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.

  1. Agree with your points. The missing one about Labor policy contradiction is the support for continuation of 20-25% loan fees on non university students – how different is this ‘regressive tax’ to Labor’s opposition to the actual GST as a regressive tax? Surely a 10-15% across the board loan fee would be saleable on equity grounds? also agree with you on taxing deceased estates – this is done on any other ATO debt, it seems the only impediment to this was that previously ‘captain says no’. This could surely be done as an administrative change?

  2. Andrew

    So what you are reaaly suggesting by imposong a loan fee on all HECS-HELP fees is in gfact increasing all tuition fees and effectively giving those that can afford it an upfront discount.

    • Hello Paul
      Why is it OK to charge a 25% upfront loan fee to vocational students (VET FEE HELP) when it isn’t for HECS students who generally have higher earning capacity? In reality, lower earning vocational students are cross subsidising the affordability of the whole HELP system. Any student who pays upfront improves the sustainability of the HELP system, so what if they are more wealthy.

  3. Paul – It would effectively increase the price for most people, yes. Hopefully however it would trigger some behavioural change as well, in encouraging upfront payments by those who could afford them. I’m only moderately optimistic on this as changes to upfront discounts/loan fees in the past don’t seem to have greatly influenced trends in upfront payments. But none of these changes have affected postgraduate courses, where my assumption is that the market is most able to pay, and borrowing is a choice.

  4. Brian – The death write-off is written into the legislation and is therefore not an administrative change.

    I did not focus on the loan fee ‘inconsistency’ as I don’t have a fundamental objection to the loan fee. There are policy grounds for differential loan fees, for example linked to the amount of borrowing. As FEE-HELP borrowers, at least in higher ed, typically borrower more than HECS-HELP borrowers, you could make an argument that FEE-HELP borrowers should pay more. However that does not explain the absurd undergraduate/postgraduate distinction, and really what matters is total HELP borrowing, not how much someone borrows in any given year.

  5. Agree with your ideas. The discount for not paying up front comes back in the end more expensive that you’d believe. You are right as well with the 30,000 foot view – it matters most to see the total HELP borrowing value and not per annum. Your comments are really great!

  6. Andrew

    what’s your opinion on the new budget measures that will be made public soon? Do you think it will affect the VET Fee Help programs as they are now? Thanks!

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