Labor’s next steps in higher education must include fee reform

The Coalition’s university fee structure is doing no favours to university students.

As Labor delivers its first budget and takes a straight-down-the-line approach on tertiary education, doing no more and no less than it promised in the election campaign, a University of Melbourne economics honours student has shone a light on what it should be doing in its first term of government.

Labor will have to reform the bizarrely unbalanced university fee structure announced by the former Coalition government in 2020 under which students in some courses pay 3½ times the amount students in other courses pay, for no good reason.

The scheme’s absurdity was highlighted by the student, Maxwell Yong, who obtained a mass of data from the NSW university student placement agency, the Universities Admissions Centre, and did the first proper econometric analysis of the Coalition’s university fee package. Not surprisingly Yong found that the ­intention of former education minister Dan Tehan, to use differential fees to steer students into courses he believed would deliver the skills the economy needed, came nowhere close to being fulfilled.

It’s an emperor’s new clothes situation. Yong, the junior economist, was the first to make an evidence-based assessment that the minister’s policy was bereft of sense or reason.

This month the Productivity Commission, in its From Learning to Growth interim report, also weighed in against Tehan’s ­attempt to use fees to influence student course choice, saying that it was unlikely to work.

But the commission did not have Yong’s painstaking economic analysis to give the case real weight.

For Yong, it’s quite an achievement for an honours thesis.

His work has confirmed the back-of-the-envelope assessment of economists that charging different levels of fees for different courses does not significantly ­influence student choice. Fees are not an effective price signal, possibly because students don’t really think about what their course will cost when, under the HECS loan system, they won’t pay it until years in the future.

But his analysis also shows that another feared result of Tehan’s university funding system – a perverse incentive for universities to encourage students into humanities, business and law courses – has not yet occurred.

Even though Tehan wanted to discourage students from doing these courses, universities stand to do well from them because they cost little to deliver but are at the maximum fee level of $15,142 in 2023, giving universities a handsome profit margin.

However in the first two years (2021 and 2022) of the new funding scheme, universities have not pushed students into these courses, despite the incentive.

“There’s no massive supply side response (from universities),” Yong said. “This is possibly ­because of the disruption of Covid and universities are relatively supply constrained in the short run.”

In other words the only reason this hasn’t happened may be ­because universities have had to deal with Covid and are limited in how fast they can increase student numbers in more profitable courses. But that’s all the more reason for Labor to dismantle Tehan’s off-beam funding system as soon as it can.