UK university funding: don’t copy the Australians

As costs soar for students Down Under, England should be even more wary of following the country’s lead, says Rachel Wenstone

May 22, 2014

Source: Patrick Welham

Australia’s higher education funding system hit the news again last week, after a major shake-up of funding was announced in the federal budget, including the uncapping of tuition fees and the lowering of the public contribution towards teaching costs.

Earlier this month, the Higher Education Policy Institute produced not one but two reports comparing the English and Australian funding systems and suggesting that the former could learn some significant lessons from the latter. Perish the thought.

The Hepi reports came soon after an analysis by the Institute for Fiscal Studies, commissioned by Universities UK, said that trebling fees had saved the taxpayer less than £400 a year per student. UUK responded by setting up a commission on university finance.

The IFS report amplifies what the Public Accounts Committee and many others have been saying for some time: that the current higher education funding system is now on the verge of being more expensive than the one it replaced. I hate to say “we told you so”, but on this occasion, I cannot resist – particularly when I recall the chorus lined up against us in 2010 to parrot the deception that the tripling of tuition fees was about saving public money, or that it offered a lifeboat to rescue the sector from sinking financially.

Nothing can now disguise the political naivety and opportunism of those who dogmatically thrust this nonsense upon us. You will likely remember that, in 2012, deputy prime minister Nick Clegg made his famous non-apology for making – rather than breaking – his tuition fees pledge, saying he “shouldn’t have committed to a policy that was so expensive when there’s no money around”. Even that pathetic excuse no longer holds water.

But fear not: UUK’s motley crew of vice-chancellors, policy analysts and captains of industry will rub their little grey cells together and solve the problem of student funding once and for all – no doubt with fee escalators and interest rate lifts – piercing the ballooning proportion of student debt that will never be repaid (known as the RAB charge), currently estimated by the government to be 45 per cent.

But Hepi’s suggestion that there are lessons to be learned from Down Under is particularly misguided. The thinktank’s more detailed report suggests that English students could afford to pay back their loans more quickly. For example, it notes that a graduate on a salary of A$54,000 (£30,000) repays A$225 (£125) a month in Australia, compared with just £67 in England.

Higher repayment rates could be achieved in England, the report suggests, by mimicking Australia’s practice of extracting repayments from graduates’ total incomes once they have surpassed the repayment threshold, rather than drawing only on the proportion above the threshold, as happens in England. This means that, in Australia, a small increase in annual salary to just over the current threshold of A$53,345 could lead to a sudden A$2,134 annual liability.

Doubling the monthly repayment for those likely to be struggling to save for a deposit on a home or to pay for the rise in their rail season ticket is hardly likely to be a popular policy. And creating such a “cliff edge” in repayments is likely to create a range of perverse incentives and distortionary effects in the labour market, suppressing wages.

These seem pretty desperate measures to adopt. As London School of Economics researchers Gill Wyness and Richard Murphy stated in The Guardian last month in response to Hepi’s report, if the UK government really wants to lower the RAB charge, it could do so by lowering fees, or it could reduce it to zero by abolishing fees altogether. As the Hepi report points out, a significant factor in Australia’s lower RAB charge (around 25 per cent) is its lower tuition fees, which result in lower student debt.

But that could all be about to change. Despite the fact that the cost of student loans in Australia has increased enormously in recent years, the country’s right-wing government has decided to pass on even more of the cost of tuition to students. From 2016, Australian universities will be allowed to charge whatever fees they like, while the government’s contributions to the cost of tuition will fall by about 20 per cent. Furthermore, the repayment threshold will fall by nearly A$3,000 to A$50,638 and graduates will be charged a higher rate of interest based on what it costs the government to borrow.

On the face of it, it’s no wonder that Australian students have dubbed it a “horror budget”. Although we don’t know how unleashing the market will play out in Australia, some observers are predicting that Australians could graduate from the country’s most prestigious medical school with debts in excess of A$200,000. This is emphatically not a path England should follow.

When will someone be brave enough to stand up and admit that tuition fees are one of the great public policy errors of our age? Why doesn’t Hepi urge British policymakers to look at Germany, where tuition fees have just been scrapped less than 10 years after their introduction?

It is time to admit that the coalition’s whole funding model has hit the rocks. Efforts to rearrange the deckchairs on Lord Browne’s yacht need to be abandoned and a radical course set away from the iceberg of tuition fees.

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