Author Archives: Andrew Norton - Page 2

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.

Effective marginal tax rates and HELP threshold reform

Media reports in the last few days have pointed out that some women face effective marginal tax rates above 100% under proposed changes to the HELP thresholds. But this is not new – the nature of the HELP repayment system is that for every HELP debtor, male or female, there are income zones that reduce take-home pay.

This is because as income reaches each threshold the debtor must repay a percentage of his or her entire income. Under the current thresholds, a debtor earning $54,868 in 2016-17 will repay nothing. But someone earning $54,869 will repay nearly $2,200. So up to an income of about $57,000 HELP repayments mean the debtor takes home less money than if he or she earned $54,868.

Of course, in most cases the debtor’s long-term financial position is not worse as their HELP debt is reduced. In this sense, HELP repayments are different from the welfare benefit phase-outs that normally contribute to high effective marginal tax rates – for the debtor, that is money lost to consolidated revenue, rather than improving their personal balance sheet. But for people concerned with immediate cash flow more than their long-term financial position, HELP repayments can cause problems.

Research by Richard Highfield and Neil Warren shows that HELP debtors manipulate their taxable income to avoid or delay repayment. They also make the point that this is costly for income tax revenues, even if the HELP debt is eventually repaid. Read more »

Thought leaders and public intellectuals in the ideas industry

I have never liked the term ‘thought leader’. But Daniel Drezner’s new book, The Ideas Industry, persuades me that even if the language is unappealing the concept is useful in describing how the contemporary world of ideas works. In some cases, the category of people known as thought leaders can also make the marketplace of ideas more effective.

Drezner argues that the marketplace of ideas is much larger and more open now than it was in the post-war decades. Technology is one obvious reason; anyone with an internet connection can now publish and social media can be used to bypass the old publisher and broadcaster gatekeepers to audiences. Drezner covers this, but I think the most interesting parts of the book are about how even though it is more possible now than in the past to promote ideas on a small budget, this is also an era of for-profit ideas.

The language of thought leadership is used most by consulting firms, which publish reports as part of their branding – these are the trends and problems your industry faces, come to us for solutions. Drezner says McKinsey spends $400 million a year on these activities. Locally, PwC, Deloitte and others advertise their thought leadership in various fields.

While government spending on consultants seems volatile, there is little doubt that they play a much bigger role in advising governments than they did in the past. So their ‘thought leadership’ is likely to transmit directly to government this way. (Drezner has a chapter on how economics is more influential than other social sciences; that consulting firms are big employers of people with economics degrees is another route for economists to influence government).

Drezner contrasts ‘thought leaders’ with the older term ‘public intellectual’. He has a table of what he sees as the distinctions between them: Read more »

The boom in HELP debtors

The latest ATO taxation statistics come out today, giving us some new information on HELP.

Although growth in higher education student numbers moderated in 2015, VET FEE-HELP was still out of control in the period covered until mid-2016, contributing to a substantial increase in total debtor numbers. They grew by nearly half a million (a 24% increase) between 30 June 2014 and 30 June 2016. With big policy changes in vocational education taking effect in 2016 and 2017, along with continued moderate growth in higher education numbers, the rate of growth should slow substantially in the year to 30 June 2017.

On current policy settings, however, the number of debtors repaying is not likely to accelerate rapidly. Only 22 per cent made a repayment in 2013-14 and the number is likely to to be lower still in 2014-15 (there is a 2014-15 number in the chart, but these have a history of significant upward revision due to late tax returns, so it is too early to say exactly what proportion made a repayment).

The 2014-15 repaying share is likely to be lower because of the number of people who are still students, the high initial repayment threshold of nearly $55,000 a year is delaying repayment for recent graduates, and a large proportion of VET FEE-HELP borrowers are unlikely to earn enough to repay.

There is speculation that the initial threshold for repayment will be reduced in the Budget. These numbers explain why the idea needs considering.

How bad is student mental health?

