Author Archives: Andrew Norton - Page 2

Should you only repay HELP debt if you get a financial benefit?

Not surprisingly for an Opposition in an election year, Labor is opposing the recommendation of my latest report to lower the initial HELP threshold from $54,000 to $42,000.

These are the reasons they give:

The income contingent loans scheme (HECS-HELP), introduced by Labor, is based on the principle that you repay your contribution only if you benefit from your education in the way of higher salaries.

It is not a loan scheme as is understood in financial circles, but a social insurance program.

These arguments have their origins in the 1988 Wran report, which recommended the creation of HECS, but they don’t sit easily together. A social insurance program implies some relationship to other social insurance programs, while higher salaries implies relationship to some other counter-factual income, above what the graduate could have earned if they did not continue with their education. Given Australia’s means-tested welfare system for working age people, which is designed to make welfare financially unattractive compared to work, the two arguments are in inherent tension.

In practice, neither benchmark has been actively used to set the threshold. The current threshold is around $20,000 above the minimum wage and common social security programs. But at $54,000 in 2014-15, the threshold is below all persons average weekly earnings (the original Wran suggestion) of about $59,000. The threshold was last re-based in 2004-05 (we have the historical thresholds in an appendix to the report), but since then has increased by 17 per cent in real terms, as although not set according to average weekly earnings, it is indexed to movements in average weekly earnings.

Even if we accepted Labor’s financial benefit principle, it is not at all clear how it should be implemented. What is the counter-factual for financial benefit? Should it be age-adjusted? Should we have a different threshold for diploma borrowers? Should it be based on household rather than personal income? So far as I can see, while several people other than Labor have offered the financial benefit idea since the report was released, none have attempted to think through how it should be set.

Our report argues that ‘we should not turn HELP features that are based on political judgments of their time, or on assumptions that no longer apply, into principles that cannot be overturned’. Like most Grattan reports, it is at least an implicit argument against status quo bias, against all the rationalisations that attach themselves to existing policy arrangements, and an attempt to think about what a policy should be trying to achieve, and whether that can be done in a better way.

The average weekly earnings idea was a by-product of the late 1980s politics involved in ending free (to the student) higher education. But it sets HELP debtors up in quite a privileged position compared to other people being protected from financial hardship by the government, and we should ask why. The most obvious answer is that we need to protect people from financial risk to attract them to higher education. That’s an empirical issue, but nobody has shown that the current threshold is the right one from that perspective. England and New Zealand now, and Australia in the past, have all had lower thresholds without significant demand-side issues. Until recently, the barrier to higher education participation has always been the supply of places, not demand for them.

In the absence of a strong principled or empirical argument for the current repayment system, threshold reform is an element of moving HELP towards focusing subsidies on debtors with long-term low household income, ie social insurance. This keeps the justifiable element of Labor’s argument, while leaving open the idea of reducing the initial repayment threshold.

Ideas boom campaign overclaims for science jobs

Science claims:

science3

Science reality:

science employ 4 month

Science job relevance

18 year olds or politicians: who makes the better course choices?

Former Greens higher education adviser Osman Faruqi thinks that it is time to reconsider the demand driven system, in light of the annual ATAR controversy and mediocre employment outcomes. It is the usual story of good intentions turning to not-so-good outcomes:

There was an opportunity for universities to work with policymakers and industry, identify economic trends and skills gaps and use their new-found flexibility to provide students with a rigorous learning environment.

While university managers might have convinced themselves this is what has occurred, the numbers tell a different story. Enrolments shot up across the board — but particularly in relatively profitable courses such as business, commerce and media. As more students with lower ATARs gained entry into university, attrition rates increased alongside them. One in seven students currently drop out by the end of their first year, the highest level in a decade. Graduate unemployment is at its highest level since records began in 1982.

The demand driven review I did with David Kemp is the main analysis of how the system is going, but it is now two years old. It’s worth looking at a few statistics to update trends.

