Should HELP debt be indexed at the lesser of CPI and another economic indicator?

On 1 June 2022 outstanding HELP debts were indexed, using a CPI-based formula, at 3.9 per cent. Someone whose HELP balance was $50,000 on 31 May owed $51,950 the next day.

There had been no change to indexation policy; CPI indexation has been in place since HECS was introduced more than 30 years ago. But the politics did change. A topic on which I previously received few media inquiries, and then only during the periodic doomed government attempts to impose a ‘real’ interest rate, suddenly became the subject journalists asked me about most often.

In a low inflation environment – indexation was 0.6 per cent in 2021 – public reaction to this annual increase in HELP debt was minimal. But higher indexation in 2022 revealed latent issues. With increasing average debt the same percentage indexation leads to larger absolute dollar increases. Huge growth in debtor numbers means that indexation affects more people than previously.

Calls to talkback radio programs suggest that the lower initial payment thresholds introduced since 2018-19 create a particular annoyance. At the current lowest threshold 1 per cent of income repayment rate debtors repay $500 or so, but high CPI indexation means that their total HELP debt still increases.

Policy responses

The Greens have a bill in the Parliament to remove indexation entirely. This is unlikely to happen, but even an organisation at the opposite end of the ideological spectrum as the Greens, the Productivity Commission, sees high CPI indexation as a problem. In their big 5-year productivity report last week they suggested that indexation could be a lesser of CPI and real wage growth (this concession made in the context of proposing higher student contributions to fund more student places).

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Is it helpful to have so many HELPs?

Last week the government introduced legislation to set up another HELP income-contingent loan (ICL) to assist with education-related expenses. If the bill passes, SY-HELP will lend students up to $23,600, which will be paid to their university to support student work on business start-up ideas. SY-HELP would join HECS-HELP, FEE-HELP, OS-HELP and SA-HELP.

Higher education students on student income support are also eligible for the Student Start-up Loan, which is legislatively separate from HELP but repaid in the same way.

Higher education students who have also enrolled in vocational education may have income contingent debt from VET FEE-HELP, its replacement VET Student Loans, or Trade Support Loans. These loans also have the same repayment system as the higher education HELPs.

If the SY-HELP bill passes, a total eight education-related income contingent loan schemes will be in operation, six for higher education and two for vocational education.

Do we need an income contingent loan at all?

Before I get into the differences between loan schemes, the bigger question is whether an ICL is needed at all. I thought not for the recent inclusion of some microcredentials in FEE-HELP.

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The 20,000 equity places that nearly weren’t allocated and that will probably never be delivered

At the 2022 election Labor promised up to 20,000 new student places in skills shortage areas for members of equity groups. The minister announced high-level allocations last October. The funding agreements implementing the promise for 2023 were published last month, providing additional but not complete detail. This a multi-year program and the current 2021-2023 funding agreements do not include 2024 commencing places.

This post describes the available information on student place allocation, highlighting the policy and legal flaws in distributing funding this way. The policy’s problems are exacerbated by the Job-ready Graduates Commonwealth contribution changes.

Allocations by funding cluster

When universities received their allocations many were surprised by student places they had not requested. These were in funding cluster 1, the law, commerce and most humanities cluster. Just over 30 per cent (3,026) of the 9,851 places allocated in this round are in cluster 1.

The Department of Education’s manoeuvre can be seen in the funding agreements, an example below, which are prescriptive about the use of cluster 2 and 3 places, following information in funding applications, but not cluster 1. Instead, another clause says ‘these [cluster 1] places are to be delivered in line with a separate agreement between the Provider and the Department.’ To stay consistent with the original guidelines the cluster 1 courses need to be in skills shortage fields. Accounting and auditing are on the skills shortage list, although universities could also find other ‘relevant industry needs or shortages’.

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Urban prospective students and regional student places: the Job-ready Graduates growth mismatch

In an earlier post I looked at how Job-ready Graduates could produce fewer total student places than originally forecast. This post examines the geographic distribution of those places. Both posts draw on my first submission to the Universities Accord review.

Job-ready Graduates ‘growth’ funding is based on campus location (‘growth’ in quotation marks because it is off a reduced base). Regional campuses get 3.5 per cent annual funding growth, with 2.5 per cent for metropolitan campuses in high growth areas, and 1 per cent for other campuses. Higher growth rates for regional campuses reflect concern about lower university participation rates for people from regional areas.

Growth funding is for coming increases in the school leaver population, which will translate into increased demand for higher education. My submission uses 2021 Census data to see where the school leavers of the mid-2020s to 2030 are located, and how this aligns with higher education policy.

City/rest of state growth rates

Full regional classifications are not yet included in the publicly available 2021 Census data, so the chart below uses a greater capital city/rest of state classification. The age groups cover the young people who will finish Year 12 and seek university entry from mid-decade through to 2030. It compares their numbers to those of people the same age at the 2016 Census, who reached/will reach university age in the first half of the 2020s.

