Monthly Archives: September 2015

Pursuing the demand driven reforms without fee deregulation

According to media reports, new education minister Simon Birmingham is considering proceeding separately with extending the demand driven system to sub-bachelor courses and to higher education providers outside the public university system. Fee deregulation would be dumped.

This is the strategy I have been advocating for months. While it is not a certainty in the Senate, it at least has a realistic chance.

For the reasons outlined in the demand driven review, I believe that it makes policy sense. Politically, it offers a way for the Coalition to limit Labor’s higher education political advantage.

Labor has been going hard on higher education affordability. Yet Labor’s opposition to extending the demand driven system creates a contradiction in their policy. While campaigning strongly against a 20% cut to per student subsidies for students in public universities, they are happy for students in other higher education providers to get no subsidies at all. While campaigning strongly against deregulated fees in public universities, they are ensuring that students in other higher education providers stay in price deregulated courses. Under a revised Coalition package, accepting fee regulation would be the price higher education providers pay for entering the Commonwealth supported system.

From the Coalition’s perspective, the main internal obstacle to this strategy is paying for it. Under the revised package, extending the system would be less costly than as it was announced in May 2014. If higher education providers have to be able to manage within overall Commonwealth supported rates, fewer of them will enter the system. Work we did at Grattan last year (summarised in this Senate submission) estimated that about 60% of courses in non-university providers had total fees at or below Commonwealth supported rates, suggesting that entering the demand driven system would be viable. I don’t know how many students those courses have, but there would be fewer providers entering the system without fee deregulation.

Abandoning fee deregulation for public universities would also provide savings compared to the current forward estimates. There is a common misconception that fee deregulation saves the government money, but in reality it is expensive via HELP interest subsidies and bad debt. The government only saves money if it reduces public funding and replaces it with private funding within a capped system.

I am not opposed to reducing per student Commonwealth contributions to distribute the total pool of Commonwealth funding more fairly across higher education students. But the first priority for controlling higher education expenditure should be dealing with HELP’s costs. Senator Birmingham has made a good start with this through his VET FEE-HELP reforms.

Rather than abandoning loan fees, as proposed under the Pyne package, they should be levied on all students who borrow. There is a sort-of loan fee already for Commonwealth supported students. The discount for paying up-front is another way of saying there is a fee for not paying up-front. But this discount does not generate any extra revenue for the Commonwealth, and it needs to be converted to one that does. There are also a range of other desirable reforms to the initial threshold for repayment (in the original Pyne package), indexation of thresholds, and recovery from deceased estates.

Getting savings measures through the Senate is always more difficult than getting spending measures approved. But there now does seem to be a chance that the Coalition can make a positive higher education reform in this parliamentary term, while still getting higher education to play its part in controlling the deficit.

Some first thoughts on Labor’s higher education policy

Labor has released its higher education policy today. Some first thoughts:

The sensible

* They want to build on the new QILT website (itself a big improvement on MyUniversity) to provide better information to students and parents in making informed choices. It’s not in Labor’s policy, but I would suggest that there are two big information gaps for prospective students at the moment. For QILT, the units of analysis are the course and the university. However, as the attrition rates reported elsewhere in Labor’s policy imply the more important unit of analysis may be the prospective student – ie, student attributes matter more than university or course attributes in predicting completion. The other issue is that while prospective students are getting improved information about choices within higher education and vocational education (see the MySkills website), there is not much on the choice between higher education and vocational education. But that’s the choice people with weaker academic backgrounds need to be considering.

* They would keep the demand driven system. Previous talk of using compacts as a backdoor way of steering the supply side of the demand driven system is absent from this document, and if it has been dropped I think that is a good thing.

* There would be better processes: a green and white paper to sort out the detail of their policy once in government. They are also proposing a Higher Education Productivity and Performance Commission. The main discussion about the Commission is on labour market forecasting, but there is much else it could do to meet the goals implied by its title.

