Australian free for all

In his speech to Policy Exchange in London last month the Australian Minister for Education Christopher Pyne said that he wanted to ‘set our universities free’. The Australian Commonwealth budget announced on 13th May could do just that. Most of the big changes to come will take effect from 1 January 2016; Australia’s standard academic year starts in late February.

Subsidies

The Australian Government proposes to make teaching subsidies available for all undergraduate programs studied at all registered higher education providers. All Australian non specialist universities are required to conduct substantial research in at least 3 broad fields. Since other providers are not required or even expected to conduct research they are likely to get subsidised at a lower rate, say 10% lower than the public and private universities.

I set out below the new rates of subsidy proposed from 1 January 2016, with amounts converted to British pounds for ready comparison and relativities calculated (table 1).

The Government proposes to collapse funding rates from 8 clusters to 5 tiers and to cut average subsidies by 20%. Some academic colleagues invest great symbolic significance in these subsidy relativities, thinking it reflects the Government’s priorities and valuing of their discipline.

However, I haven’t noticed it affect the behavior of either students nor institutions. Nevertheless, for what it’s worth the biggest winner in these changes would be mathematics (+26%) and the biggest losers would be social studies (-37%), science, engineering and surveying (-28%) and visual and performing arts (-23%).

Table 1: Funding rates for bachelor and higher level degrees at universities from 1 January 2016

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Source: adapted from Department of Education (2014) Public universities, retrieved 13 May 2014.

Fees

The biggest change proposed by the Government is to remove all fee caps on all institutions and all borrowing limits on all students, with one qualification. The qualification is that an institution’s fees for domestic students must be no higher than its fee for international students studying the same program.

As the architect of income contingent loans Australian National University economist Bruce Chapman observes, there is as yet no experience anywhere in the world of students’ or institutions’ behavior in these circumstances.

If the government can get its proposals past the Senate upper house, Australia will run an unprecedented experiment in fee and place deregulation with few constraints and little direct experience to inform policy, analysis and institutional strategy.

There is no rational reason why the elite should not charge fees of £1m a year. Students would get a gold plated education without ever having to repay much of the fee they have been charged and the institutions would get rich. Of course, while economists are rational maximisers of self interest the rest of us are partly altruistic bundles of subjective values. So it is hard to anticipate how most students and institutions would respond to deregulated fees.

Nonetheless, to stimulate discussion, I offer a few speculations:

I expect most universities would initially increase their fees for most programs by about 50% to compensate for cuts in the Government subsidies announced in the budget and to relieve pent up cost pressures.

The institutional and program market leaders would initially double their fees. If that doesn’t dampen demand too much other institutions and programs would follow with doubled fees and the leaders would increase their fees even further.

At this point fees would be so high that the proportion of new student debt not expected to be repaid would far exceed the 23% that the budget projects for 2017-18. At some point the Government would decide that it should no longer absorb this unpaid debt, which would effectively be a subsidy for yet more fee increases.

The Government is likely to contemplate financial caps, but rather than re-capping fees it may be more likely to reintroduce lifetime borrowing limits that it is proposing to remove from the loan scheme currently available for students of private providers.

The Government proposes to cut funding for the research higher degrees but will allow universities to charge up to £2,181 per equivalent full time student for high cost programs and up to £951 for lower cost programs.

Since loans would also cover these fees, they are unlikely to affect demand much. But many of the arguments for removing the caps on undergraduate fees would be made for research higher degree fees and I expect these will also be uncapped in time.

Finally, the Government proposes to charge a real rate of interest at the level of the 10 year government bond rate, which is currently 3.8%. But unlike loans for English students, interest would be charged at the same rate regardless of (former) students’ income. This move is therefore clearly regressive.

While most Australian discussion so far has assumed that the Executive’s will is law, almost all the changes to higher education announced in this week’s budget would require changes to legislation and like most of its predecessors, the current Australian Government does not control the Senate upper house. So these proposals wont necessarily be implemented as announced or even at all, as negotiations are held with the Opposition, Greens and minor parties and independents in the Senate.

Observers of both UK and Australian HE will be watching those negotiations closely.

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