Category Archives: Higher education externalities

Should the government redistribute student fees between universities?

Posted by on March 22, 2012 No comments

In an AFR op-ed today (not behind a paywall – things are improving), Macquarie Uni VC Steve Schwartz suggests some egalitarianism for universities.

If fees are deregulated, the more prestigious universities would charge higher fees than others. Schwartz suggests that if they did, their government subsidy should be reduced, and redistributed to other universities.

The reason is regulatory – the new Tertiary Education Quality and Standards Agency is imposing standards on all universities, but it is hard for the poorer universities to match the standards of the wealthier universities.

I doubt TEQSA will require all universities to be the same. A university licence to operate depends on meeting minimum standards, not being identical to all other universities. That said, there is a tendency in the standards released to date to codify common practices, some of which are of doubtful necessity. If this continues, the universities in the best financial position to try new things will tend to set the standards over the long term. Read more »

Why does the base funding review panel think lawyers should pay less for their education, and teachers and nurses more?

Posted by on December 8, 2011 7 comments

The most contentious aspect of the base funding review report, released today, is likely to be its proposal to change the basis of public subsidy for higher education.

At the moment, the public subsidy is not explicitly based on public benefits. Effectively, it’s just what’s left after student contributions are deducted from total per student funding by discipline. Total funding is loosely derived from a study of higher education expenditure 20 years ago, while student contributions are loosely based on differential HECS introduced in 1997. Differential HECS was in turn based roughly on average private earnings of graduates in particular disciplines. So law and medical students paid the most because lawyers and doctors earn a lot. Education and nursing students pay lower amounts, because teachers and nurses have modest salaries.

According to the base funding review, public subsidy should be based on the government paying for public benefits. They say the public benefits are equivalent to between 40% and 60% of total annual expenditure per student. These public benefits are defined as miscellaneous non-pecuniary benefits to society, plus the ‘direct fiscal dividend’ from the additional taxes graduates pay due to their increased earnings.

Leaving aside whether these numbers are robust (I doubt it, but assume they are for the sake of argument), what is the justification for using public benefit as the basis for public subsidy? The base funding review offers two possibilities.

One possibility is that without subsidy ‘private benefits might not be enough to motivate a student to pay full fees’. So the logic would be that through subsidies the private benefits are increased to a point where it is financially attractive for students to enrol in higher education, and then go on to the produce the claimed public benefits. Read more »

Does higher education reduce crime?

Posted by on August 31, 2011 5 comments

One argument made for higher education – at least when arguing for more funding – is that it helps reduce crime. A visiting OECD official recently made the reduced crime claim for higher education, citing Walter McMahon.

Graduates are likely to have quite low conviction rates – I have not been able to find precise statistics, but in 2009 only 14% of 25-34 year old prisoners had completed year 12, compared to 63% of the general population in 2006.

But it seems more plausible to me that graduates are people who were always at relatively low risk of offending, regardless of whether or not they pursued higher education. This low risk would be a function of better socialisation, and the ability to earn a reasonable income without breaking the law. Education is likely to have whatever preventive effects it is going to have well before higher education.

The broad historical trends would also seem to count against any straightforward link between higher education and crime. Australia’s crime statistics don’t lend themselves to easy long-term time series, but crime and education both escalated significantly from the 1970s. The figure below shows crime and higher education attainment increasing from the mid-1990s to around the turn of the century, before crime started trending down again (as also occurred in other countries).


Sources: Education and Work, Australian Institute of Criminology

My theory would be that a third factor at least partly explains both trends, though I think crime is a more multi-factor phenomenon than higher education. The collapsing labour market opportunities for men with little education over the last 30-40 years made both crime and higher education more profitable relative to the alternative of welfare/insecure jobs. So crime and higher education both increased.

But there is no direct relationship between crime and higher education, and increasing the latter will not decrease the former.