The neutral

* They are promising a ‘Student Funding Guarantee’, which they say will boost per student funding by $2,500 ‘compared with the Liberals’ plan’. Perhaps compared to the 2014 Budget policy, but not so far as I can see compared to the status quo, which is the most likely outcome under the Liberals as well, even if they would rather spend less. Just indexing the current average per student funding rate by 2.5% a year I get quite similar projections to Labor. Incidentally, 2.5% is less than universities would like, but in recent times weak wage growth means that the indexation system Labor introduced last time they were in office is not producing the increases in grants that universities thought it would.

Incidentally, the wording in the document is not always as careful as it could be, blurring the distinctions between per student funding and per student government funding. Universities won’t be 40 per cent better off per student each year under Labor; without spending cuts or fee deregulation it is just that more of their money will come from government. The accountability pressures may differ slightly depending on whether the government or students pay, but a dollar is a dollar regardless of where it comes from. Apart from ideological considerations around public-private funding shares, so far as I can see universities will be financially indifferent between Labor in 2018 and the status quo (which is just Labor policy as of 2012).

The not so good

* Labor’s plan to write off the HELP debt of 100,000 STEM graduates was controversial when it was announced in May. As I said at the time, it is at best wasteful and at worst will encourage prospective students to take high employment risk courses. The Higher Education Productivity and Performance Commission will be able to identify the problems.

* They will not implement the Kemp-Norton report recommendation to extend the demand driven system to non-university providers or sub-bachelor degrees. However, they will announce further policies regarding the TAFE system and pathway programs prior to the election.

Getting overseas student debtors to repay

The promised legislation to recover HELP debt from people overseas was introduced today. In principle this is a good idea, with the main issue being how to implement it. As outlined in our Grattan doubtful debt report last year, both the UK and New Zealand experience significant difficulties in recovering student debt overseas.

We are starting well behind those two countries, because there is a basic problem in alerting people to the fact that they are obliged to repay. Because overseas repayment is a long-standing feature of the NZ and UK schemes, student debtors would have been alerted to their obligations when taking out a loan. Here it is widely (and correctly) believed that no repayment is needed while overseas, and it will take many years to correct that misconception, presuming that this bill gets through the Senate.

Existing overseas HELP debtors have until 1 July 2017 to notify the ATO of their situation. People leaving the country from 1 January 2016, with the intention of staying away for 6 months or more, will need to notify the ATO within 7 days of leaving. There is going to have to be a new departure card to warn people of this. I’m not sure how they will deal with people whose plans change while they are overseas. A change of mind will not be a valid excuse, as not supplying information to the ATO is an absolute liability offence, with a fine of up to $3,600.

Notification will be an issue with any requirement for overseas HELP debtors to repay. The other main issue is determining how much to pay. The UK has a complex scheme that tries to match the initial repayment threshold to living standards in other countries. After that, debtors pay 9% of their earnings above the threshold. NZ has flat repayments based on how much the debtor owes.

The proposed Australian scheme will rely on conversions of overseas income back to $A. Presumably there will have to be some $A value fixed in regulation to provide some certainty in advance as to thresholds. Debtors need to know roughly how much they will need to set aside for their repayment. However, given fluctuations in the $A there will still be some uncertainty about how much it will cost them in their local currency when the time comes to transfer the money. Debtors will be hoping that the $A stays low; bad luck if you are a HELP debtor during the next commodity price boom.

The minister’s media release indicates potential reciprocal arrangements with the UK and NZ on student loans, which may simplify things for debtors and increase compliance. However, in our Grattan report we reported on the locations of overseas graduates three years after completion. At that point, only about 30% were in the UK or NZ.

In the end, more draconian measures might be needed. NZ has the power to stop student debtors at the airport, although I don’t know if it has ever been used. The UK has the power to use legal action to recover all the debt at once, which would make legal action in overseas countries more feasible – it is not worth suing over a few thousand dollars in annual repayments, but could be to get tens of thousands. As most overseas HELP debtors are likely to return permanently, high penalty interest on the total debt might help. It would create an incentive to follow the rules while doing that stint in London, New York, Hong Kong or the many other cities that attract Australian graduates.