Do we need H.E.L.P from Down Under?

There is a recent trend for policymakers and politicians to look at Australia to find solutions to the policy problems facing UK HE. The most recent example are the reports published yesterday by HEPI that compares the Australian and UK HE systems. There are some interesting comparisons to be made between Australia and England, however seriously comparing the two systems is a difficult task. This post focusses on the longer detailed analysis and although interesting, does not tell the whole story of Australian higher education; elements of which may not be wholly desirable to bring back home.

One of the report’s main arguments is that, despite much higher tuition fees in England, the levels of student funding on a course are similar to the Australian system. However, what is not accounted for is that the Australian government’s “base” funding for courses plus student fees cross-subsidise academic research to a much greater extent than in England. Up to 40% (AUS$2.7bn in 2008) of funding for research is syphoned away mainly from fees and grants for teaching.

HEPI does not enter in to the equation the fact that English HEIs spend fair portions of tuition fee revenue on services and amenities not directly related to their course, whereas Australian HEIs are permitted to charge a separate levy to pay for these, known as the “Student Services and Amenities Fee”. Important welfare and advice services, clubs and societies, and financial support and bursaries for students could not be funded in Australia without this extra income from individual students.

The report concentrates on fees and the lower subsidy and on the loans that cover them in Australia. In England, students can take out maintenance loans, which account for about a fifth of the overall write-off on student loans. But the Australian system is designed differently. In Australia, students are given direct financial support through the Youth Allowance, if you are 16-24, or through AUSTUDY, if you are over 25.

This difference is not factored in when comparing the overall cost to government. In the context of the UK government’s recent decision to abolish the Education and Maintenance Allowance (EMA) and potentially looking at a system without grant-style maintenance, expanding an EMA-like system to HE seems one of the more sensible ideas to import back to the UK.

Looking at the HECS-HELP loan scheme in Australia in more detail, there are further observations to bring out that have so far not had much attention.

The HEPI report assumes that graduates earning £30k could pay effectively double what they do now in order to help government cut the RAB charge, by mimicking some aspects of the repayment system in Australia. But there might be far more palatable ways to lower the RAB charge that do not exacerbate some of the macroeconomic problems currently facing the UK. With a ‘cost-of-living crisis’, doubling the monthly repayment on those likely to be struggling to save up for a mortgage or to pay for the rise in their rail season ticket, this is unlikely to be a popular policy.

As a country, our savings rate is far lower than it should be and so a raid on the dwindling bank balances of middle earners (as it would certainly be billed) would go down very badly both with politicians wary of new middle-class taxes, and a public that is feeling the squeeze.

Although we could ask those just above the repayment threshold to pay back more as the report suggests, there is also a risk that such a move would create serious labour market distortions in the UK economy.

Rather than taking repayments on income above the threshold, as in England, the HECS-HELP repayment system in Australia comes out of total taxable income once the graduate crosses the threshold. There are very likely to be distortionary effects caused by the fact that a tiny increase in personal income can lead to a $2000 annual liability for HELP repayments. Put simply, there is the possibility of a pact between employees and their employer to keep salaries below the repayment threshold, as there is a mutual disincentive to pay a salary marginally above the threshold if it leads to a loss in net income.

Perhaps the most obvious point of comparison between the Australian and English economic models is that they are both significantly increasing their respective national debts. Any attempt to compare the two HE systems ought to account for the fact that as both countries have made a political decision to expand higher education, public borrowing has had to increase.

HELP loan debt in Australia has increased from AUS$10bn in 2002 and AUS$26bn in 2012, with around AUS$6bn that will never be recovered. It is hardly the sign of a healthy system that the government seriously considered privatising the HECS-HELP loan book at an additional estimated loss of AUS$6-7bn to curb mounting debt. Sound familiar?

Comparisons with other countries HE systems can be helpful for policymakers in search of solutions. But they need to be based on ‘warts and all’ analysis to avoid the mistakes of others being repeated here.

4 responses to “Do we need H.E.L.P from Down Under?

  1. Leesa Wheelahan writres:

    In general this article makes some useful points, but there is one correction that needs to be made – while in theory students can get access to either the youth allowance or Austudy, in practice not many do – a very small percentage in fact – because there is a very savage means test so that all but the poorest have to finance their own living expenses, and even those who do get Austudy find it hard to survive on the meagre payment.

