Education is the gateway to social mobility. It enables people to learn new skills to get jobs they would like and makes them more productive while doing them. Education qualifications also acts as a signal to employers to sort suitable workers from those unsuited for the job.
But education also plays a role in the flourishing of a citizenry and the vibrancy and resilience of a democracy. A good education system should endow citizens with capabilities that afford them the opportunity to choose a life they have reason to value. Naturally, for education to fit this role in a meritocracy it must be a level playing field and accessible to all.
The desire for ‘free education’ in the university sector springs forth from these lofty ideals. To ensure equality of access, the price of education must be zero. Or so the proliferators of a ‘free education’ policy would presume. But is free university education more equitable than HECS-HELP?
HELP does not have to be repaid until a graduate exceeds an income threshold of $53,345. Above this point repayments are made at a rate of four per cent – about $40 a week. The commercial cost of the loan is subsidised by the Government and artificially indexed at CPI so there is no real interest rate. University graduates are approximately one million dollars better off over their lifetime than a person that only completed high school.
The price of entry for a degree, without taking into account the opportunity cost of studying, is zero. Graduates that never receive a pecuniary benefit above the repayment threshold have their debts written off at the end of their life. Education economist Bruce Chapman has found that HELP, as it currently exists is not a barrier to entry for students from disadvantaged backgrounds.
There are other barriers to the disadvantaged though. Primary and high school performance is the most important determinant of a student enrolling in university. Lacklustre investment in the public schooling system makes it even more difficult for disadvantaged students to make it on to higher education. A lack of role models with university qualifications is also a factor that can impede on the educational hopes of the disadvantaged.
There is also a very real issue of living costs and other costs associated with getting a degree. The cost of living may deter some disadvantaged students, for others they may have to supplement their income by working part-time and reducing the amount of time they have to study. This suggests that more targeted forms of assistance may be needed to solve access issues.
HECS-HELP proves to be more equitable than the ideal of ‘free education’. Only 25 per cent of Australians have a university education. This means if free degrees were brought back, the taxes of 75 per cent of the population that are not graduates would be used to fund the income augmenting qualifications of the other quarter. With a bachelor making students one million dollars better off over their lifetime compared to workers with only year 12 education, there is an obvious issue of fairness here. With HECS-HELP students contribute a part of the cost of their degree. This was introduced broadly for the fairness reasons outlined above.
Yet there are both measurable and immeasurable public benefits from students undertaking a university degree. The Government still subsidises more than half the cost of a CSP degree on average. There is a convincing case grounded in basic welfare economics that graduates should be compensated for the positive spill overs created by their educational attainment. Yet with the large private advantages of a university degree, students would still be motivated to pursue higher education even with lower subsidies.
In political discussion there are two commonly overlooked areas which are setting the agenda and setting the terms of the current higher education debate. The Coalition won the last federal election in part by setting the agenda as the budget and the terms of the debate as debt and deficit. However now in government the discussion has not been in their favour, the terms of debate around university deregulation has been about the impact on students, forcing the Coalition into an uphill battle and enabling populist rhetoric to easily combat them. While Bruce Chapman has warned about the dangers of deregulation and changing the repayment rate to the bond rate, there may still be a case for HECS-HELP reform.
With HECS-HELP being based on estimated future earns irrespective of course costs, there is a disjunct between expensive but mildly beneficial courses and cheap but beneficial courses in terms of profits or losses. There is room to reform HECS-HELP to address the cost of courses. Universities have restructured their operations to attract international students. In some cases this has meant other courses are removed, regardless of how profitable they are. Alongside this are international students that pay high fee premiums that end up cross-subsidising domestic students as well as other activity such as research. There is no clear case for the Commonwealth to subsidise international students, but there is also a fairness issue here. They should pay their own way and no more.
It is not unreasonable or inequitable to ask domestic students to pay a bit more for their degrees. Graduates get high private benefits from undertaking a degree. Still there must be provisions to ensure there is access for lower SES and the system maintains a CPI based income contingent repayment scheme. But any increase in fees must be proportionate to the services the university delivers. Regardless of what happens to higher education, we need a discussion beyond rhetoric or populism. The left should be willing to acknowledge the equitability of HECS-HELP and the right must look beyond markets and deregulation for universities.