Tuition fee overhaul ‘would save Canberra money’

Australia’s government could save itself up to A$200 million (£105 million) a year by reforming tuition fees to make them fairer, according to modelling by the architect of the country’s widely emulated student loan scheme.

Meanwhile another study, by a former higher education policy chief in the federal civil service, argues that it would be fairer and more effective to charge every student the same.

The two papers, published within days of each other, have added to a chorus of demands for an overhaul of the Job-ready Graduates (JRG) scheme of tuition fees and teaching subsidies.

JRG magnified fees for many humanities subjects, imposing the largest tuition debts on graduates likely to have the least capacity to repay. The Australian Universities Accord recommended replacing the scheme with a fee scale based on projected lifetime earnings. The federal government agrees with the recommendation but is yet to implement it, citing cost.

A study published in the Australian Journal of Labour Economics, co-authored by loan scheme designer Bruce Chapman, argues that implementation could save Canberra money by improving debt repayment and trimming the “interest rate subsidies” – the proportion of the interest-free loans effectively borne by the government.

Chapman and his co-authors modelled the effects of reorganising fees into four bands approximately reflecting anticipated lifetime earnings, from A$8,000 a year for students in fields including nursing, creative arts and biological sciences, to A$14,000 for law, dentistry and medicine.

The modelling suggested that debt repayment durations would contract by at least 20 per cent for humanities graduates, while average interest rate subsidies across all disciplines would be cut by almost two percentage points.

Universities would not lose out, because changes in fees would be offset by changes in teaching grants, but government expenditure overall would be marginally lower because average teaching grants would shrink slightly.

The authors stressed that their work was intended as an “illustration” rather than a policy recommendation. “There are many ways that…price bands could be set. Our objective [is] presenting a transparent methodology.”

However a separate paper, by policy veteran Mark Warburton, argues that anticipated lifetime earnings are a poor basis for setting fees because they “gloss over” huge variations within disciplines.

Warburton’s analysis found that in almost all fields of study, about 30 to 40 per cent of graduates were high-income earners – typically men in senior positions. But all disciplines except medicine had plenty of graduates attracting average or slightly above-average salaries, and a “sizable proportion” earning less.

Gender had a huge impact on earnings disparity. Estimates for most disciplines are “heavily influenced by…older men” and “poorly reflect women’s earnings patterns”, Warburton found.

He said basing fees on field of study seemed “plausible” but had “never been subject to adequate scrutiny”. A flat annual fee for all disciplines would be simpler, fairer and probably more effective.

Warburton said a fee of A$10,847, with commensurate adjustments to teaching subsidies, would mean that the government expended no more and universities received no less than under current arrangements. Fees would rise for about two-thirds of students and fall for one-third, but would be fairer overall.

The government could opt to pay more, he noted, estimating that each A$100 reduction to the annual fee would cost taxpayers about A$53 million a year.

Graduates on high incomes would contribute more by repaying their loans earlier and attracting less interest rate subsidy from the government, he said. But mainly, differences in graduate earnings would be accounted for by Australia’s progressive tax system.

“The [purpose of the] student contribution system is to help fund higher education, not to play a significant role in the redistribution of income,” Warburton argued. “Most of the work in redistributing income in our society is done by the taxation and social security systems.”

While the two papers draw starkly different conclusions, both support the feasibility of a fee overhaul – something the government has deferred for at least a couple of years, pending a working group’s analysis of higher education costing. “There is no reason to delay fixing the scheme,” Warburton insisted.

“The unjustifiable inequities of the JRG scheme need to be removed. Arguments for the delay in fixing them are simply obfuscation.”

john.ross@timeshighereducation.com