  2. Unfortunately in seeking to correct the record this piece multiplies misconceptions.

    What is the evidence for the claim that up to 40% of Australian university research funding is sourced from teaching-learning financing? Most analyses conclude that about 10% of teaching-learning financing is allocated to scholarship, that is, lecturers keeping up with their field. That is the estimate, for example, of the Higher Education Base Funding Review Panel (2011).

    It is true that Australia has a separate student services and amenities fee. But the maximum is the equivalent of £155 a year for a full time student, or 3.6% of the average tuition fee of £4,200 p.a. Most universities spend much more on student services and facilities.

    What is the evidence that Australia’s higher but still modest loan repayment rates distort behaviour? An annual Hecs repayment of $2,000 would be only 3.9% of former students’ income – less than a cup of coffee a day.

    Australia’s student loan debt is indeed increasing, but because enrolments have increased markedly since 2009 and because loans have been extended to the equivalent of upper level further education students. Treasury projects unpaid debt to be about 20% of borrowings.

    Higher Education Base Funding Review Panel (2011) Higher education base funding review: final report, Department of Education, Employment and Workplace Relations, Canberra, retrieved 8 December 2011 from

    http://www.deewr.gov.au/HigherEducation/Policy/BaseReview/Pages/default.aspx

  3. Thanks for your comments Gavin. I can understand that, as a contributor to the HEPI reports, you wish to defend what was said in them, and I see that you’ve not only been doing that here on wonkhe, but in the Guardian as well on a different point.

    As I’m sure you’ll understand, it is difficult to provide a comprehensive critique in a blog. HEPI published two whole reports on the funding model and still only gave us a whistle-stop tour of the two systems.

    First, to clarify the research subsidy. Your figure of 10% accounts only for the assumed amount of “base funding” being used to fund research activities. I was referring to the level of course funding that is potentially being used for research – this includes base funding as well as tuition fees. The Base Funding Review also claimed that a total of 52% of research expenditure “comes from general university funds”, which will include both fees and grants (BFR 2011, p.82). My figure of AUS$2.7bn (which is 40% of total research expenditure in 2008) was taken from Simon Marginson’s Tertiary Education Policy in Australia (2013), in which he states (p.63) that most of this AUS$2.7bn comes from “payments for tuition”, concluding that “teaching heavily subsidises research”. Now, this may be higher or lower depending on the balance of subsidy, level of alternative sources of revenue, and research intensity, but based on these figures, the level of course funding subsidising research could be up to 40%.

    Your point about the services and amenities fee gives me a chance to elaborate on something I had no room for in the blog. Yes, £155 a year seems a small amount. The problem is that the level of additional investment in student services from Australian institutions has not been anywhere near enough to provide the quality of services students require. The Australian National Union of Students has strongly criticised the move to the services and amenities legislation, which universities have used to deprive students’ unions of independent sources of revenue and turn commercial operations into profit-making ventures. There is also a vast amount of funding uncertainty for independent student organisations and services. There clearly isn’t the same subsidy for student services from general revenues that there is in England, e.g. tuition fee money distributed through the block grant to students unions.

    Your cup of coffee jibe is a bit like an advert for a payment plan on some pointless commodity you don’t need – “by this thing-me-jig, it’s only a cup of coffee a day”. The fact is, it all adds up, and people aren’t stupid. If you told someone they would effectively take home an extra £1000 a year by keeping below the threshold, they’d consider it; employers could easily sell that to them to save on wage bills. Beyone the practicalities, the normative point is that we shouldn’t be making middle-earners pay for a government’s bad sums on fees and loans. There are plenty more progressive and efficient ways of lowering the RAB charge.

    I’ll be looking to put together a longer briefing on the Australian HE funding for the National Union of Students to clarify these points further, and probe into some other technicalities that I haven’t managed to cover. The point of the blog was to pose some questions on points that seem to have been left out by HEPI. I’m pleased that people from the sector have responded with their own views and clarifications. Hopefully it will H.E.L.P produce the full picture for Nick and Libby!

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