations (avoiding hostile community backlash)than it has to do with the “economics”.

    On the question as to whether any uni would be willing to increase its international fees (on the fear it might loss some market share) just to allow it to increase domestic fees (that is, international fees aren’t a real constraint on domestic fees as argued by Moodie and others, incluiding myself)again this has probaly got more to do with the price elastcity of demand for domestic students compared to international students. That is, if domestic students are less responsive to fee increases than international students (becuase they have fewer options or substitutes as well as access to HECS) then it might make sense to scarifice some international student fee income in order to increase doemstic fee income, especially if there is no limit on how much students can borrow through HECS.

  2. Paul – I am not especially surprised, no. However people are saying that HELP seriously weakens price resistance, so from the perspective of that theory this evidence needs explaining – the people who have to pay upfront are charged more (and often significantly more) than people getting very soft loans.

    We’re still working on understanding the fee data, though there are limits to how far we can get without interview research that we are unlikely to be able to do at scale. While we think there are probably mission/political factors in domestic fees while international fees are a purely commercial market, the same practice of not charging domestics more and often charging them less is also observed in the for-profit sector, suggesting that there are some fundamental economic factors as well.

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