The actual enrolment increases for domestic bachelor degree students are a little different to Osman’s take, and can be used for and against in the debate about different systems. The chart below shows the disciplines with at least 2,000 EFTSL enrolment increases between 2008 and 2014. Law and business are on the list, but not at the top, and below the average in percentage terms.

enrolment increases

Consistent with what Kemp and I generally found two years ago, disciplines related to occupations with skills shortages generally responded with increased places under the demand driven system. Two of the top three growth areas were disciplines in skills shortages at the time (although not now except for some specialised areas). This we saw as one of the system’s strengths compared to the previous system, which had no established process for identifying or responding to skills shortages. Before the demand driven system, it was very ad hoc: if employers screamed loudly enough and there was money in the Budget for extra places then the system responded; otherwise not.

Of course, in theory it would be possible for the government to more actively steer the system. But should we trust them to make good judgments? The several science-related disciplines in the top half of the fast-growing discipline list suggests not. That was a response to cutting science and maths student contributions in 2009 and campaigning for STEM, with the former Chief Scientist being a major advocate for study in these fields. It was bad analysis all along, and has predictably led to very poor employment outcomes.

Have our political leaders learned their lesson from this? Labor’s plan to pour even more money down the STEM drain suggests not, and the STEM evangelism of the current government (fortunately without any extra student spending), also suggests not.

While student course choices are structured by their interests and aptitudes, precisely which courses they choose is influenced by what they hear and observe. We can see publicised ups and downs of the labour market flowing through into applications and enrolments ups and downs. But government campaigns also make a difference, and not always for the better.

Yes, demand driven funding is leading to more growth in some disciplines than the labour market warrants. But on the historical evidence, I am not convinced that it is worse than the realistic alternatives. Our much-maligned 18 year olds spot and respond quickly to real skills shortages; the old system did neither in a reliable way. Some young people’s course choices look to be misjudgments, as least if they are looking for work. But on that they have been misled by the actions and words of politicians and officials, the very people who would have to run a non-market system of distributing student places.

GetUp’s rise to be the biggest third party political spender

In a past life I wrote a reasonable amount about campaign finance law, particularly as it applied to third parties (organisations active in politics but not standing for office). My interest was sparked by a letter from the AEC suggesting that perhaps I should be making a disclosure. I have followed the issue since, but in less detail as higher education issues consumed more of my time.

Third parties need to disclose their spending on various political activities. As with donations generally, 2014-15 was a low-spending year, as seen in the chart below.

Pol expenditure trends

The main item of interest in recent years is how GetUp has rapidly increased its spending, from $3 million in 2012-13 to $10.5 million in 2014-15. On its own, it was responsible for more than 70 per cent of all the declared political expenditure for 2014-15. As can be seen in the chart below, unions and business groups are traditionally the biggest spenders. Business and union groups spend when they need to; their main purpose is not campaigning to the general public. GetUp’s purpose is campaigning, and it needs to keep finding issues that motivate its donors. So we should expect it to be among the consistent big spenders.

Donor groups

Low ATAR offers result in few low ATAR completions

The SMH has lots of NSW university offers data to contribute to the annual ATAR controversy. It’s the usual story of students being offered places with very low ATARs.

There are always lots of threads to this controversy. Are low-ATAR admissions a sign of declining academic standards? Do we place too much emphasis on ATAR anyway? Should universities be more open about their admission practices? Do low-ATAR enrolments risk putting incompetent professionals out into the workforce?

While there are real issues here, some numbers are useful for putting things into perspective. I’m using 2014 numbers because I have enrolment data for that year but not yet 2015.

The first three columns in the chart are from tertiary admission centre data. The first thing to note is that in 2014 about 60% of very low ATAR – 50 or below – applications did not result in any offer. Of the applications that did result in an offer – the issue in the news this week – about half resulted in the prospective student rejecting it. The offer might have been for a course that was not their first preference, or possibly they only applied to keep options open, without having a firm intention to go to university.

diminishing ATARs

The next bar on the chart is enrolments of students who reached the HELP census date, usually around the end of March. It shows that about a third of below 50 acceptances leave before the census date, presumably having decided that higher education was not for them, at least not at this time. The low-ATAR issue is starting to look at lot smaller than it did at the offers stage. Final enrolments of 50 or below ATARs from 2013 school leavers in 2014 were only 3% of all that cohort (although total low-ATAR enrolment is higher than this, due to students who finished school in other years).