Overall the population of 9 to 16 year olds was in 2021 13.5 per cent higher than in 2016 in the greater capital city areas and 7.8 per cent higher in rest of state areas. Population growth is significant in both categories, but larger in the cities that will get a smaller funding increment.

The chart also shows variations by specific year of age, with growth rates most aligned in the 11-to-14-years age groups.

Note: Citizens only. Source: ABS Census 2016 and 2021, TableBuilder Pro
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Inflation and student places under Job-ready Graduates

Earlier this week I made my first submission to the Universities Accord review. One issue the submission covers is whether Job-ready Graduates policies can meet demand from the so-called Costello baby boom birth cohort. This post looks at how large variations in Commonwealth contribution rates and misaligned systems of indexation could affect overall growth in student places. A subsequent post looks at the geographic distribution of places.

The relative value of Commonwealth contributions

Job-ready Graduates combines a fixed maximum basic grant amount (MBGA) for higher education courses (all CSP coursework except medical places and places for regional Indigenous bachelor degree students) with Commonwealth contributions that vary between disciplines. The maximum funding a university can receive for higher education courses is the lesser of their full-time equivalent places delivered multiplied by the relevant Commonwealth contributions or the MBGA amount in its funding agreement.

This system creates trade-offs between opportunities for students, which are maximised by focusing on the courses with the lowest Commonwealth contributions, and meeting skills needs, with skills shortage occupations typically requiring graduates from courses with higher Commonwealth contributions.

Trade-offs were already a feature of the pre-JRG funding system, but JRG exacerbated them as the chart below shows. One new place in a funding cluster 4 course (medicine, dentistry, agriculture) costs 24.6 places in funding cluster 1 course (business, law, most humanities and social sciences). Under the pre-JRG system the highest funding cluster was 10.9 times the lowest funding cluster; still high, but a less extreme trade-off than under JRG.

We don’t yet have 2021 enrolment data to see where enrolments are moving by discipline. A move towards the higher Commonwealth contribution fields will consume more of the available funding, leaving less money to finance additional student places.

I don’t believe this is an immediate major issue. System capacity may be down on 2020 JRG projections but so is domestic demand, due to a strong labour market and flat or falling numbers of school leavers with an ATAR in the big states. But increased school leaver numbers due to a larger birth cohort will push demand up again in the mid-2020s.

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Microcredentials should not get FEE-HELP assistance

In the last two years the government – the current and former governments are indistinguishable on this point – has encouraged universities to offer ‘microcredentials’, which certify and sell smaller bodies of knowledge and skills than an AQF qualification.

Government support for microcredentials

Late last month Labor reintroduced a Coalition amendment to the Higher Education Support Act 2003 that would extend FEE-HELP income-contingent loans to microcredentials, although with the potentially limiting caveat of ‘that meet the requirements specified in the FEEā€‘HELP Guidelines.’

Last week they promulgated a legislative instrument for the Coalition’s ‘microcredential pilot’, which offers subsidies to Table A universities to develop microcredentials. According to the explanatory memorandum ‘the purpose of the program is to examine newer, shorter forms of industry focused learning aimed at supporting people to upskill and reskill in areas of national priority such as health, teaching, IT and engineering.’

The pilot does not seem designed to attract applications – universities would have to give away their IP and accept Job-ready Graduates Commonwealth and student contributions – but the bigger issue is FEE-HELP.

Do microcredentials require government intervention?

Contrary to the impression given by some microcredential discussions, people taking short courses to increase their skills is nothing new. The ABS has asked about structured learning not for a credential many times over decades, and always found it is the most common form of post-school education on a headcount basis. The latest ABS survey is no different. Short courses overtake credentialed education by a person’s late 20s, as the chart below shows.

Microcredentials add certification and perhaps standardisation to short courses, which might increase short course informational value in the labour market. But lack of these things has not stopped this market functioning on a large scale. Proxy indicators of employee suitability such as qualifications are important for young or career shifting job applicants, but for people already established in their careers observation – directly by employers, by reputation or referee report – is usually the main information source.

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Careers in higher education policy – a few reflections at my 25 year mark

Twenty-five years ago today I started my career in higher education policy – although I did not then know I was starting a career rather than a job – when I began in education minister David Kemp’s office as his higher education adviser. Since leaving this role I have been a higher education policy adviser to University of Melbourne vice-chancellors, the higher education program director at the Grattan Institute, and now ‘professor in the practice of higher education policy’ at the ANU.

Few people spend most of their careers in higher education policy. Career paths are limited or at least not easily planned in advance. Three of my four higher education jobs did not exist before I was appointed to them. At various points I considered alternative careers but higher education policy opportunities appeared and I took them.

Since the late 1990s a higher education policy career has, at least in one respect, become easier. Based on my interactions as a ministerial adviser only a handful of university staff at the time had primary responsibilities including government relations and/or higher education policy. Contact was usually made by senior university staff responsible for whatever issue they had to raise, or matters were delegated to the Australian Vice-Chancellors’ Committee (later Universities Australia).

