Monthly Archives: June 2017

Have universities enjoyed ‘rivers of gold’?

The Australian‘s High Wired column is bemused at the apparent contradictions between UQ VC Peter Hoj’s narrative of funding cuts and Simon Birmingham’s claim that universities have benefited from ‘rivers of gold’ in public funding in recent years.

It’s true that there have been some cuts to research funding, although it remains high by historical standards (some trends at page 51 of this pdf). Some increases in equity funding from the Gillard era were trimmed, and performance funding abolished. But these funds were not supporting long-term programs.

It’s much harder to claim that there have been cuts to core teaching grants, coming via the Commonwealth Grant Scheme and HELP (which as I keep pointing out, is heavily subsidised). The chart below shows the trend – up 50 per cent in real terms since 2008. From the Commonwealth’s perspective, this certainly looks like a river of gold.

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HELP is not a profit-sharing scheme

In today’s Oz, John Bryon argues against lowering the HELP repayment threshold by arguing that HELP is a profit-sharing scheme:

HECS (by whatever name) is not a loan so much as a profit-sharing scheme: the commonwealth not a bank but a venture capitalist. The public finances education for its own collective benefit, both economic and social.

It is rational to recruit potential students as widely as possible; it is also expensive.

So those deriving conspicuous personal benefit are asked to tip some of those dividends back in, up to a limit based on their time (and, today, disciplinary location) within the system.

It is unjustified to lower the repayment threshold below the average wage.

Now there are versions of income contingent payment scheme ideas which can be seen as profit-sharing. Milton Friedman’s original idea was along these lines, in which people pay a percentage of their income for a fixed period of time. Some people would pay nothing for their education, while financially successful graduates could pay many times their original fees or costs of their course. In theory, this could permit a high threshold, if the lender was confident that total repayments would at least cover costs.

But HELP isn’t a profit-sharing scheme. It is a partial cost recovery scheme, in which the most the Commonwealth can ever receive is the amount that it lent plus indexation (or loan fee, for some FEE-HELP students). Recovering costs in a labour market where many people work part-time means that the initial threshold cannot be high, and indeed it is relatively low in other jurisdictions that have income-based repayments such as New Zealand, England, and some US loan schemes.

The partial link with average weekly earnings in Australia was about the late 1980s politics of ending free higher education and probably a view that it wasn’t going to be hugely costly, given that at the time average wages was much less driven than now by people who didn’t have degrees (in 1989 10 per cent of workers had degrees, now it is 30 per cent). It was never a mechanism for profit sharing.

Rival fairness arguments in the university fees debate

This week I am on a panel discussing a fair price for students to pay for their university education. Both those who want students to pay more and those who want students to pay the same or less draw on fairness arguments.

Fairness arguments for higher student charges

Fairness to other taxpayers: Critics of free or cheap higher education have long thought subsidising students was unfair to other taxpayers. Way back in 1972 Malcolm Fraser criticised Labor’s free tertiary education policy on the grounds that it would lead to a ‘wharf labourer paying taxes to subsidise a lawyer’s education’. The 1988 Wran report, which recommended the introduction of HECS, justified it partly on the basis that ‘taxpayers carry most of the burden of higher education [but]…most taxpayers are not privileged members of society and neither use nor directly benefit from higher education.’

Fairness to other taxpayers is perhaps the lead trigger idea in reducing public spending and increasing student charges. Two of the three proposed nominal cuts in per student public spending of the last 30 years (1989 was the exception) occurred when there was a Budget deficit, creating an active choice between increasing taxes or charging students more.

A fair price: Underlying the fairness to other taxpayers notion is also an argument that it is fair to ask people to pay for what they receive. This has led to a recurring idea that there should be a ‘balance’ between private and public contributions to the cost of higher education. It appears in the Wran report, the arguments for the 1996 funding cuts and HECS increases, the Lomax-Smith review of funding (never acted on), and again in the Pyne and Birmingham policy documents. Students should pay for the benefits they receive, and the public should pay for the benefits it receives.

The public-private balance idea has had little influence on policy detail. Public benefit calculations have never been used to set public funding rates, and private benefits have been used to set private funding rates only once, in a back of the envelope way, in introducing differential HECS for 1997. This created the idea that student contributions should be linked to likely future earnings. Differential HECS connects to a market idea of a ‘fair’ price – pay more, get more. But it also links to progressive notions that the relatively rich should pay more, or get less in taxpayer-funded benefits. This is a common idea in the Australian welfare system. Despite the weak association with policy detail, repeated use of the balance metaphor suggests it reflects intuitions about how higher education should be funded.
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The non-ether origins of a $42,000 HELP repayment threshold

The Australian‘s High Wired column reports on an exchange between education minister Simon Birmingham and his Green shadow Sarah Hanson-Young on how the government’s proposed $42,000 threshold for HELP repayment was set:

The Greens’ Sarah Hanson-Young was in her element in Senate Estimates yesterday. First up, she wanted to find out where the $42,000 new HECS repayment threshold came from. ‘Plucked out of the ether’ was the answer she was looking for. Which she didn’t get, but the Grattan report on reducing the HECS threshold was mentioned. (And where did that figure come from? Plucked out of the ether, maybe.)

The $42,000 figure was proposed in this Grattan report released in March 2016. There is no science that says exactly what the initial HELP repayment threshold should be. There is always going to be some policy and political judgment involved. But our report did make a non-ether case for a substantial lowering of the initial threshold, which at the time the report was released was based on policy and political judgments made in 2003 (the base level) and 1993 (AWE indexation).

In the intervening years just from 2003, HECS had become HELP and turned into a very different, and much larger, program – with many more students in the core public university undergraduate programs, thanks to the demand driven system, and many extensions of income contingent loans – to higher education students outside the public university system, to diploma students in vocational education, OS-HELP, SA-HELP and other loan systems such as for student income support that use the same basic repayment system.

Total HECS/HELP lending more than tripled between 2003 and 2016, and the risk of non-repayment also substantially increased as we brought in debtors with weaker earnings prospects than was the case with a smaller, more educationally elite, group of eligible borrowers.

It’s sometimes said that the threshold should be high to provide a financial benefit before repayment is required. Arguments like that were made in the late 1980s, and have stuck in popular understanding of HELP. But it is not clear that there is any principle behind this idea. In our report, we argue for seeing HELP in the context of other government income protection programs, rather than a special, very generous deal that graduates should receive for unclear reasons. $42,000 is still a bit on the high side by that standard, but we took into account previous Labor statements that $40,000 would be too low. We want a stable system, so looked for a threshold that Labor would at least keep in office, even if it opposed it on introduction.

So while $42,000 is not pure science, unlike the current threshold it is based on something more than long ago policy decisions made with different circumstances in mind.