Cost of a degree with deregulated higher education

The changes to higher education regulation and funding announced as part of the 2014-15 federal budget represent the end of Australia’s public higher education system as we have known it since Labor Education Minister John Dawkins introduced the unified national system in 1989.

The changes will also bring an end to a public higher education system where students gained entry into a Commonwealth Supported Place, or CSP, at an Australian university based on academic merit. Under the current arrangements, the level of funding a university receives for each CSP comprises a government amount and a capped student contribution.

In the new deregulated higher education market to operate from January 2016, the existing limits on the amount a university or other provider can charge a student with a CSP will be removed.

From that point, universities and other providers will be allowed to charge students whatever they think the market will bear while students enrolling from 14 May under the current regime will also face the new charges from the start of 2016.

Changes to government contributions

There is no doubt that average tuition fees to study at Australian universities will increase as a result of the changes announced in the budget.

Universities will almost certainly be forced to increase student fees to compensate for a 20% reduction in the level of government funding per CSP, and A$1 out of every A$5 of increased student fees must be put aside to fund what are misleadingly called ‘Commonwealth’ scholarships.

The minimum or break-even changes in fees as a consequence of these regulatory changes mean that, on average, universities will need to increase student fees by 33.6% simply to maintain the same level of funding from the government’s contribution and that of each CSP student.

Student contributions to cover tuition fees will increase by as much as 72% for those undertaking a social studies degree. This would equate to an increase of just over A$13,000 (US$12,100) for a three-year degree.

Other disciplines which will experience significant increases in fees just to compensate for these regulatory changes include engineering and surveying, up by 66.8% or an extra A$23,000 over four years; visual and performing arts, up 55.7% or A$10,000 over three years; agricultural studies, up 45.4% or A$12,000 over three years; and medicine, dentistry and vet science, up 38.8% or A$20,000 over five years.

In some cases there has been a substantial increase in the government contribution, with the most notable example being mathematics and statistics. In these cases, the funding changes would make it possible for universities to reduce fees by almost 30% and still retain the same level of total funding.

Clearly the government does not believe lower fees will attract students to these degrees, noting that they also discontinued discounts for these degrees in 2012 on the premise that they were not a cost-effective way of increasing enrolments.

Impact of fee deregulation and competition

The regulatory changes will not be the only impact on the cost of a university degree after 2016.

Removing limits on the fees universities and other providers can charge students as well as competition from non-university providers, including public technical and further education colleges and private non-university providers, will also influence the cost of obtaining a degree.

While it is impossible to determine the impact of unregulated prices and competition, one can make an educated estimate based on factors such as the relative popularity of different degrees:

• • The more popular the degree, the higher the price.
  
• • The levels of income students expect to earn from different types of qualifications – the higher expected income, the higher the price.
  
• • The likely level of competition from non-university providers based on the costs of delivering a degree and the need to obtain professional accreditation – the greater the level of competition, the lower the increase in price.

What seems certain is that prices will differ between universities and within disciplines.

For example, there may be some small pockets of specialisation within certain health, engineering and information technology courses where prices will differ considerably from other programmes in the same broader discipline group.

Relatively high fee increases in law, medicine and engineering will not only be a direct result of the potential earning power of graduates, but also since universities are unlikely to face an immediate increase in competition from other providers because of the cost of establishing such degrees and the difficulty in obtaining professional accreditation.

On the other hand, the cost of accounting and commerce degrees may not increase greatly because of the considerable competition between the public universities and non-university providers. The limited popularity of other degrees is also likely to mean lower than average increases in fees.

Student debt

The changes to higher education funding and regulation will not only impact on the tuition fees students will face but also on the cost of servicing that debt if they choose to take advantage of the income contingent Higher Education Loan Programme called HELP, also commonly known as HECS.

The budget changes announced to HELP were not limited to lowering the threshold by about A$5,000 at which students have to start repaying their debt when they graduate.

More importantly, they impose a market-determined rate of interest based on the 10-year government bond rate on outstanding HELP loan balances. These changes, together with the anticipated increase in student fees, will have a dramatic effect on the cost of obtaining a university education in Australia after 2016.

The National Tertiary Education Union, or NTEU, has undertaken modelling to demonstrate the financial impacts of these changes.

We compared the cost of servicing HELP debts for a student completing an accounting degree under the existing capped price of A$30,255, indexed by increases in the consumer price index with no real interest, with that of the same student doing the same degree but paying A$75,000, the midpoint of range of the likely new charges, and paying the new interest rate on their outstanding HELP debts.

In real 2014 values and ignoring the effects of inflation, someone enrolling in a three-year accounting degree under the current pre-budget arrangements would pay a total of $30,255 and take 10 years to repay their debt with no real interest.

However, the same student enrolling in the same three-year degree might expect from 1 January 2016 to pay in real 2014 values A$75,000 in tuition fees and, over 23 years, repay a total of A$99,000 including A$24,000 interest.

The inequity of these changes cannot be overlooked. While students from better-off families might be in a position to pay their fees upfront and avoid the interest charges, students from disadvantaged backgrounds will not be able to do so.

The highly unfair and pernicious nature of the new HELP arrangements is even more starkly demonstrated by the impact they will have on graduates who take a break in their careers, for example, to care for family members.

A graduate with the same degree and broad income trajectory, but who takes a break of eight years and transitions back into work over another three by working-part time, will take 36 years to repay their HELP debt, will pay a total of A$120,000 in HELP repayments (in 2014 values) and about A$45,000 in real interest.

It is clear that the introduction of real interest rates on outstanding HELP debts not only significantly increases the cost of servicing student debt, but that it is patently unfair on those who elect to have career breaks. This means the new arrangements have a built in bias against graduates with carer responsibilities, mainly women.

It is curious that Prime Minister Tony Abbott wants to encourage working Australian women to have children with the introduction of a generous paid parental leave scheme while his Education Minister Christopher Pyne is imposing a massive disincentive for women graduates to take any break in their career.

These changes to the funding and regulation of Australian higher education will result in:

• • A minimum average increase in university tuition fees of at least 33% just to compensate for reductions in government funding and the introduction of a new student funded scholarship scheme.
  
• • Tuition fees for some degrees reaching or exceeding A$100,000, especially for degrees such as medicine, law, engineering, and management and commerce.
  
• • Real interest charges on HELP debts becoming highly inequitable because students from disadvantaged backgrounds will not be in a position to pay their fees upfront.
  
• • The changes to HELP being especially unfair for graduates who elect to take career breaks, which means a strong bias against women.
  
• • The size and cost of servicing student loans becoming the equivalent of a second home mortgage.

* Paul Kniest is the policy and research coordinator for the National Tertiary Education Union in Australia. This is an edited version of a paper published by the NTEU.

COMMENT

This is the worst move in the history of Australian higher education. I would never have studied my grad degrees in Australia if I was only just finishing now. The only hope is that the budget gets blocked in the senate.

Christopher Weir on the University World News Facebook page