CHAPTER 2
The inequity of fee deregulation
2.1
Fee deregulation is unfair and unpopular. The underlying contentions of
this reform package are that students who wish to attend a high prestige
university should expect to pay high fees and that graduates should pay more
for tertiary education because of the private benefit they receive. The
committee rejects this notion, and insists that equity must remain at the heart
of higher education policy.
We are in a global economy and a global market... Every other
developed country is increasing its investment in public education with public
funds for capital upgrades, new research programs and new research institutes.
It is somewhat astonishing to many people and to many students that we are the
only country that is seeking to reduce its investment in public education and
research at a postsecondary level.[1]
Fees will sky-rocket
2.2
It is clear that even under the revised higher education package, for
the vast majority of students and prospective students, the cost of higher
education will rise significantly. The scale of price increases facing students
was first signalled by the University of Western Australia's release of a
proposal, under a flat deregulated fee structure, to charge $16 000 per year
for base undergraduate degrees.[2]
2.3
The Queensland University of Technology (QUT) has subsequently published
scenarios for its fees, should the bill pass.[3]
Assuming a 20 per cent reduction in the Commonwealth Grant, QUT forecasts that
course fees will rise by an average of $11 186 across 22 undergraduate
degrees. The cost of a Bachelor of Creative Industries degree would increase
by 55 per cent, from $21 100 to $32 800, while students undertaking a combined
Bachelor of Fine Arts and Bachelor of Laws degree would pay $19 800 more than
the current price.[4]
2.4
In discussing the information available at this stage regarding price
increases, policy expert and economic modeller Mr Ben Phillips provided
evidence before the committee that increases are expected to vary from
university to university:
a university like the University of WA, one of the Go8
universities, is looking at prices of $16,000 and that would indicate a price
increase on their current fees of around 90 per cent. That is quite
substantial. QUT has gone for a lower increase of around 42 per cent, so they
are well and truly covering their losses from the 20 per cent reduction. It
will probably fall somewhere in there. You would say Uni of WA would be at the
higher end; QUT is more towards the lower end. In 2016, somewhere between 40
per cent and 90 per cent, perhaps a bit more for some unis and a bit less for
some others—broadly speaking, 50 or 60 per cent on average would not be
surprising.[5]
2.5
The committee is concerned that beyond 2016, it is unknown where price
increases could end. In evaluating the revised package, Professor Bruce
Chapman, an academic economist with extensive policy and research experience in
the area of contingent loans, noted:
.. there is a remaining and in my view a very important
further change needed [to this reform package], and this involves the notion
that institutions be able to set their own prices without government
involvement. To me this is highly contentious and requires further thought and
input...There are several important reasons for believing that full fee
deregulation in the Australian institutional and policy context would
potential[ly] lead, eventually, to very high course prices (and thus debts) for
students in some - perhaps many- areas of higher education.[6]
2.6
The committee heard evidence from the National Union of Students (NUS)
about discussions that occurred with many students across the country
concerning fee deregulation. NUS explained that:
Students have the highest awareness that I have seen around
fee deregulation and the quality of their education as well. When we were
talking to new students, mature-aged students, single mums and other parents,
students could articulately tell me what deregulation was and why they were
concerned... Students are saying that they are really concerned, because they
have no idea how much they could be paying by the end of their degree. They are
not sure if they will need to drop out, because they are not sure how much
their degree could be costing them.[7]
2.7
In its submission, La Trobe Student Union (LTSU) cautioned that with fee
deregulation, 'even Universities with a lower standard of teaching and
resources will price their fees as highly as possible'.[8]
The University of South Australia Student Association also noted that
'[universities] will be setting fees in an environment where the effect of
price on the consumer may not react as other markets.'[9]
2.8
Including the possibility of unrestrained student fees, considerable
concerns about the funding sustainability of the Government’s higher education
package. Professor Louise Watson, an education policy analyst and member of the
Base Funding Review 2011, made the point that the proposed reforms would
result in the government relinquishing control of the cost of higher education
while at the same time retaining full responsibility for it through
Commonwealth Supported Places (CSP) and funding HECS:
University Vice-Chancellors would henceforth decide how much
public money they wanted to receive. Whatever graduates cannot repay due to
price increases and declining graduate earnings, will be sheeted home to the
federal budget. As the ballooning HECS debt in the VET sector has demonstrated,
fee deregulation would simply make Australian higher education less
predictable, less affordable and less sustainable in the future.[10]
"Unsustainable" HELP DEBT will increase
2.9
Australia has a higher education system in which the contributions of
students to the cost of their university education are capped. The Higher
Education Contribution Scheme (HECS) was envisaged as a national insurance
system where the student paid a proportion of the cost of the course if - and
only if - they gained private benefits in the form of an above-average salary.
