The government is distancing itself from a claimed list of higher education reform concessions reported this morning. I’m glad to hear that because one of the claimed concessions, a three year delay on extending the demand driven system, would be a mistake.

I would say it, but I think expanding the demand driven system is the most urgent of the reforms.

As the demand driven review report argued, the current system is not fit-for-purpose as we move into the next stage of mass higher education. Funding policy provides a strong financial incentive to start in a public university bachelor degree, when lower-ATAR and other under-prepared students would be better off starting in a diploma course. Diplomas are currently outside the demand driven system, and most of the pathway courses are in the private higher education sector.

The government could just allow public universities to offer more sub-bachelor courses. But only a few universities have much existing capacity or expertise in this area, so this would be a slower way of improving this market than bringing the existing players in.

In some markets public universities could scale up their sub-bachelor offerings (for example, dual sectors that already have experience in vocational diplomas, and the universities with their own pathway colleges already). However, this could undermine the long-term structural goal of a more diverse higher education system. It would let public universities compete in the non-university higher education provider sub-bachelor markets (about 20% of NUHEP students) while not letting the NUHEPs compete in the public university bachelor market. Some NUHEPs may not survive increased competition that is based solely on unjustified differences in public subsidy, not on educational quality.

The biggest danger with fee deregulation is excessive fee charging by public universities, at the expense of students and of taxpayers via HELP. While I don’t think that private universities and NUHEPs can have a large short-term effect on this (given their scale and historic focus on product differentiation rather than price competition) they can influence the behaviour of some public universities. The chart below comparing average NUHEP fees with the total Commonwealth supported place revenue received by public universities suggests that, in most fields, NUHEPs have competitive cost structures. We should be encouraging them to compete on price against universities, not giving universities another three years of protection.

Delaying extending the demand driven system would also undermine one of the government’s strongest lines against Labor and the Greens: that is now parties of the left that support full-fee undergraduate places, not the Liberals.