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Leading economist Bruce Chapman says the government’s plan to raise fees for certain courses won’t drive students into more ‘job-relevant’ degrees. By Mike Seccombe.

Uni fee hike will fail: HECS architect

It took a comedian to ask the serious question that exposes the fundamental flaw in the government’s radical new model for university funding.

Tommy Little, panellist on the Ten Network’s The Project, took issue with the main reason advanced by the government for cutting student fees for some university courses, while sharply increasing them for others – that it would shift demand towards areas of expected employment growth, such as teaching and nursing.

Little put it to Education Minister Dan Tehan that a modest cut in the fees for nursing and teaching degrees – a little over $3100 – would not do much to encourage more people to take them up.

“We have plenty of nursing and teaching graduates who then don’t go into those fields, because the pay is undesirable,” he said. “Shouldn’t the focus be, instead, making those wages better?”

Tehan ignored the substance of the question, so Little tried again: “As I just mentioned, it’s not the price of the degree that is stopping people going into nursing and teaching, it’s the pay rate. So, if you’re lowering the price of the degree, that doesn’t matter.”

The minister insisted it did, and shifted blame to the state governments for the low pay for teachers and nurses.

But Little was right, according to Bruce Chapman, the eminent Australian National University economist and architect of Australia’s Higher Education Contribution Scheme (HECS).

Course costs make almost no difference when students are deciding what to study, Chapman says.

So he expects the Morrison government’s attempts to encourage people into some courses – such as the aforementioned teaching and nursing, agriculture, as well as science, technology, engineering, maths and information technology – and away from humanities and social sciences by changing their cost to students will fail.

The empirical evidence from past changes to the absolute and relative costs of degrees, in Australia and elsewhere, bear him out.

“There were some big changes in 1997, across disciplines,” Chapman says. “We didn’t see any effect in the data. We saw no effect on socioeconomic participation.”

Likewise, in Britain, when the conservative government trebled the cost of some courses, per student, per year, “there was a blip, a one-off fall in applications, and after that, everything went back to the way it was”.

“What we call the price elasticity of demand for education is very, very low,” says Chapman.

And all the more so because of the income-contingent loans scheme he designed, which allows students to defer paying the cost of their degrees until they are in a position to afford to do so.

When HECS was introduced, some 30 years ago, the very intention was to ensure fees “didn’t affect people’s proclivity to enrol” in whatever course they wanted.

Chapman plucks a random number to illustrate why this is the case. Suppose the cost of a degree, and therefore the debt owed by a student under HECS – now the HECS-HELP, for Higher Education Loan Program – of a student goes up by $20,000.

“That doesn’t change the amount you have to pay in any year. It changes the number of years over which you pay it,” he says.

“Say you’re 20 years old, and you’re expecting to pay your debt off over 10 to 12 years. A $20,000 increase might add three to four years. So, you’re asking how they feel about something that’s going to happen in 14 years’ time, involving about 5 or 6 per cent of their income for three or four more years,” he says.

“In economics, there is this concept called ‘discounting’. It means anything in the future seems less important, and so income-contingent loans are not very price sensitive.”

Chapman says that given this imagined student may earn $4 million over a lifetime, the extra $20,000 is tiny.

That said though, he adds the caveat that the proposed fee changes – particularly the enormous hikes of up to 115 per cent for some courses – are “the biggest we’ve ever seen” and come at a time of extraordinary economic circumstances.

Still, he says, “my judgement is that there will be very small behavioural changes”.

 

Other experts are more concerned about the consequences of the price increases.

Professor David Peetz of the Department of Employment Relations and Human Resources at Griffith University, for one, says the cost might discourage students from lower socioeconomic backgrounds from enrolling.

Despite the government’s claiming its intent is to “incentivise students to make more job-relevant choices”, there is little to suggest they are not doing so already. Arts and humanities graduates, says Peetz, actually do pretty well for jobs and income. “There’s no evidence, really, of there being a surfeit of arts graduates,” says Peetz.

In reality, says Peter Hurley, education policy fellow at Victoria University’s Mitchell Institute, “there are parts of the STEM field where there are higher levels of unemployment than among people who undertake a humanities degree”.

