The Parliamentary Budget Office’s (PBO) report on the future cost of the Higher Education Loans Program (HELP) highlights the contradiction at the heart of the Liberal Government’s plan to deregulate university fees.
The Government tries to argue that cutting subsidies for undergraduate places by 20 per cent and allowing universities to charge whatever fees they want is necessary because higher education has become too great a burden on the Commonwealth Budget.
What the report shows, however, is that implementing the Government’s plan would be the worst possible course of action if the aim is responsible Budget management.
The amount of outstanding HECS debt would blow out massively, potentially making the whole HELP system unsustainable. The PBO report estimates that within 10 years the annual cost of HELP loans – now $1.7 billion – will have risen to $11.1 billion, accounting for 46 per cent of the nation’s public debt.
The report finds that the growth to 2026 will be “driven mainly by the projected increases in student fees from 2017 due to the [Abbott-Turnbull Government’s] announced higher education reforms”. In other words, it is the Government’s own policy that would cause the problem.
This is not surprising. The Government’s own Regulation Impact Statement confirmed that “the potential increases to tuition fees for bachelor degrees will also increase the initial debt levels for students”. However, it failed to provide any analysis of the long-term impact of increased student debt on the Commonwealth Budget or the sustainability of the HELP system. Had it done so, it may have reached a very different conclusion regarding the impact on the Budget’s bottom line, just as the majority of Senators did when they listened to the experts.
What much of public commentary on the PBO report has failed to note, however, is that the blowout would almost certainly be much worse than the PBO is predicting. That’s because the PBO analysis is based on an extremely conservative assumption about how a deregulated system would work: that universities would raise fees by an average of 40 per cent to compensate for the funding cuts, with subsequent annual increases of 2 per cent in real terms.
The Liberals’ plan, as unveiled in the 2014 Budget and reaffirmed this week by the Education Minister, Simon Birmingham, allows for complete deregulation of fees. Universities would be allowed to charge whatever they like, and there is no doubt the result would be substantial fee hikes leading to out-of-control HELP debt.
Independent analysis, such as that undertaken by the National Centre for Social and Economic Modelling (NATSEM) at the University of Canberra, has consistently found that fees for many courses would double and treble under deregulation. Because students don’t have to pay upfront – due to our world-leading income contingent loans scheme – there is nothing to stop universities charging domestic students the same as they charge international students, minus the reduced Commonwealth contribution.
That’s why the prospect of $100,000 degrees, which the Government tries to dismiss as a scare tactic, is very real indeed. According to NATSEM analysis, medical, veterinary, dental and optometry degrees would all cost more than $100,000. In other fields, nursing students, who currently pay about $6,300 a year, would be charged more than $12,000 a year under deregulation. The cost of a three-year arts degree would skyrocket from less than $20,000 to almost $50,000.
The experience of deregulation abroad backs up this analysis. It demonstrates that higher education markets do not function according to textbook theories. There is no competitive pricing.
In the UK, fees were partially deregulated in 2012 with a cap of £9000. The Government made assurances, as the Abbott-Turnbull Government has, that smaller and less established universities would be able to compete for enrolments by charging lower fees.
Yet in the present academic year, only two of the UK’s 123 universities do not charge £9000. The outcome is not surprising, because in higher education price becomes an indicator of quality. British universities that initially charged less suffered because they were perceived to be inferior.
That is what happened in a market where fee rises had an upper limit (which the Tories are talking about hiking again). What would we see in Australia, if the Liberals get their way and remove the cap completely? Simply put, the most established universities would charge as much as they think the market will bear, and other institutions would have no choice but to fall into line behind them.
So the blowout in HELP debt predicted by the PBO would actually turn out to be wishful thinking. The reality would be much worse. Just as it has been in the vocational education and training sector, where VET FEE-HELP debt has already exploded on the Liberals’ watch.
The bottom line is that shifting the burden of paying for higher education to students, as the Liberals propose, would very quickly rebound on the taxpayer. It’s a fiscally reckless policy, on top of being an unfair and unnecessary burden on students.
By contrast, Labor has a plan for sustainable funding for Australian universities without the need for massive fee hikes. And our plan is fully funded. It’s the Liberals’ plan for $100,000 degrees that threatens the Budget bottom line.