Opinion: a critical appraisal of the new higher education charges for students

Abstract

The legislation concerning the financing of Australian higher education passed the Senate in the last Parliamentary sitting week of 2003. The changes introduced will begin in 2005, and after this time the system will start to move away from its current settings. It is argued in what follows that these reforms have the strong potential to change radically the policy landscape with respect to student charges. A premise of the paper is that the transformation of Australian higher education funding after 2005 is likely to be more profound than was the case with all other financing changes over the last 30 years or so. As background, the discussion offers a brief historic overview of university funding reforms: the abolition of fees by Labor in 1973; the introduction of the Higher Education Administration Charge in 1987; the major extension of user pays through the Higher Education Contribution Scheme which began in 1989; and the considerable changes to HECS implemented in 1997. While some reforms are considered to have been fundamental with respect to the incidence and nature of higher education charges for students, it is argued that the new policy arrangements are very likely to have a much greater impact. To this end, the analysis includes an explanation of the critical role played by the indexation of government grants to Australian universities. While this might seem like a strange place to start given the lack of attention to the issue in public debate, it should become clear that the indexation rules in place since 1995 are a key to understanding the likely effects of the 2005 student financing policy transformations. This analysis is followed with a description and evaluation of the two major 2005 policy changes to student financing, known as HECS-HELP and FEE-HELP. It is argued that the essence of HECS-HELP is sound economic and social reform, particularly given that there is to be a substantial increase in the first income threshold of repayment of students debt. HECS-HELP has the potential to improve the functioning of Australian universities without harming access for the less well-off. FEE-HELP, on the other hand, can be seen to be a poor reform. The policy offers income related loans for all domestic students charged full fees, and this is certainly an improvement over current arrangements allowing full fees to be charged without an income related loan system. Even so, it is argued that Australian universities should not be allowed this level of price discretion, given long histories of taxpayer subsidy and the considerable advantages for some institutions of their (rent-free) prime locations. By continuing to restrict the number of places that can be offered to domestic students, the price flexibility allowed through FEE-HELP will thus provide very substantial economic advantages to well placed institutions with no important benefits with respect to competition. There are other problems with FEE-HELP: inequities associated with similarly qualified students incurring different charges, and the proposed capping of loans, which has the real prospect of damaging the access of the poor. Overall, there are compelling reasons for the abolition of FEE-HELP and replacing it with greater flexibility with respect to universities deciding the number of places to be offered in the context of a continued capping of charges. This can be achieved without adding to government outlays. In the context of both the indexation arrangements and the suggested changes to student charges, it is possible to offer some predictions of Australian university reactions with respect to their new capacity to influence student charges. For an economist to make forecasts of this nature might be considered courageous indeed, it is sometimes suggested that economists have trouble predicting even the past but all the current indicators strongly suggest what the future will look like in this area. In short, there will be rapid increases in charges through HECS-HELP, and eventually a significant increase in the take-up of FEE-HELP: the overall increase in the proportion of costs financed by students will be very large. A preferred reform model for Australian higher education financing is then offered. The approach suggested should be seen to be an implicit endorsement of some aspects of the governments new arrangements, specifically those associated with HECS-HELP. In important other respects the promotion of the alternative outlined is consistent with two significant criticisms of current directions. One, the essence of FEE-HELP is misplaced; and two, arguments are offered for extensions of HECS in ways that are ultimately costless to the Budget but which could improve the economic circumstances of a large number of prospective tertiary students. Show more