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A 'Fair Go' For A ‘Fair Go’ For All Submission to the Education and Employment Legislation Committee inquiry into the Higher Education and Research Reform Amendment Bill 2014. From the Politics, Philosophy and Economics Society of La Trobe University (PPE Society) Thank you for the opportunity to make a submission to this inquiry. This submission is on behalf of the PPE Society of La Trobe University, a student organization. Our members are highly concerned with the nature of the current government’s proposed changes to our education in the Higher Education and Research Reform Amendment Bill 2014, and the deleterious consequences for both current and future PPE students. Our concerns boil down to the following points: (1) The indexation of HELP debt with the Australian government 10 year bond yield is regressive. (2) Removing the caps on student contributions creates a toxic environment of uncertainty for students. (3) It is unfair that students have to shoulder the increasing costs of universities, specifically research, as Government withdraws funding with the so called ‘efficiency dividend’. Point 1 - HELP indexation The current proposals to index HELP loans to the Australian Government 10 year bond yield are highly regressive. Higher Education Loan Program (HELP) loans are currently subsidised by taxpayers. The Government borrows money in the bond markets and then re-lends it to students at the Consumer Price Index (CPI) inflation rate. Given that the CPI is typically lower than the bond rate, the taxpayer effectively subsidises student debtors by this difference. To maintain the sustainability of HELP in the long term it makes sense that prudent governments address these costs of borrowing. Linking loans to the bond rate is a crude instrument for achieving this long term sustainability. Such a policy penalises most those who can least afford it, and punishes graduates for circumstances of chance. This is because the loan will increase at a rate between 3% and 6%, and due to compounding effects loans which are not paid back promptly will greatly increase over time. In what is the worst graduate labour market since the recession of the early nineties, and in light of the government’s determined shrinking of the public service, it has the makings of a sick joke to propose that graduates should face a snowballing debt as their job prospects are diminishing. Bruce Chapman, the architect of the higher education contribution scheme (HECS), has provided a far more sensible alternative to addressing this cost of borrowing. A good HELP indexation regime should protect debtors who do not complete their degree, graduates that experience unemployed, and graduates that take time out of the workforce to have children. Chapman has suggested a 25% loan surcharge, identical to that which applies under the non- university higher education provider (NUHEP) loan, FEE-HELP. Under this policy the indexation remains at CPI, however a flat 25% surcharge occurs on the loan principal. This does not completely cover the cost of the HELP loan subsidy, however it is in line with the principles of equity the underpin HELP loans. These income contingent loans are structured as an insurance instrument whereby the government acts as the risk absorber for students who in commercial terms are high risk borrowers, and thus would generally have to pay a very high interest rate on a commercial loan to pay for their education. Under a ‘Government as risk-bearer’ conceptual understanding of HELP, it is assumed that some students will not pay back their HELP loan, or for a variety of reasons, take a long time to repay the loan. If we accept this as a principle, then a 25% HELP loan surcharge is a highly attractive policy to attempt to address some structural budget issues and long term sustainability of student loans. Recommendation: CPI indexation of HELP loans should be retained in line with principles of equity, and a 25% loan fee should be implemented to address the costs of Government borrowing. Point 2 – Fee Deregulation The deregulation of student contribution amounts creates an environment of toxic uncertainty for students and increases the risk of price gouging in the sector. As it currently stands students enrolled in a Commonwealth Supported Place (CSP) receive a subsidy from the Government reflecting the public investment in higher education, as well as a student contribution reflecting the benefit accrued to the individual, paid by the student and in most cases financed with a HELP loan. This student contribution amount is differentiated according to the discipline of study that the student is undertaking. The effective capping of CSP funding has traditionally restrained university revenue, however over the years universities have found ways to exceed this constraint by tapping into other markets, most lucrative of all being the international and postgraduate markets. In both these markets universities are free to set the prices that the market is willing to bear. International students now make up about a quarter of total higher education enrolments and in 2014 an international student paid $25,000 on average for one year of a commerce degree, compared to the $10,085 student contribution for a CSP student. Under legislation CSP fees will not be able to exceed international student fees. Deregulating the CSP student contribution amount allows universities to price gouge domestic students rather than the international students they have so far used as ‘cash cows’. As the Government is taking funding out of the higher education sector in an ‘efficiency dividend’, student fees may rapidly approach the world market prices that international students pay. The large problem is that identified by the economist William Bowen in what has been dubbed ‘Bowen’s Rule’, and that is that universities are not profit maximizers but ‘prestige maximizers’ with an infinite amount of projects and research to undertake, and the tendency to lift their costs to equal their revenue. To put it in lay terms, universities according to this theory spend all the revenue they receive. If this is the case, and assuming that HELP loans will dull student sensitivity to price movements, universities face a perverse incentive to charge CSP students fees as high as legally permissible. There are problems with university teaching costs, which may need to be addressed and would be better served by a higher cap, rather than a complete deregulation of student contribution amounts. Recommendation: Student contribution amounts for CSP be lifted to a point that better reflects current costs of universities. However, to prevent gouging, a cap should remain. Point 3 – Student Subsidization of Research It is extremely unfair that students be asked to foot the bill for the increasing costs of universities, especially research costs, as these are costs that should be borne by all of society. There are strong rationales for the public funding of research through universities. Seminal papers by Richard Nelson as well as Kenneth Arrow have argued that due to the high risk and the lengthy time lags of the commercialisation of research innovations, the private sector will invest in research at a level which is socially sub-optimal. Given this state of affairs the government should fund research to such a level that is optimal for society, as the benefits of research allow societies to flourish with new bodies of knowledge, new technologies and new ways of living. This means that the funding of research is a matter for the taxpayer. The proposed restructuring removes public money from the higher education sector, and through fee deregulation, will push this cost onto students. Effectively students will be put in the position of subsidising large amounts of research for a tax shy society. A 2011 study by Michael Beaton-Wells and Ernie Thompson at the University of Melbourne titled, ‘The economic role of international student fees in Australian universities’, found that those universities that charged the highest international student fee premiums also had remarkably high research outputs, measured in terms of both quality and quantity. In short there was an extremely strong correlation between fee levels and research outputs. This finding, while quite circumstantial in nature, at least gives rise to concern that fee hikes on students will at least to some degree be diverted into the area of research. Such a form of rent creation is inherently unfair. Recommendation: Repeal the ‘efficiency dividend’. Conclusion For these three reasons we believe neither students nor society will benefit from these reforms. The Australian higher education landscape does need work to ensure long term sustainability, however developments should be sought in the light of evidence, not under the shaded tunnel vision of free market dogma. Our HELP system was created with principles of equity and public good enshrined within its product of knowledge for all. The erosion of these principles through blatantly regressive policy should not be allowed to happen without some clear and frank debate. The greatest outcome of a good higher education policy is that of a ‘fair go’ for all..
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