Category Archives: Higher education

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.


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.


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.

University finances in reasonable shape

The annual summary report of university finances has been released. Overall, it shows that university finances continue to be in reasonable shape, especially compared to the period up until 2004 (2008 was the writing down of asset values due to the global financial crisis). The operating surplus in 2014 was $1.9 billion, or about 7 per cent of revenue. It peaked at 9 per cent of revenue in 2010.

uni finances

Of course, aggregate figures like this can hide trouble at particular institutions. In 2014 compared to recent preceding years there was an increase in the number of institutions reporting deficits from one to three, although this is much better than in earlier years.

Unis reporting deficits

The three universities with deficits in 2014 were Victoria University, University of Tasmania and University of Canberra. The latter two had small deficits, but VU lost $16 million. Most of that was due to its TAFE division, suffering from the general turmoil in the vocational education market. Of the three, only VU has been on the deficit list before in the last 5 years.

Things might be a little worse for 2015, with government grant and student contribution indexation rates low and an efficiency dividend being applied to some grants. However, the international student market will be likely be adding to its already significant profits, which will ease the pain.

Is the HELP deceased estate write-off a ‘design feature of the policy, not a bug’?

Over at Catallaxy, Sinclair Davidson does not agree with my proposal to recover HELP debts from deceased estates:

Okay so here is the story: Young lady goes to university and meets and marries a high-flyer who earns oodles of money. She raises the children and never works (or works very little) and never pays off her HECS debt. It is really hard to get excited about this issue: people who don’t work or never earn over the repayment threshold are not liable to pay back the HECS – that is a design feature of the policy not a bug. Perhaps some other features should have been included in the HECS design at the time. But as things stand the policy is working as designed and as intended.

This was one of the issues we encountered when writing our report on HELP doubtful debt. Is income contingent repayment the principle behind HECS (or HELP, as it became) or a mechanism for implementing other policy objectives?

The main policy goal at the time was to raise revenue to expand higher education in a way acceptable to the Labor Party, in which many people regarded Whitlam’s free higher education as a major achievement. The Wran review appointed to justify this change made much of the private benefits of higher education, noting that these went disproportionately to the more privileged members of society.

Income contingent repayment, with a threshold at $54,000 now, means that relatively poor people do not have to pay, preserving free education for them. But everyone else has to repay a part of the cost of their education. Income contingency provides risk management for debtors, avoiding the dangers of financial hardship. There is also an income smoothing element to it compared to flat annual repayments, with payments increasing with income.

In my view, risk management and income smoothing are the principles, and income contingent payment the mechanism. The principles restrain but do not abolish the goal of controlling government spending.

The death write-off was never essential to these principles. As risks go, being dead is already as bad as it gets. And while I am no expert on theological theories of the afterlife, I don’t think any of them foresee use of the $A. Income smoothing is no longer required. And the write-off is undoubtedly contrary to the fiscal goals in establishing HECS.

I am not entirely sure why the death write-off was included. We know from released Cabinet documents that the ATO was worried about maintaining records over long periods of time, and bureaucratic resistance to the work involved may have been a factor. They probably thought that the amounts raised would be small, not realising that much of the HELP doubtful debt would be in high-income households. And there would have been political considerations around the small number of young people who die each year with HECS debts. The ATO chasing the $500 in their bank account would not have been a good look.

In our Grattan report, we solve the latter issue by suggesting a $100,000 asset contingent threshold. Anyone owning a house or a share in a house will have that much on death, and we think that will include significant numbers of HELP debtors, but not most young people with HELP debts.

The current write-off policy delivers windfall gains to the beneficiaries of the estates of HELP debtors. Many of these will be the adult children of educated, affluent households in which their mother stopped working or went part-time after they were born. They are not likely to be especially needy members of society. Adding HELP repayments to whatever other debts the estate has is a fair way to reduce HELP’s costs.


Sinclair’s Catallaxy post assumes the only expense of the write-off policy is the actual write-offs each year. As he says, this cost is not high (they stopped publishing statistics a few years ago, but as of mid-2011 only 10,000 of the 2.7 million people who had ever taken out a HELP loan had died without fully repaying). But each year the Budget includes an expense for lending that year that is not expected to be repaid. In recent times, it has been around $1.5 billion a year.

Why was HECS renamed HELP?

The Australian‘s higher education gossip column High Wired has a suggestion for new higher education minister Simon Birmingham:

HW’s first policy suggestion to Birmo is please reverse the stupid decision to rename HECS as the Orwellian sounding HELP scheme. Can we please go back to HECS? Thank you.

After ten years of HELP I still routinely have to explain that it is like HECS, showing that the HECS brand is very resilient (and still partly there, through HECS-HELP). On the other hand, the shift from HECS to HELP was more than just a re-branding exercise. It reflected the evolution of policy.

Under the original HECS the terminology was mainly about the new payment that students had to make, a Higher Education Contribution. Students accumulated a Higher Education Contribution debt if they chose to borrow the money. HECS ended up describing both the charge and the loan, even though they were two different things.

Even before HELP, there was an accumulation of things students could borrow for on an income-contingent basis but were not ‘contributions’ to the cost of government-subsidised university places: for postgraduate full-fee courses, for OUA courses, and bridging courses for migrants. They all had different names, although the debts were added together for repayment purposes. From 2005 the government decided to also make income contingent loans available to students at non-university higher education providers and for study overseas. Since then, we have added loans for some vocational education students and for the student amenities fees. None of these additional loans are for ‘contributions’ either.

