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How Students Fund their Education

August 17, 2016

How will proposed changes to HECS impact university students?

The Higher Education Contribution Scheme (HECS) was introduced in 1989, since then, HECS has become an integral part of the Australian higher education system. HECS is now known as HELP and  is offered by the commonwealth government to assist students financing their tertiary education (Whinnett, 2014). Therefore, most if not all Australian university students are associated to HECS.

There are several reasons why HECS-HELP loans play a significant role in a student’s tertiary education. Collett (2016) described the student loan schemes in Australia to be cheap debt, or being close to ‘good debt’, allowing students to fund their rising tuition fees. The reason behind it might also be due to the nature of the HECS-HELP loan scheme.

Firstly, the requirements for HECS-HELP loan can be fulfilled easily, for Australian citizens, the student just has to undertake most of his course within Australia. Besides, the HESC-HELP loan is interest-free, however, in order to maintain its real value, the outstanding debt is indexed each year to reflect changes in the Consumer Price Index (CPI) (Collett, 2016). In Collett’s (2016) findings, he highlighted the ‘premium’ between HECS and unsecured personal loans- the indexation was only 2.1 per cent in 2015, while the interest rate on unsecured personal loan is 9 to 10 per cent. Next, the repayment system of the loan, the debt only falls due once a person has an annual income of $54,126. All these factors had shown the reason students chose HECS to fund their education.

What is the government proposing to change?

Following previous fee deregulation intentions outlined in the 2014/15 Budget, the Liberal party’s 2016/17 Budget further highlighted the believed need for reform to Higher Education. Whilst the former policy proposition was more stringent, proposing that university’s should be granted the ability to set all course fees, the current senate conditions and the looming Federal election have prompted a less controversial creation. The updated initiative follows suggestions included in the Department of Education and Training’s Driving innovation, fairness and excellence in Australian education (2016) consultation paper. Underpinning suggestions is the introduction of university flagship courses; courses that are deemed by the University itself as particularly innovative, high quality and differentiated. Due to these differences, it is proposed that such courses prices are, to an extent, deregulated. As the government’s budget is likely to follow recommendations from this paper, it follows that, whilst universities are given power in flagship price setting, they also are likely to restrict this price setting ability. This restriction, proposed to be imposed by an external organisation such as the Australian Competition and Consumer Commission (ACCC), would see the organisation instructed to firmly monitor and constrain course prices, and to review proposed fee increases, only approving them if they meet set criteria. Thus, whilst enabling universities to control their course prices, it prevents unreasonable and unequitable action, which would occur if the provider could charge unlimited prices. Finally, it is also proposed that the quantity of flagships per university is limited, and that further measures are undertaken to ensure that the deregulation promotes innovation, excellence and improvements.

Would this have any benefits?

While the idea of full university fee deregulation was abandoned in the 2016-17 budget, the government’s proposed to partially deregulate the fees for a small cohort of students enrolled in highly innovative courses. The idea behind this proposal is that the higher revenues earned by universities from these partially deregulated “flagship” courses would help keep the general fee amount low for other courses. In other words, if the courses that students undertake in order to go on to earn lucrative salaries are priced higher, the fees for students undertaking courses that do not present as many opportunities can be lower, to their benefit.

Furthermore, this scenario would not involve a backlash from the public as even though fees are deregulated to an extent, they would still be capped so that universities cannot charge exorbitant amounts. While the higher fees for the selective courses could expose the government to larger student loans, there has also been a proposal to lower the income threshold at which graduates start repaying their debt. Moreover, a marginal increase in fees would also not have any impact on the demand for these “flagship” courses due to the amount of opportunities available upon graduation. Hence, the proposal would not disadvantage universities in any shape or form.

Lastly, it is important to consider the reason behind this proposal. The government seeks to achieve its proposition by cutting university funding by $1.4 billion by 2021 (Eltham, 2016). The higher fees charged for the selected courses will balance the books for universities as their cash flows will be the same regardless of the outcome of the proposition. However, looking at the situation from the perspective of the government, it is clear that this proposition will impact the budget severely as it seeks to reduce the current deficit. As described by the government, partial deregulation for university fees will be a “sustainability measure” for a future that seeks to achieve a budget surplus or at least a reduced deficit.

 

Cons of implementing the change

 

The implementation of an alteration to the current tertiary education scheme could have significant consequences. The most significant consequences surround the notion of increasing the price of flagship courses; that is the price of a reputable degree. Most notably, this has implications for both international and domestic students.

 

Domestic, lower socio-economic students are likely to be disproportionately negatively effected by the alterations, when compared to those of higher wealth. That is, an increase in the price of education will consume a larger portion of the relatively poor individuals wealth. This notably, is not an immediate problem, as students do not have to pay fees instantly through the CSP. However, despite the equity impact mentioned, there may be impacts on study incentives. Considering an individual who foresees higher costs of undertaking flagship tertiary education, it is logical that they are more willing to consider alternative forms of education, such as TAFE or a less impressive profession. Obviously many students are likely to value education highly regardless, and foresee the ability to pay fees off in the future as a mitigating factor regarding the disincentive, yet it is likely that individuals teetering on the margin may decide not to partake in elite higher education (Croix, 2007). However it is also noted that, despite incentive problems, education has been found to be rather price inelastic in demand (Chitiyo, 2008), suggesting that there may be an insignificant change in demand for more expensive flagship courses. There are significant consequences of such, including a further increase in inequity; where higher fees promote a wider gap between the wealthy and the not so wealthy.

 

There are also logical consequences regarding International students and their demand for Australian education. A major factor that influences demand for Australian study is naturally the price of study. According to a HSBC report, Australia is already the most expensive country for education, hence with price increases; studying within Australia may become even less attractive to international students. This is significant as foreign students account for a minimum of an estimated 27.1% (Victorian department of education, 2014), of total students at Victorias leading universities, and further account for around 200,000 students in Australia (Australia Universities, 2016). And hence falling demand for Australian course by international students may have significant impacts on the success of Australian universities. Now, logically, universities would not raise prices by such a degree as to reduce international demand, yet, any fall in international demand would reduce the additional economic benefits from international students; i.e. the expenditure required to live in Australian whilst studying (accommodation, meals etc.).

Chitiyo, G. (2008). Demand for public higher education: An econometric study of price and financial aid in the united states, (2003–2005) (Order No. 3339057). Available from ProQuest Dissertations & Theses Global. (250822485). Retrieved from http://search.proquest.com.ezp.lib.unimelb.edu.au/docview/250822485?accountid=12372

Collett, J. (2016). Paying uni fees upfront v taking a HECS loan. News.com.au. Retrieved on 12/05/16 from http://www.smh.com.au/money/paying-uni-fees-upfront-v-taking-a-hecs-loan-20160128-gmfrrp.html

 

Croix, D. d. l., & Docquier, F. (2007). School attendance and skill premiums in france and the US: A general equilibrium approach*. Fiscal Studies, 28(4), 383-416.

Department of Education and Training, Australian Government. (2016). Driving innovation, fairness and excellence in Australian education. https://docs.education.gov.au/documents/driving-innovation-fairness-and-excellence-australian-education

Eltham, B. (2016, May 3). The University of Sydney’s Quadrangle (IMAGE: Andrea Schaffer, flickr) BUDGET 2016: Vice-Chancellors Humiliated As Deregulation Dropped But Funding Cuts Renewed. Australia.

 

HSBC. (2014). Australia the most expensive country for education, HSBC report. Retreieved 12/05/2016, from http://www.about.hsbc.com.au/news-and-media/australia-the-most-expensive-country-for-education-hsbc-report

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