The proportion of the course that students would repay was initially set at
around 20 per cent. It was broadly supported by the public, in large part
because repayments commenced only when income rose to above-average levels and
thus, it could be argued, graduates were benefitting financially from their
higher education qualification. Later research showed that, within its modest
parameters, HECS did not deter students from enrolling in higher education.
2.10
The current government says its policy will increase students' share of
the costs of higher education to 50 per cent, but this goal does not require
removing the cap on fees. Indeed, it is likely that degree inflation will see
that proportion increase significantly.
2.11
It is unclear how the current government arrived at the proposition that
setting the student contribution to the cost of their higher education at 50
per cent is fair, reasonable or appropriate. Evidence received by the committee
from the National Tertiary Education Union (NTEU) demonstrates that the
Department of Education and Training:
will not release departmental modelling on fee deregulation
due to it having '...serious adverse consequences for the operation of the higher
education marker and the success of the Government's proposed reforms in this
area'.[11]
2.12
Australian students are already contributing a considerably higher
amount to their tertiary education than the majority of OECD countries. Figure
1 illustrates the private expenditure in tertiary education in OECD countries
in 2011.
Figure 1: Distribution of public and private expenditure on
tertiary education[12]
Even participants in this debate who support fee deregulation
argue that higher education and research require increased public funding.[13]
2.13
It is uncontested that any increase in the private contribution to
higher education in Australia will result in an increase in outstanding HELP
debt, something the Australian government already views as a problem. In
discussing unsustainable and rising costs in the 2014–15 Budget Higher
Education Reforms, the Department of Education noted that:
The value of student HELP debt is also estimated to rise to
around $29.9 billion at 30 June 2015, which is $5.4 billion higher than
projected for the same year at the 2011-12 Budget.[14]
2.14
Under these proposals it is inevitable that the amount of HELP debt that
will not be repaid will increase and that the system will become increasingly
unsustainable. As the Australia Institute has said:
Already, there are concerns about increasing HELP debt under
our current system. Facing increasingly large volumes of accumulated doubtful
HELP debt, future governments may be tempted to drop the repayment thresholds,
increase repayment amounts or introduce upfront. That would increase inequity
for the graduates and undermine HELP’s policy purpose. One could argue that
makes the changes unsustainable for the HELP system.[15]
2.15
Mr Ben Phillips also raised concerns about the likely increase in the
share of bad debt to beyond 23 per cent and where that could lead:
The current HELP debt in the long term is around $2 billion
per year, as the cost to government. If there was a doubling of fees and an
increase in the share of bad debt, you would expect that to at least double, if
not go beyond doubling. So I do not think $2 billion to $5 billion would be out
of the question.[16]
Unfair debt will result in social inequity
2.16
In addition to public policy consequences, the increased level of HELP
debt that will not be repaid will have a grave impact on individuals. Graduates
who are under-employed or unemployed or who take time out of the workforce will
be hardest hit by these reforms. Those with disabilities and those with
qualifications in particular low-earning disciplines such as the arts will be
especially disadvantaged. For the one in four university students who drop out
of their courses and leave university without a qualification, the prospect of
an income that hovers around $50 000 to $60 000 could mean a lifetime of debt,
as mandatory payments barely keep up with the interest on their loans.
2.17
There is no clear economic justification for public sector universities
to be allowed to use HECS, a government instrument, to raise substantial
revenue by unjustifiably increasing fees. Professor Chapman submitted that
under the proposed package:
An informed guess is that if Australian universities were to
charge the sort of prices that I believe many of them could under the planned
fee deregulation, the revenues received would in many cases far exceed the
costs of teaching. While there is little doubt that in many cases these sorts
of cross-subsidies already occur (particularly from the revenues received from
international students), the issue for me concerns the extent to which this can
be considered a "proper" use of the HECS instrument... That is, if it
is the case that fee revenues from price deregulation exceed considerably the
costs of teaching, it is arguable that this is an improper use of a government
instrument; basically put, it can be considered to be unfair.[17]
2.18
This may result in serious implications for graduates' life choices and
for the economy more generally. These include, for example, the capacity of
graduates to purchase a home or raise a family. A significant HELP debt would
be a factor taken into account by lending agencies and also, naturally, by
graduates themselves in deciding whether they are in a financial position to
take out a housing mortgage.
