The case for including for-profit higher education providers in the demand driven system

Reaction to the report of the demand driven review, which I co-authored with David Kemp, has been pretty positive overall. But our proposal to extend Commonwealth supported places to non-university higher education providers, especially those operated on a for-profit basis, is attracting some negative comment.

Professor Greg Craven, vice-chancellor of Australian Catholic University, said:

There is a basic psychological difference between a statutory body (university) ploughing money back into the enterprise and a private college whose modus operandi is to make a profit.”

Whether or not that is true, a higher education system needs to be robust to the weaknesses and variability of human motivations. Indeed, the public universities themselves are a case study in the limitations of a ‘just trust us’ model in higher education.

As the report discusses (pages 9-10 especially) the universities were for a long time, and still are to a lesser extent, able to get away with poor practices in teaching. This showed in the abysmal results of the first national student surveys conducted in the mid-1990s. Things have improved since through a combination of public information, government programs and incentives, market competition, and more recently regulation.

The report recommends that all these measures apply to the non-university providers as well. Indeed, they have another layer of scrutiny that the universities lack, which is that their courses need to be individually approved by the Tertiary Education Quality and Standards Agency. It also recommends extending the University Experience Survey to the non-university providers, and publishing the results on a replacement for the MyUniversity website to make it easier for potential students to compare courses. Read more »

Did free university education increase higher education attainment?

This year marks the 40th anniversary of Gough Whitlam’s free higher education policy. It continues to be the subject of considerable nostalgia. But did the policy increase higher education attainment? The answer to this question is quite complex.

The figure below is from the 2011 census. It shows lifetime higher education attainment rates by the year in which each one year age cohort turned 18. Contrary to some expectations, from 1974 a period of growth comes to an end and attainment plateaus for a decade, before growth resumes again in the mid-1980s.

attainment census
Note: Citizens only

The 2010-11 ABS Learning and Work survey shows the same pattern. With this survey I can restrict the analysis to Australian qualifications only, which helps explain why attainment levels for the free education generation are a little lower than in the census.

attainment L&W

The reason for this is not that the number of higher education places went down. There was an increase during the Whitlam years. But higher education attainment is affected by both the number of places and the overall population. In the 1970s the 1950s baby boom was reaching higher education age (slide below), which meant that many more people were trying to get into higher education.

age cohort

In this context, free education may have been counter-productive. It is focused on demand for higher education, but the supply of higher education has nearly always been a much more significant policy problem than demand. This can lead to the paradox of public funding: attempts to increase demand for higher education through cutting its cost can lead to lower higher education attainment. With finite public resources, the more governments spend per student the fewer the students they can support overall.

This was a key insight behind the creation of the HECS system in 1989, and as the first two slides above show spreading government support over more students contributed to a long period of growing higher education attainment.

The year of education-related third-party expenditure

The annual third-party political expenditure disclosures were put on the Australian Electoral Commission website today. I’ve updated my spreadsheet tracking spending by broad source, below.

pol exend 06-13

After three years of business outspending unions, the unions are just back in front. However both categories hide that 2012-13 was the year of education campaigns. The biggest single spend was $6.2 million by the Australian Education Union. The second-biggest spend was $4.8 million by Universities Australia. Adding in some other smaller campaigns, 47% of third-party political expenditure for 2012-13 was on education-related issues.

As the previous government raided the higher education budget to fund schools, it looks like the AEU had the better return on investment, if you believe that these campaigns make a difference.

Will the new Student Start-up Loan save money?

Today the Liberals introduced legislation for Labor’s conversion of the Student Start-up Scholarship into a new income-contingent loan, the Student Start-up Loan.

Overall, its design is closely linked to the Higher Education Loan Program (HELP). However, people who take out SSLs will not have to start repaying until after they have repaid their HELP debt. Potentially, that is not for a very long time.

Experience with the former Student Financial Supplement Scheme, under which students could trade in $1 of income support for a $2 loan, suggest that there is significant adverse selection with income support loans.

From figures given during discussion of closing the SFSS down in 2003, I estimate that about $2.7 billion was lent between 1993 and 2003. The Department’s annual report for 2012-13 says that $1.8 billion is still owed, of which they class 63% as doubtful debt. Doubtful debt for HELP is estimated at 23%.

Presumably this is from a mix of people taking out loans they never expected to repay and income support entitlement being a proxy for other characteristics that put people at above-average risk of being bad debtors.

In this case, the Commonwealth can’t be financially worse off. This is a loan replacing a grant, so long as repayments exceed administration costs they will come out ahead.
Read more »

Does HELP kill price competition?

