Australia cautioned against breaking its university funding system

IT IS meant to give Australians the best start in their careers but a controversial plan to shake this system up could do more harm than good.

Generic photo of model as student on campus at the University of Sydney.

IT WAS Budget night 2014 and Professor Bruce Chapman, the man credited with inventing HECS, went to the lock-up fully expecting it to be a “bit of a bore”.

“When we heard the announcement about the planned policy reforms, I don’t know what the sound of what one hand clapping is, but I do know what the sound of three jaws dropping was,” Prof Chapman recalled.

Prof Chapman attended the Budget lock-up with two colleagues who had both worked in the office of former Treasurer John Dawkins, responsible for one of the biggest shake-ups of tertiary education in Australia, including the introduction of HECS. But those reforms paled in comparison to what the Federal Government proposed in 2014.

Prof Chapman, who spoke at a forum on university financing at ANU last week, said he had been modelling various parts of the university financing system for 25 years or more. The Abbott government’s plans were so radical he had never even considered them.

“(We) had never modelled any of this because we thought the likelihood of it ever happening were close to zero,” he said, calling them the “most radical suggested reforms to Australian higher education” ever.

The plan to deregulate university fees was rejected by the Senate, but Prime Minister Tony Abbott says he will not give up on the reforms, insisting they are necessary if Australian institutions are to flourish.

Other experts are not so sure, and one US academic is concerned Australia could do more harm than good by pressing ahead.

YOU MIGHT DEFINITELY BREAK IT

Despite initial support for deregulation among Australian universities, there has been more scepticism about whether student fees should be deregulated, particularly if aimed at improving Australia’s ranking on international tables.

This week it was revealed that Australia now has more than half of its public universities listed in the prestigious Academic Ranking of World Universities, and four universities in the top 100.

Experts at the ANU forum also expressed concerns that universities would be encouraged to chase profits rather than educate students.

Professor Susan Dynarski of the University of Michigan in the US said it was unclear why the reforms were needed.

“What problem are people trying to fix?

“If the goal is to get more money — and I haven’t seen any evidence there’s insufficient funds for teaching ... it seems to be getting more funds for research ... that would cost tax dollars and people don’t want to spend money.”

During the forum Prof Dynarski provided “gory details” of the problems in the US system, which had seen student debt double between 2001 and 2011. There was now a push to implement elements of the Australian HECS/HELP system to address some of the issues.

Meanwhile, the Federal Government wants to cut university funding in Australia by 20 per cent and allow universities to make up the shortfall by deregulating student fees. Allowing universities to increase fees would also enable it to put more money into research, which is the measure largely used to rank universities.

“It seems like what would really need to happen is a more robust system for funding research, and the grown-ups should sit down and agree to that rather than dumping (the expense) on to the kids,” Prof Dynarski said.

“This place doesn’t seem to be broke so don’t try to fix it too much because you might definitely break it.”

NOT EVERYONE CAN BE HARVARD

Prof Dynarski told news.com.au not every university should strive to be a research university, and this could actually undermine the value of great teachers. She said Australia should also not be afraid of creating a two-tier system, where some institutions provided PhD programs, and others focused on providing students with a more practical education.

For those that did aspire to be among the world’s best, hiking up student fees was not necessarily the way to achieve this.

“You don’t fund excellent universities with student pricing,” Prof Dynarski said.

In fact, fees charged at Harvard, the world’s highest ranked university, can be similar to other private institutions in the US.

Despite the high fees, some of those private institutions were seen as focused on profit with only 5 to 10 per cent of their students graduating.

If you want to make money, it’s probably better to fail students in their first year of uni.

Research at Harvard is also partly funded by its huge endowment fund, which is the second largest in the world, beaten only by the Catholic Church. Money for the fund is largely donated by former students.

Incoming ANU vice-chancellor Brian Schmidt said Australia’s university funding system had worked in the past but had become distorted.

“Why should students fees be paying for research? I don’t think students are necessarily

getting good value for their tuition dollar because of that distortion,” he said.

“We want to sustain a world-class research program at our universities. One way to do that is to pay the full cost of research; that’s how almost every other OECD nation does it.”

He agreed that Australian universities should not aim be carbon-copy models of each other.

“We need to train high-flying academics, we also need to populate with highly skilled workers ... we need to have diversity because not everyone wants to be exactly what I want.”

A CAUTIONARY TALE

Prof Dynarski gave “gory details” of the problems in the US system, which had seen student debt double between 2001 and 2011.

Despite some scary press, US students actually come out of higher education with a similar level of debt to Australians. About 40 per cent had student loans of less than $10,000 and just 3.7 per cent of borrowers had debt greater than $100,000.

But in contrast to Australians, an increasing number of Americans were defaulting on their loans with damaging consequences for their ability to get future loans or access rental properties.

This is partly because US students have to pay their debt back within 10 years, and at the same flat rate, regardless of how much they earn. There is now a push for the US to adopt some aspects of the Australian system instead.

The US is also struggling to deal with private institutions which seem more interested in making money than educating students, some of these have graduation rates as low as 5 or 10 per cent.

There were also lessons from the British system, with one UK expert confirming what many suspect — that if there is no incentive for universities to keep fees low, they will always charge the maximum rate allowed by the government.

Professor Lorraine Dearden of London’s Institute of Fiscal Studies, said when the UK government put up its fees in 2012, almost every university charged the maximum rate.

This is partly because universities essentially have nothing to lose, if students can’t pay their debts then it’s the government that suffers, not universities.

There were also lessons for the Abbott Government if it goes through with its deregulation plan to offer 50,000 scholarships to disadvantaged students.

The UK government had to withdraw its £150 million ($AU 317 million) scholarship program because it was non-transparent and provided to students who were chosen by universities. Applicants were only told if they successful once they had already got in to an institution, which did not improve access for disadvantaged students.

Prof Dearden was also scathing of the lack of information available to students about graduation and salary outcomes of different institutions. Her research found that public information provided to students could be very different to data she requested directly from universities.

“I think it’s scandalous that students aren’t told this,” she said, adding that if governments wanted a true market system, this information should be made available to students so they could make informed choices.

But while the Australian university system can seem good in comparison, it seems domestic students are not thrilled by its institutions.

ANU academic, Professor of Economics Glenn Withers said one concern was that student satisfaction rates in Australia were lower than in Canada, the UK and the US.

“International students’ experience may also be increasingly less happy, and that might threaten the viability of these institutions,” he said.

THERE ARE OTHER WAYS TO GET MONEY BACK

If the Federal Government’s plans to extend the HECS/HELP program to TAFE students and private colleges go ahead, this could mean the government gets burdened with even more doubtful debt as many university students already don’t earn enough to pay their loans back.

Prof Chapman said the threshold for paying back loans would likely need to be lowered if the scheme was extended to other students, but the rate of repayment should also be lowered.

He also took aim at a loophole that meant people who moved overseas did not have to pay their loans back.

Professor Chapman said the overall cost to the higher education system in foregone revenue from people moving overseas since 1989 was in the order of $800 million, perhaps even as high as $1 billion.

“It is very unfortunate and very unfair in my view that people with HECS debts can go overseas and never repay it,” Prof Chapman said.

He said people should be asked to pay the minimum amount of $2000 a year if they went overseas.

“Thankfully the current government has decided to do something about this,” he said.

If fees were to be deregulated, Prof Chapman believes that universities which charge fees above a certain level should be penalised.

He has put forward a model, developed with consultant David Phillips, that suggests universities be charged a tax if they charge fees that are above a certain threshold.

Originally published as Australia cautioned against breaking its university funding system