2.19
The impacts of the reform package are not limited to undergraduate
students. The Council of Australian Postgraduate Associations (CAPA) observed
that while discussion of the impacts of university fee deregulation has focused
on undergraduate students, it will also adversely affect higher degree students.
As CAPA explained:
where a fee of up to $3,900 per year is also charged for a
research degree as proposed by the [bill], the total debt will be compounded
over the 6 years as a postgraduate student. A science graduate starting with a
$33,300 Fee-HELP debt under the fee would end up with a final debt over $63,000
- almost double the amount they started with. [18]
2.20
NUS predicts that fee deregulation will impose 'unreasonable levels of
debt burden on millions of future students and graduates'.[19]
2.21
Many submissions were particularly concerned by the disproportionate
effect that higher debt is likely to have on female students, mature age
students, regional and rural students and students from lower socioeconomic
backgrounds.[20]
Tertiary student campaign group Australia Needs a Brighter Future argued that
the deregulation of fees will lay the foundation for the end of equity in
Australia's higher education sector[21]
resulting in 'unreasonable barriers for students whose parents cannot
financially support them into their mid-twenties and beyond.'[22]
LTSU also found it 'difficult to see how students from disadvantaged
backgrounds will be able to access a tertiary education in such a market'.[23]
The US system is not the way to go
2.22
Some participants in this debate have identified the United States system
as one that Australia should learn from and even replicate. Proponents say that
deregulating student fees will lead to US-like diversity, downplaying the
negative impacts of US-style higher education, particularly those relating to
inequality. While the US is home to some of the best universities in the world,
it also houses many of the worst. The US experience should be regarded as a
cautionary tale. In comparing the Australian and US systems, University of
Technology Sydney noted:
Australia graduates a similar percentage of young people as
the US college system, yet we have on average much higher quality. The US has
more than 10,000 colleges and universities, whose quality varies dramatically
from quite low standard schools to the small number of world leading
institutions such as Harvard and Yale. And further, in the fully deregulated US
market, fee levels have been rising at twice the rate of inflation for the past
decade and student debt is spiralling out of control.[24]
2.23
Student loan debt and fee inflation are significant social, economic and
political problems in the US. Student debt has quadrupled in the last ten years
and 38.8 million Americans have debts totalling more than
$960 billion.[25]
Student debt is now greater than credit card and automotive loan debt. The
National Centre for Education Statistics has found that:
Between 2001–02 and 2011–12, prices for undergraduate
tuition, room, and board at public institutions rose 40 per cent, and
prices at private non-profit institutions rose 28 per cent, after
adjustment for inflation.[26]
2.24
In its submission, the Australia Institute warns:
[t]he Minister wants to take our system... in the direction of
the US system. The evidence shows this would risk increasing social inequality.
It would also risk very large and wasteful fee inflation.[27]
The revised package does not come
close to undoing the inequity
2.25
The revised package includes some welcome amendments, specifically the
retention of the current measure for HELP debt indexation, the Consumer Price
Indexation (CPI), however, the revisions do not come close to undoing the
inequity of fee deregulation.
2.26
The introduction of a HELP indexation pause for primary carers of
children under the age of five who are under the minimum repayment threshold is
relatively minor in the context of the overall increase in costs that would be
incurred under the proposed reforms.
2.27
The government's introduction of the Structural Adjustment Fund is an
admission of failure and highlights the fundamental inequity that is at the
heart of this bill. The NTEU argued that:
The Structural Adjustment Fund has been introduced in
recognition that deregulation is likely to have a severely adverse impact on
regional and rural universities and those serving students that are highly
sensitive to the cost of attending university. The change is intended to
provide funding to assist providers in a transition to a post-deregulation
environment... However, the $100 million allocated falls well short of the $500
million which Universities Australia has calculated as the actual transitional
costs associated with such a radical change to the funding and regulation of
higher education.[28]
2.28
NUS submitted that the inclusion of $100 million over 3 years from 2015–16
for the Structural Adjustment Fund is simply an off-set of the government's
decision to not extend eligibility for Youth Allowance and Austudy.[29]
2.29
Regardless of where the allocated funds may be found to support the
government's decision to introduce the Structural Adjustment Fund, concerns
remain about the impact of the reform package on students from disadvantaged
backgrounds or those who are first-in-family university students who may be
deterred from higher education as a result of this package. In this context, Professor
Andrew Parfiit of the University of Newcastle discussed the impact on
communities to contribute to economies.
