Nothing to Fear From Reform

One ironic feature of the higher education debate is that clear thinking, the very thing universities ought to be instilling in their students, is hard to find.

Dr Kemp’s plans to reform the higher education system, leaked by the Opposition last October and subsequently dumped by Cabinet, were the subject of hysterical and ill-informed protest.

What Dr Kemp proposed was letting government subsidies follow the student with universities being given the power to charge top-up fees, and students able to defer the cost through income-contingent loans.

We’d expect that student groups such as the National Union of Students, who still think the general taxpayer should fund the huge investment in their future earning potential that is higher education, would be opposed to this measure.

But we would expect better of serious commentators. Unfortunately, these expectations, with a couple of exceptions, are likely to be disappointed. A case in point was Gavin Moodie’s regular column in The Australian of 26 January.

Moodie launched an attack on small private providers of higher education, who generally support Dr Kemp’s proposal, claiming that their position would lead to bad education, social policy, economics and politics.

Moodie’s belief that this change would be bad for education rests on the claim that most of those lobbying for change are small institutions, which do not offer a range of courses and cannot achieve economies of scale to support high quality teaching and learning.

It is true that many private institutions are small and don’t offer a large range of courses, but this is irrelevant as most aim to fill small niches in the educational market. Many of the colleges in question are religious, and offer a kind of education simply not available elsewhere. To satisfy diverse student demand what is needed is system-wide range, not necessarily range within one institution.

Size does not seem critical to achieving good outcomes for students. Avondale College is an example. It has around 600 students, about a third of which are currently eligible for subsidised places (Avondale is among those campaigning for change, to eliminate this inconsistency). According to The Good Universities Guide, Avondale receives its top five star rating in graduate assessment of their courses, staff-student ratios, getting a job and starting salaries.

Take by contrast a much larger institution, Victoria University of Technology, where Mr Moodie works. It has around 17,000 students. It gets four stars for graduate assessment of their courses, three stars for staff-student ratios, and only one star each for getting jobs and starting salaries. There are reasons for VUT’s poor performance, but this contrast highlights that size neither guarantees nor is necessary for good performance.

Moodie’s bad social policy argument relies on the view that if universities were able to set their own fees on top of the public subsidy this would disadvantage people from low socio-economic backgrounds, because they are more averse than wealthy people to incurring high levels of debt for higher education.

It isn’t clear that this debt aversion is a major problem. The introduction of higher HECS rates from 1997 has not had an obvious effect on the socio-economic composition of the universities. The proportion of low SES young people studying courses in courses allocated to the most expensive band actually increased in 1997 despite a large price increase, before dropping in 1998 to a point 0.1% below the 1996 level. These appear to be normal fluctuations, with a price of more than $5,000 a year having no effect on behaviour.

This figure is particularly significant as relatively few students are likely to incur costs much more than the current top HECS rate. We know this, because there is already a completely deregulated undergraduate market for overseas students, and the prices they pay indicate that on average the cost to an Australian undergraduate would increase by $1,000 a year after deregulation. This would still put most undergraduates below the $5,682 annual top HECS charge, after the Government subsidy is taken into account.

The sensible response to what debt aversion problems do exist is not to cut off a source of funding essential to quality university education, but to persuade those who are debt averse that education is a good investment. Little has been done to show potential students how much their lifetime income could increase if they go on to further study. Once this research is done and widely publicised I expect it will reduce debt aversion, as well as providing others with useful information to help them decide on courses and institutions.

Moodie’s argument that reform is bad economics rests on the fact that Budget outlays would be less certain, as everyone admitted to a university would be entitled to a subsidy. He thinks the central economic departments would object.

This is at most a minor problem. The central economic departments manage numerous areas of expenditure that are not predetermined. We do not, for example, fix the number of old age pensions at a certain number and let the balance of elderly people go without. We don’t set a maximum national annual number of visits to the doctor and just leave anyone who gets sick after the number is reached to suffer on their own. Closer to the topic under discussion, we don’t have set numbers of school students.

While tertiary education is perhaps not yet as essential as any of these services, there is a strong case for at least offering everyone going to a quality-assessed higher education institution a loan, if not a subsidy. The central economic departments will learn to make reasonable estimates, as they do for many other economic variables.

Reform is not bad for education, social policy or the economy, but is it bad politics? Moodie claims that the proposals would encourage institutions with sectional and local interests to lobby government for private advantage.

This is the wrong way around. Sectional and local interest lobbying is what we have now, because there are no other ways of getting public subsidy. If the system were actually based on clear principles, such as subsidies and / or loans for everyone attending an accredited institution, there would be no need for such lobbying. Provided you achieved some objective standards you would get the subsidy or loan.

Moodie’s article is in the tradition of scare-mongering to stop change. On a fair assessment of the evidence, his fears are baseless.