I have added a projection of their final completions, based on the Department’s 2005 cohort analysis. If that is a good guide to the future, less than 20% of below 50 ATAR school leavers who receive an offer will eventually get a degree.

My perspective on this is primarily a consumer protection one. Prospective students are not being informed of the risks they are taking. Universities say that they are looking at what predicts success other than ATAR, but only rarely do they release any evidence of this that can be checked by independent analysts. The regulator’s vague statements are less than confidence inspiring. The numbers of people taking major risks are not that large in the context of total enrolments. But we should be doing more to ensure that they are making decisions that are in their own long-term interests.

ATAR and higher education admission

In this morning’s papers, there is controversy over the declining proportion of Victoria universities publishing ‘clearly-in’ ATARs – the ATAR above which all applicants are admitted. In Victoria, the share of courses with a clearly-in ATAR has declined from 40% last year to 25% this year.

Some universities say that ATARs, and especially ATAR cut-offs, can be misleading. ATARs are not necessarily the basis of admission or the only basis. As the chart below shows, in the lower ATARs a significant minority of recent school leavers are admitted to university on some basis other than their secondary education. More will be admitted based on secondary education but without relying on ATAR.

ATAR school leavers

The overall admission process is larger and more complex than for recent year 12 students. For 2014 commencing undergraduate students at public universities, people who had completed school the previous year were around two-thirds of those with ATARs in the enrolment data. The remainder were people who had finished school in earlier years, and people admitted on other grounds, the largest of which were prior vocational education, prior higher education, and mature age entry.

As can be seen in the chart below, this pushes down the share of people admitted based on secondary education, especially in the lower ATAR groups. Only just over a quarter of people with ATARs below 50 were admitted based on their secondary education. The biggest single category was vocational education (31% of admissions). About half of people with ATARs who were admitted based on vocational education had ATARs below 60, confirming it as a pathway into higher education for people who did not feel ready for higher education, or could not get into higher education with their school results alone.

ATAR admission color switch

I’ve consistently opposed minimum ATARs as too blunt a tool for regulating admissions. But the universities have conflicts of interest in this area. They want to fill all their places and avoid any reputational issues from admitting low-ATAR students. Given what we know about the link between low ATAR and non-completion, going to university may not be the best option for low-ATAR students (and indeed most don’t go to university).

And while the published ATAR cut-offs can be misleading, information on the range of ATARs that previously resulted in offers or enrolments would be helpful. They would give prospective students a guide to whether they are likely to be admitted, and to the academic strength of their potential fellow students.

Graduate employment improves a little – but still the second worst outcome ever

The latest graduate employment data supports what ABS data suggested a few weeks ago: that the worst of the graduate employment downturn might be behind us. Early this year, the proportion of new graduates seeking full-time work but without work or only working part-time was fractionally lower than it had been at the same time in 2014. As the chart below shows, though, it is still at historically high levels.

GDS major trend

The discipline-level data shows, unsurprisingly, a less tidy picture. There has been a rebound in construction related occupations, and small improvements in outcomes for big fields such as education and commerce. Mining engineering employment, unsurprisingly, is still heading down and there was an on-going decline in nursing and law. All of these declining fields still have above average levels of graduate employment, but negative trends.

I have been pointing out for many years that, contrary to continuing pro-STEM rhetoric, science is not a good employment option. For the second year running, life science graduates are only narrowly avoiding having the worst employment outcomes of any discipline (visual and performing arts graduates reliably come last in looking for jobs). While outcomes this year were slightly better than last year, 51% of life science graduates were still looking for work 4 months after graduation. Maths, chemistry and physics all trended down, although with small numbers of respondents.

Another STEM discipline, computer science, did slightly worse than the overall average, with 33% un- or under-employment. Of the STEM disciplines, only engineering produces employment outcomes that are significantly better than average, with most improving on 2014.

Labor supports reducing HELP costs

In a surprise move, Labor has agreed to back abolition of the 10% discount for paying student contributions upfront and the 5% ‘bonus’ for voluntary repayments of HELP debt.

For reasons we don’t fully understand, the proportion of people paying upfront has been in decline for a long time, as the chart below shows. Halving the discount in 2012 accelerated a long-term trend but was not a major turning point. The government will hope that the latest change will not dramatically affect the numbers, as borrowing has costs and risks for them.