When it comes to pay and employability, between those disciplines the government is seeking to encourage through its course fee changes and those it seeks to discourage, Hurley says “it is very much at the margin”.

“Maybe they genuinely believe that this will help the employability of graduates,” he says. “It’s just that I don’t think that’s borne out by the data.”

The big difference, says Hurley, is between those who have a post-high school qualification and those who do not.

The more logical goal then would be to get more people into higher education, which the government says its reform package will do. It promises an additional 39,000 university places by 2023, and 100,000 places by 2030.

But, as the scheme’s numerous critics point out, it intends to do this by shifting the costs of university education from government on to students and universities – and from some students to others.

This brings the prospect of what University of New South Wales vice-chancellor Ian Jacobs described, in a message to all staff on Monday, as a “perverse financial incentive” that could see universities actually decrease training for the very disciplines the government is trying to encourage.

“For science and engineering degrees, both the government and student contributions are decreased – leaving a burden of about $5000 per student per year for universities to absorb,” he wrote.

“For a university like UNSW, that amounts to an impost that will run into the tens of millions of dollars each year.”

Conversely, the proposed changes would encourage universities to train more students in the humanities, law, economics, management and commerce, where the overall fees they receive will increase.

Take a humanities degree, for example, which is relatively cheap to teach. Under the current regime, the government contributes $6226 per student, while the humanities student pays $6804. Under the new structure, the government contribution would be just $1100, while the student would pay $14,500. The total received by the university would increase by $2570.

“You’ve got competing price signals being sent,” says Dr Gareth Bryant, a political economist with the Sydney Policy Lab at the University of Sydney.

“The price signal being sent to students encourages them to enrol in STEM subjects, teaching, nursing, et cetera, because they have lower fees now. But you’ve got the opposite price signal being given to universities, because what they’re interested in is … the total revenue they receive per student.”

The government’s response to this unintended consequence has been to set up a new “integrity unit” in the Tertiary Education Quality and Standards Agency to investigate, and possibly take action against, any universities that enrol large numbers of students into those now-profitable $14,500-a-year courses.

Which is to say, they are threatening universities if they respond to student demand. And there is no doubt demand for tertiary education is growing fast, and about to grow much faster.

In a piece she wrote last July, the chief executive of Universities Australia, Catriona Jackson, recalled former treasurer Peter Costello’s words of encouragement to Australians to produce more children: “have one for mum, one for dad and one for the country”.

Whether because of that entreaty, or the baby bonus that went with it, they did, throughout the 2000s. And now those children are reaching university age. Universities Australia estimates there will be 60,000 more 18-year-olds by 2030 than there are now.

Coronavirus will also see increased demand for university places, as young people respond to high unemployment, and the impossibility of travelling overseas, by studying. Education Department calculations suggest that could mean 20,000 extra young people seeking university admission next year.

Andrew Norton, professor of higher education policy at the ANU, credits the government for at least recognising the need to increase student numbers, which had been capped in 2017.

“Unfortunately, though, the government has created a very complex package, which is going to outrage lots of people and may well not achieve their jobs objectives in any case,” he says.

 

There are other criticisms, too, of the new fee structure.

Centre Alliance’s Senator Rebekha Sharkie says the costs will fall disproportionately on women. Even though fees will decline by about $3000 for female-dominated courses such as education and nursing, in arts and humanities with higher fees, female students outnumber males by about two to one.

There is a bigger issue Sharkie and others identify as well, which goes to the purpose of universities, and whether that is broader than just vocational training.

The benefit of the arts, humanities and social sciences, says Alison Barnes, national president of the National Tertiary Education Union, is that they encourage people to be able “to think critically, to analyse issues”.

And, says Sharkie, the humanities are a civilising influence that broadens our understanding of society.

Clearly, though, the Morrison government largely sees the value of tertiary education in terms of the workforce and the economy.

But, as Professor Margaret Gardner, vice-chancellor of Monash University, told ABC Radio this week, our collective future is “not only workforce, but our future citizens”.

This article was first published in the print edition of The Saturday Paper on Jun 27, 2020 as "Uni fee hike will fail: HECS architect".

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Mike Seccombe is The Saturday Paper’s national correspondent.