So the decision to call the charge for a government supported place a ‘student contribution’ and to give the loans a single name, the Higher Education Loan Program or HELP for short, seemed to clarify and simplify what was going on (at least until they started lending for non-higher education activities).

In practice, however, there is a lot of confusion. Even people making otherwise reasonably well-informed comments about higher education get the names of the loan schemes muddled. Perhaps it is time to bring back ‘HECS’, as a brand-created word in its own right rather than as an abbreviation, to describe the loan scheme. We could then try to insist on ‘student contribution’ for the charge that can be either paid upfront or borrowed.

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.

Does attending a prestige research university reduce earnings?

The latest HILDA statistical report has a finding that the AFR says:

threatens to undermine the prevailing view that it’s worthwhile for students sweat out a high ATAR score in year 12 so they make it into one of the elite Group of Eight universities.

What the report says is that Group of Eight graduates in their sample earn less than graduates who went to universities in the Australian Technology Network or Innovative Research Universities groups.

In my view the finding is not so much wrong as misleading. We did similar research at Grattan last year, using the same HILDA data source. We found a salary premium for the Group of Eight and Australian Technology Network universities of about 6 per cent, after controlling for various personal attributes and, most importantly, discipline.

I believe that the main reason the HILDA report is getting its result is that Group of Eight universities have enrolment skews towards relatively low paid disciplines such as arts and to a lesser extent science. As can be seen in the chart below, these tend to have lifetime earnings in the lower half of the income distribution.

Source: Grattan analysis of ABS Census 2011 data. It shows the median lifetime private financial benefit of holding a bachelor degree in the stated discipline, compared to the median person of the same gender who finished their education at Year 12.

Just taking 2013 completions, 31 per cent of Group of Eight completions were in the ‘society and culture’ field that includes humanities compared to 23 per cent of IRU graduates and 14.5% of ATN graduates. For science, this field includes 16 per cent of Group of Eight graduates but only 8 per cent of IRU and 6 per cent of ATN graduates.

All this said, past research that does control for discipline has consistently found that the financial advantage of attending a Group of Eight university is less than we might expect, given their relatively high prestige. Despite some anecdotal evidence to the contrary, employers of new graduates don’t seem to pay a Group of Eight salary premium. And Grattan’s work using HILDA data found only a fairly small advantage in the long run. As we did not control for prior ability, even that small advantage might be over-stated due to partly reflecting the higher prior academic ability, as measured by school results, of the students who attend Group of Eight universities.

If a prospective student wants to maximise their income, the key advice is that what they study matters more than where they study it.

But for Group of Eight universities to come out worse in the long run on a discipline basis they would have to be doing significantly worse in adding human capital during their courses, bad enough to cancel out the positive effects of higher prior ability and whatever proxy value their brands have in the labour market. That seems pretty unlikely. I think if the analysis was done again including discipline we’d see a finding more consistent with theory and past research: a small Group of Eight advantage.

The science bubble finally shows signs of deflating

Since 2009, demand for science courses has been growing strongly. This is leading to a serious labour market over-supply, and so I believe there needs to be a correction. Unfortunately the information flows to prospective students for science contain a lot of misleading signals from STEM boosters, who persist in high-profile, but in my view incorrect, claims that this area of education needs encouragement.

The February 2015 applications statistics show some tentative signs that the market is adjusting to science realities. Through the tertiary admissions centres, there has been a 3 per cent decline in science applications. In reality, it is probably a larger drop than this, as I understand that a course reclassification that led to a big drop in environmental studies applications should have boosted science. Against this trend, however, there has been a 5 per cent increase in direct applications for science courses (for non-Year 12 applicants, there is a trend towards applying directly rather than through tertiary admission centres).

Feb demand

The biggest drop in demand if we don’t consider the environmental studies reclassification has been for education courses, down 9 per cent through tertiary admissions centres. This is probably because with a clear occupational outcome in teaching negative labour market information is transmitted much more effectively. Although this is a sensible adjustment, Kim Carr will still be on the warpath about nearly 900 education course offers to applicants with ATARs below 50.

Total applicants (as opposed to applications) are up 1 per on 2014, indicating a market that is essentially stable.

Pure research at universites increasing absolutely, but declining relatively

I have an article in The Conversation this morning arguing that policy over the last quarter century has made public universities more public than they would otherwise have been. Without external pressures, academics and universities would focus on a narrower range of objectives than governments and public opinion would prefer.

In response, Gavin Moodie observes

I am concerned at the diminution in the importance of pure basic research in Australian universities, which is now very much a minority activity. This is particularly worrying since while there are many other bodies established to conduct applied research, there is no other institution to conduct pure basic research.

While the share of all research that is ‘pure’ (definitions here) has gone down (see yesterday’s post), looking at the absolute spending gives a somewhat different picture. Spending on pure research doubled in real terms between 1992 and 2012, but this is a much lower growth rate than for the more applied types of research.

pure research
Source: ABS

Although I don’t think the trend is as negative as Gavin perhaps does, I have some sympathy for his broader point. While public universities can and should do more than academics are inclined to, their comparative advantage compared to other institutions is likely to be at the more pure end of research. If the government wants more applied research, it should probably steer much of that funding to more specialised organisations with clear commercialisation/practical problem solving goals.