it is not necessarily the education we are providing for
people just to go into particular professions that is important; it is the
capacity that we have within our communities to innovate, have entrepreneurs,
have people with the skill levels that can provide the opportunities for growth
for the future where perhaps traditional industries are in decline and new
industries are emerging. I think we will do ourselves a disservice if we deter
people from taking up those opportunities that broadly higher education
provides rather than just specifically a discipline-based or a profession-based
approach.[30]
2.30
The Higher Education Participation (Access and Participation) Programme
(HEPAPP) that will replace the existing Higher Education Participation Programme
(HEPP) alters the assessment for a scholarship, such that grants will no longer
be based solely on low SES enrolments but the wider category of, students from
disadvantaged backgrounds. However, as NTEU aptly pointed out:
These new Scholarships are aimed at postgraduate and
undergraduate students from 'disadvantaged' backgrounds. While funding for
well-targeted equity programs and initiatives is always welcome, it should be
noted that this is not new funding as inferred by the Minister, but a
redirection of existing funding that inevitably will be spread more thinly.[31]
Who stands to benefit
2.31
Professor Louise Watson provided evidence to the committee that the
package would essentially result in offering universities a blank cheque:
It is unprecedented in public policy to invite a recipient of
public money to dictate how much they want to receive. I do not give pocket
money to my children on the basis of how much they want to receive; I give it
to them on the basis of how much I think they need and how much I can afford. I
think that those principles generally govern government financing and they
should be applied in the case of higher education.[32]
2.32
Mr Ben Phillips concurred with Professor Watson and highlighted to the
committee that one of his biggest concerns about the package was around the 'blank-cheque'
nature of deregulating fees.
With the uncapped fees, even though there is a supposed cap
at international fees, there is no reason is why they cannot be increased. I
see that there is a moral hazard here in that the universities effectively can
charge largely whatever they want. They will still get paid regardless,
guaranteed by the government. Who gets left holding the baby? Effectively, it
will be the government down the track. Many students of course will not pay it
back and some students will be aware of that. So really the fiscal consequence
that I am concerned about is the impact now on the government.[33]
2.33
Professor Bruce Chapman argued that under the package a student's debt
would far exceed the cost of teaching them.
So if it is true that in the presence of HECS institutions
could charge prices that are well beyond the costs of the teaching, and I think
that is possible. Even though we are not sure exactly what the costs of teaching
are, I would think it is very possible that in some parts of this so-called
market—it is kind of a combination market/public sector arrangement—you would
end up with students having HECS debts that cover much more than the actual
cost of teaching them. So the notion of unfairness comes into it.[34]
2.34
Graduate employment numbers three months after graduation are dismal at
the moment and graduate salaries are declining in real terms.[35]
As such, it is critical that any higher education reforms be focussed toward student
benefit and not higher education provider profit.
Committee view
2.35
The committee notes that fee deregulation as proposed in the HERR bill
is deeply unpopular among the Australian people. The committee heard extensive
evidence about the negative effects of the reform package: how high student
fees will go, how outstanding HELP debt will be increased, and how unfair debt
will lead to high and unfair levels on inequality.
2.36
The previous government had a clear commitment to increasing the
participation of a range of equity groups, including low-SES, regional and
remote students and Indigenous Australians. The committee is not convinced that
the Structural Adjustment Package and HEPP will go anywhere near maintaining
current levels of participation of equity groups, let alone increasing them.
2.37
The committee believes the HERR bill will continue to propel Australian
society down the low road of increasing inequality of access, opportunity and
outcomes that the Australian people neither need nor want. The committee is
particularly concerned that there is little doubt that the reforms will
accelerate wealth inequality in Australia – which would not only be socially criminal
but economically retrograde.
2.38
The committee is deeply concerned that the HERR bill does not stand to
benefit students in any way and is persuaded by evidence that the package is
unfair, unethical and unnecessary.
2.39
The committee notes that HERR bill is currently before the Senate.
Recommendation 1
2.40
The committee recommends that the HERR bill be rejected by the Senate.
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