In The Australian this morning, Bruce Chapman returns to one of the few topics on which we disagree: whether there can be price competition under an income-contingent loan scheme.

“Price competition is not on because the behavioural responses are close to nothing,” Professor Chapman said. “Governments should set the fee where they think it’s fair.”

We need to be careful here in distinguishing different circumstances.

I think Bruce is largely right for the school leaver market and the yes/no decision as to whether to go to uni. This has been confirmed again by recent British experience. Despite a near tripling of average fees, demand from 18 year olds is at near-record levels.

But that is not the same as saying that prospective students do not take price into account in comparing similar programs. The figure below compares MBA costs at different unis in the Melbourne and Sydney markets (Melbourne’s MBA is very expensive, but its pricing structure is so confusing that I have not included it on annualised basis). There are fairly predictable patterns based on reputation and prestige. But Deakin, RMIT, UTS and UWS get themselves into the market by charging more affordable fees.

MBA fees

It has to be true that HELP fosters higher fees. As with any loan system, it increases the number of people with enough capital to buy. But that does not mean that particular institutions will not compete on price. Strict price control is unlikely to be desirable, because it puts less-prestigious unis at a competitive disadvantage and limits scope for product innovation.

To me the policy question is whether supporting the very high fee courses with HELP is sensible investment in human capital, or whether it is just supporting largely wasteful status competition between universities.

New book on the Dawkins higher education revolution

Last night The Dawkins Revolution 25 Years On, which I co-edited with Simon Marginson, Julie Wells and Gwil Croucher, was launched by the Chief Scientist, Ian Chubb, with a right of reply by John Dawkins himself.

In my chapter on the Coalition, I described Dawkins as the most important education minister yet to hold office. Gillard’s combined tenures as education minister and then prime minister might yet see her take that title, but for now it is both the scale and durability of what Dawkins did that puts him in the top position.

These include:

* The mergers of many institutions and the transformations of former colleges of advanced education and institutes of technology into universities (discussed in chapters by Simon Marginson and Ian Marshman and Gavin Moodie).

* The introduction of HECS (discussed in a chapter by Bruce Chapman and Jane Nicholls).

* The introduction of a system of setting funding rates by discipline that is still the basis of today’s rates (discussed in a chapter by Ross Williams).

* A substantial expansion in student numbers (discussed in a chapter by Richard James, Tom Karmel and Emmaline Bexley).

* Increased the role of competitive grants in funding research (discussed in a chapter by Gwil Croucher and Frank Larkins).

* Contributed substantially to the opening up of Australian higher education to international students, including a prior period as trade minister (discussed in a chapter by Margaret Gardner).

* Started deregulation of postgraduate coursework markets.

Most reforms since then have built on the foundations of Dawkins. As I argue in my chapter, the 1999 Kemp reform proposals (which I worked on as his higher education adviser) were the only major attempt to over-turn Dawkins in favour of a more market-driven system.

Those reforms were destroyed after the Cabinet submission was leaked to Labor. Ironically, it was Labor ten years later that introduced a version of the ‘voucher’ system proposed in 1999.

Should the HELP debt be sold?

The government is now hosing down yesterday’s speculation that the accumulated student HELP debt will be sold.

There are good financial reasons for not selling, as Matt Cowgill explained yesterday. Investors would only buy the HELP debt if they could get it for less than they thought it was worth, in which case the government should not sell unless it is desperate for cash. But for now at least financial markets are willing to lend to them at low interest rates.

I believe that there are also good political reasons not to sell now. HELP’s costs are very high, mostly at the moment due to a prediction that 19% of new loans will not be repaid (at p.93 of the portfolio budget papers). Due to the low interest rates government is paying at the moment that is not currently a big expense. But with total debt likely to be over $30 billion now, even small increases in government bond rates can translate into major additional outlays.

These costs need to be brought down. But rule changes to benefit investment banks will not be an easy political sell. It’s hard enough to sell public interest rule changes that help bring total government spending back down towards total government income.

Will the new Climate Council be pursued under campaign finance law?

The new not-for-profit Climate Council, set up to replace the now-abolished taxpayer funded Climate Commission, has had a successful launch. According to The Age, it has received $900,000 in donations in its first week.

But like other new political organisations, they seem blissfully unaware that campaign finance law means red tape for political activists.

According to The Age article, the “new body was yet to decide if it would disclose the identity of large donors.” That’s reflected in their donations page, which has no warning that large donations might be disclosed.