When I started my U of M adviser role, leaving the government after the first of my major higher education political failures, it was a new position. Since the late 1990s, however, new higher education lobby groups and a proliferation of university policy adviser positions have made this kind of higher education policy work easier to find. What influence these advisers have on the direction of institutional and public policy is not clear, but their jobs create career options and a policy community that were not there before.

In other areas, however, higher education policy careers are more difficult. Regular public service ‘efficiency dividends’ have reduced the chance of a job in the Department of Education’s higher education division. The remaining staff spend too much of their time administering counter-productively complex and bureaucratic policies. Senior jobs often go to people with generic public service skills rather than specific higher education expertise.

The Department’s policy analysis and development capacity has been undermined in other ways too. It used to commission research regularly, but now this happens only occasionally. The exception is long-term support for equity research, which is worthwhile in itself but creates an imbalance. We have much more research on small-scale equity programs than multi-billion dollar programs such as the Commonwealth Grant Scheme, HELP and student income support.

The higher education sector also shows a surprising lack of curiosity about itself. The academics working regularly on higher education policy issues are small in number and scattered around the country, with no institution possessing the critical mass needed to pursue a major research agenda outside of equity issues – and equity research would be stronger if integrated with work on the bigger programs that ultimately drive opportunities for equity students.

Politics has its own imperatives and a strong policy community cannot guarantee good policy. But the last few years of government higher education policy have sometimes seemed like one of those Twitter threads that start with ‘wrong answers only’. Would Job-ready Graduates have made it through the policy process if we had accessible research on the drivers of student choices and university supply decisions? If we better understood the relationships between student debt, repayment times, and HELP’s costs to government?

The state of the higher education policy community means that Labor’s Universities Accord process, which sounds like a comprehensive review of higher education policy, is a high risk project. The university submissions will probably be of higher average quality than 20 years ago, but only a limited pool of people have the knowledge and experience needed to produce a politically feasible policy with a reasonable chance of achieving its goals.

The public-private balance: A failed rationale for setting student contributions

A previous post on the reasons given by government for setting student contributions, like this post based on a new paper of mine, listed five rationales used for implemented policies: course costs, private benefits, public benefits, increasing resources per student place, and incentivising course choices.

A sixth rationale has repeatedly been considered but never become policy, the idea that the distribution of benefits between public and private should drive the distribution of costs between public and private, as represented by the government and students. This post explains where this idea came from and why it has always been rejected.

Origins in the justification for HECS

As my earlier post noted, the public-private benefits idea first appeared in the Wran report that led to HECS. Its logic was not explained, but I think it was a corollary of the private benefits argument – that if students should pay for their higher education because they received private benefits then it seemed to follow that the government, on behalf of the public, should pay for the benefits they received. This is a normative argument about who should pay rather than an empirical claim that public subsidies produce public benefits.

The Wran report did not recommend this approach because calculating private and public benefits was too hard.

The balance metaphor

As part of the 1996 Budget the Howard government, with Amanda Vanstone as minister, introduced private benefits as a rationale for specific course contributions. Conceptually, however, this was quite different to the private-public benefits idea. The Vanstone version was the private benefits of a course relative to the private benefits of other courses, rather than the Wran private benefits of a course as a proportion of all benefits private and public or, at a system level, overall higher education private benefits as a proportion of all benefits.

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The five student contribution rationales since 1989

In a new paper published by the U of M’s Centre for the Study of Higher Education I chronicle the history of student contribution rationales – the reasons the government gave for HECS rates and then student contributions.

I argue that five rationales have been used: private benefits, course costs, increasing resources per student place, incentivising course choices and public benefits.

A key turning point is the 1996 Budget, when the government abandoned a flat HECS charge across all disciplines and introduced differential HECS. This required a more complex set of justifications than previously. The government’s arguments had to explain not just why students should pay compared to the previous free higher education system, but also why they should pay more for some courses than others.

The Wran report

The HECS system was recommended in a 1988 review chaired by former NSW Premier Neville Wran. It introduced four concepts that were subsequently influential in thinking about how to charge for higher education: private benefits, public benefits, a balance between private and public benefits, and course costs.

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Higher education participation rates by time of migration and language spoken at home

Some 2021 Census is now available on the ABS TableBuilder site, allowing additional analysis of the social and personal characteristics of higher education students. This posts looks at migration status and language spoken at home, previous strong predictors of higher education participation rates.

Year of arrival

In 2021 migrants who had taken out citizenship were significantly more likely than people born in Australia to be enrolled in university in the post-school 18 to 20 years old age bracket. The participation gap was 19 percentage points for migrants in the decade prior to the 2021 census, 54 per cent participation compared to 35 per cent for young adults who were born in Australia. Migrants who arrived as younger children have a higher participation rate again, at 59 per cent.

Language spoken at home

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