The media this morning is reporting some dramatic figures on student mental health. According to Headspace, a youth mental health organisation, two-thirds of students responding to an NUS survey reported high or very high psychological distress over the last twelve months, and a third experienced thoughts of self-harm or suicide.

I’ve recently been doing some reading on this subject, as part of a project on student attrition. I’m convinced there is a problem, but I am not so sure that it is this bad.

The latest ABS National Health Survey from 2014-15 shows that the main student demographic, those aged 18-24, has worse mental health than any other age group. This is only moderately so for men, with 11 per cent reporting high or very high psychological distress on the Kessler scale, compared to 10 per cent for all adult men. But it is dramatically so for women, with 20 per cent reporting high or very high psychological distress, compared to 13.5 per for all adult women.

According to other ABS sources, about half of 18-24 year olds are students. An analysis of an earlier NHS (along with HILDA) found small overall differences between students and non-students, especially after adjusting for demographics, with students being on average younger and more likely to be female than the general population. The NHS survey found 10 per cent of its student sample were experiencing high psychological stress, while it was 21 per cent in HILDA.

One important reason for different results is that the ABS surveys and HILDA ask about mental health issues over the last month, while the Headspace/NUS survey asks about the last twelve months. Mental health issues tend to be episodic, so we should expect more people to experience one over a year than a month. There seem to be widely varying results even from surveys with similar methodologies, so mental health is clearly something that is difficult to measure at a population level. But Headspace/NUS getting triple the rate of the ABS or HILDA seems high. They have not published their detailed results, so perhaps we will have a better idea of why when they do.

How students study influences course completion rates

My concern about low-ATAR students is primarily about their high risk of not completing a degree. But in this we tend to focus much more on underlying academic ability than on the circumstances in which students study. Completions analysis shows that off campus and part-time students have non-completion risks that are very similar to those faced by below 50 ATAR students, as the slide below shows.

The number of commencing off-campus and part-time students greatly exceeds the number of commencing low ATAR students, as the next slide shows. We are doing some more work at the moment to try to understand the interactions between these factors. In 2015, for example, 24,000 commencing bachelor students were both part-time and off-campus – are these cumulative risk factors, or both just proxies for students with other commitments? Distraction from study could be the actual main risk factor.


Source: Department of Education and Training (domestic students only)

Low ATAR is an issue. But if we are worried about increasing attrition, we have to focus on how students are engaging with their studies and not just how well they did at school.

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Update: The day after I wrote this post, the Department released new completion statistics. They are slightly worse than the numbers shown in the first chart.

Low ATAR enrolments are increasing, but still a small share of all commencing higher education students

This week the main university offer rounds start, and with them the annual ATAR controversy. If the last few years are a guide, demand from low ATAR school leavers has stabilised, as the chart below shows. Offers, however, are increasing. Although most low ATAR applications do not result in offers, the number which did more than quadrupled between 2010 and 2016, from less than 2,000 to more than 8,000.


Source: Department of Education and Training

Last year, the number of low ATAR students accepting their offer increased, but still less than half of offers were accepted, which was about a quarter of the original applications.

When I looked at this last year, I said that a significant proportion of low ATAR applicants who accepted their offer were not enrolled after the first census date. While this is a factor in eventual enrolments, we now think this is less of a factor as some students who are reported as having an ATAR during the applications process don’t have one recorded in the enrolment data. A declining share of school leavers are being admitted based on their secondary education. This has dropped from 87 per cent in 2012 to 80 per cent in 2015.

Of the students who do have an ATAR in the enrolment data, those with low ATARs mostly don’t come direct from school. In 2015, there were 2,830 below 50 ATAR students enrolled who had completed school in 2014 (this includes students in pathway diploma courses, not just bachelor degree courses). But in the same year there were 8,000 students with below 50 ATARs in the enrolment data. Of those not being admitted based on their secondary education, about two-thirds were admitted based on previous higher education or vocational education.

Low ATAR enrolments are increasing, and I am among those who thinks that this is an issue. However, it is an issue that needs to be kept in perspective. Only 3 per cent of commencing bachelor degree students have ATARs below 50, and only 7 per cent have ATARs below 60.