But the Climate Council could well be obliged to disclose donations over $12,400 under federal law.

The third party disclosure rules are triggered by, among other things, spending more than $12,400 (same figure as the donations) on “public expression of views on an issue in an election by any means”. Normally this provision has serious rule of law issues: activists have to know this year what the issues will be in the 2016 election. But in this case we can be pretty confident that climate change will be an issue in the 2016 election.

In practice, the main uncertainty for the Climate Council will be whether the AEC decides to enforce the rules. In practice they have largely ignored academic forms of activism coming from universities and think-tanks. Only campaigining organisations using paid advertising have been disclosing their political expenditure and donations.

On the other hand, the current rules were put in place by the Howard government in a quite open attempt to harass their political opponents, as I documented in this 2009 paper. Perhaps this original intent will be pursued under the Abbott government. But perhaps the party’s general commitment to free speech after the various attempts to curtail it under Labor, will make them think twice before they do.

New data on the close link between SES and university attendance

I’ve criticised the government’s exclusive focus on attracting more university students from the lowest 25% of geographic areas, as measured by an index of education and occupation. I had found several data sources suggesting that educational achievement in the second-lowest quartile wasn’t much better than in the lowest quartile.

Today the ABS released an update to its online 2011 census package that lets us classify students according to their socioeconomic status ($$$ if you want access). I calculated university attendance rates for 20-24 year olds by SES deciles, with one the lowest and ten the highest.

I think my general point stands: there are low rates of university attendance well above the lowest 25%. Someone in the 4th decile is well above the lowest 25%, but still only has a third of the likelihood of attending university as someone in the top 10%. Even removing early school leavers from the analysis, their chances of attending university are still less than half those of someone in the top 10%.* We need a re-investigation of the role poor school results versus other factors play in this outcome.

uni attend 20-24 take 2

However, the data is less lumpy than I expected. There is the upper middle class at deciles nine and ten with high rates of education and professional employment which is quite different from the rest of the population. But below that attendance rates do slowly but steadily increase as people move up the SES spectrum, without the large and weakly-differentiated lowest 50% I expected from other sources.

* The decile differences are somewhat exaggerated due to students who move from low SES areas, especially in regional areas, to live near universities which are in high SES areas.

What I have been reading

Some time travelling last month gave me a chance to read some good books about things other than higher education:

Amanda Ripley, The Smartest Kids in the World: And How They Got That Way. Some countries do much better in OECD school tests than others, prompting much investigation about why (my Grattan colleagues among them).

Ripley successfully uses a journalistic device of following the experiences of American exchange students in Poland, Finland, and South Korea to give a very readable introduction to the differences between their education systems and America’s. The material on South Korea is the highlight, explaining how a country in which students sleep during class tops OECD rankings.

Jackie Dickenson, Trust Me: Australians and their politicians. An appropriate book to read during an election campaign in which many people were saying that they were disillusioned by politicians and the major parties. As Dickenson shows, similar complaints have been made many times over more than a hundred years.

As Dickenson suggests, these attitudes can be a pose – cliched views that don’t translate into diminished expectations of government or even necessarily into opinions about individual politicians. But she usefully analyses real-world trends that foster mistrust.

The party system can be a force for mistrust, as it means that politicians often have to say things we suspect they don’t believe or don’t care about. Yet parties remain the key mechanism by which voters get the things that they are promised (Dickenson makes the point that, contrary to the impression of many voters, most promises are kept). The introduction of pay for politicians meant that people who were not rich could run for office, but set off a century and more of media outrage at politicians’ pay and perks.

This book tended to reinforce my view that voters are far too cynical about politicians as people and far too naive about government as an institution.

Evgeny Morozov, To Save Everything, Click Here: Technology, solutionism and the urge to fix problems that don’t exist. Several reviewers (eg Tim Wu) have said the Morozov is too mean to the many people he attacks in this book. I suspect they are right, but not being one of his targets I enjoyed the erudition and intellectual energy on display.

Given the American connotations of the word ‘conservative’, Morozov (a US resident from Belarus) probably would not like being described that way. But underlying this book is a conservatism for which I have a fair amount of sympathy. Different spheres of activity have their own norms and logics that should not necessarily be swept aside by values supposedly intrinsic to the internet (such as more information being better, or transparency). We should not necessarily try to solve all problems (‘solutionism’).

Anyone who is explaining the parallels between Ivan Illich, Michael Oakeshott, Jane Jacobs and Friedrich Hayek by page 7 in my view has something interesting to say.