Previous research has suggested that many of the upfront payments are from parents wanting their kids to be debt free, so perhaps the final abolition won’t make much of a further difference. Indeed, discount abolition may already be partly evident in the data, as anecdotal evidence suggests many people believe it has already been abolished, following on from the original publicity in 2013 when Labor first proposed it (to pay for Gonski; they later reversed their support saying the Coalition was not meeting Gonski commitments, before going back to their original position today).

HECS-HELP
Source: Department of Education Student liability statistics, various years

Any further decline may be due in part due to expanded eligibility for HELP loans. Currently New Zealanders and permanent residents are entitled to a subsidised place have to pay student contributions upfront, but soon some long-term NZ residents will be able to take out HELP loans.

Abolition of the 5% bonus for voluntary repayments is a sensible move. Previous ATO data suggested that it was mostly used by people towards the end of their repayments anyway, when the government would be better off just waiting a little longer and getting the full face value of the loan.

Removing the bonus will also weaken an incentive to borrow under FEE-HELP. Some students can borrow unnecessarily and then repay ‘early’ (ie pay the full amount much later than they could have) and use the bonus to pay less than the face value of the loan. I did this a few years ago to draw attention to this rort. I’m glad it is finally going to be abolished.

Hopefully this signals that Labor is taking HELP’s costs seriously. There is plenty more to do.

Graduate employment up, but fastest growth in less-skilled occupations

Today’s release of the annual ABS Education and Work publication has some good news on graduate employment. After a couple of years in which the total number of graduates with jobs stagnated, in 2005 compared to 2014 they were up by 7.5%. Growth in the number of graduates with managerial and professional jobs, the jobs the ABS classifies as requiring bachelor degrees or above, was lower at 5.3% – but that was still much better than in the two preceding years.

Converted to a percentages of the graduate population the improvement is harder to see. This is because the total number of graduates keeps increasing, up by 287,000 in a year according to this survey (completions according to the Department were 215,000 domestic students and 104,000 internationals – but the total number in the population is affected by migration in and out).

In 2015 the proportion of graduates in work with managerial or professional jobs was about 71%, while the proportion of all graduates with professional or managerial jobs was about 57%. While the time series is complicated by definition changes these are probably the lowest figures yet recorded, as seen in the chart below. However, the numbers are not as bad as recent graduate employment figures might suggest. This is partly because employment numbers improve over time, and partly because it takes time for new cohorts of graduates to significantly influence the total survey. Even with recent big graduating classes, the new entrants to the graduate pool are only about 6% of all graduates.

Ed and Work

Higher education demand still strong

The 2015 final applications data has been released. One important point for me is that there has been a revision to the 2014 unique applicant data – that is, the time series that eliminates double counting to get a count of the number of persons who made an application. As some people use multiple methods of application, applications are only a rough proxy for applicants.

The revision has the effect of turning a stabilisation of demand between 2013 and 2014 into a 2.6 per cent increase. In 2015, total applicant numbers were a further 2 per cent up on 2014, reaching a record 331,460. That increase confirms the conclusion that whatever political impact the Labor/NUS/NTEU $100,000 degree campaign had, there was no discernible impact on market demand.

demand

Growth in offers is more subdued now than it was in the early years of the demand driven system. It increased by 2.4 per cent between 2014 and 2015, compared to 4 per cent or more a year between 2011 and 2013. While universities have slowed their increase in offers, offers have grown at a higher annual percentage rate than applicants every year except one since 2010.

offers

The report does not give us unique acceptances, which would be the strongest guide to first semester 2015 commencing undergraduate enrolments. But acceptance rates for people who applied through tertiary admission centres are up, from 70.3 per cent to 73.4 per cent. Unfortunately TAC time series remain hard to interpret, because this year shows that the long-term move away from TACs for non-school leaver applicants continues.

We’ll have to wait for the enrolment data to know for sure, but the boost in overall offers and the positive TAC applicant response suggests that commencing students will be up again. In one of those ironic policy twists, it might have made Simon Birmingham’s life a little easier if the $100,000 degree campaign had convinced more people that university would be too expensive. Growing student numbers just put more pressure on the system’s fiscal sustainability, and makes savings measures more necessary.