Undergraduate Study: Who Should Pay?

Higher Education (Photo: marsmet471)

by Dr Geoff Sharrock, Program Director at University of Melbourne, The Conversation: http://theconversation.edu.au

The past year has seen two major reports on the economics of higher education, each seeking to reform the way undergraduate study is financed.

The Grattan Institute’s Graduate Winners appeared in August, and is best read as a counterpoint to last December’s Higher Education Base Funding Review.

Each report has a different aim. The Review proposes a new formula to finance universities sustainably, based on assessing the costs and benefits of their teaching and research programs. Graduate Winners proposes to slash the cost of taxpayer support for undergraduates - now around $6 billion a year - by charging students more.

How things work now

First let’s look under the hood, at the mechanics of the current system.

Public places in bachelor degrees are co-funded by students and taxpayers. The total per place varies widely due to different delivery costs: humanities courses get around $11,000 a year while medicine gets around $30,000.

Relative to costs, students pay different fee rates: from around 20% of the total in science, to 30% in nursing, to 50% in the humanities, to 80% plus in commerce or law. (see Table 1).

Table 1 Graduate Winners p.16, Grattan Institute

The logic here is mixed: fee rates may factor in higher incomes for graduates in higher status professions such as law, or low demand for courses such as science.

At 2012 rates, students relying on HECS loans until they graduate can expect debts of $47,000 after 5 years in medicine, $38,000 after four years in law, $32,000 after four years in engineering, $28,000 after three years in commerce and $17,000 after three years in nursing.

The Review notes that our student fees are among the highest in the OECD; but that the proportion who benefit from government loans is also the highest.

Reviewing the Review

The Review looks at provision costs in different disciplines. Then it estimates the public benefits of higher education generally, as a basis for a 60% rate of public funding across the board. Student fees would then make up the remaining 40% needed in each discipline, varying in line with course delivery costs.

A problem here is that a 40% rate would raise fees in high-cost courses such as medicine or engineering, where students now meet around 30%. The Review argues that fair access could still be maintained with HECS loans: on average, these are repaid in 8 years although low income earners may never repay.

We can see how the Review’s scheme would affect HECS debts in each discipline by lifting or dropping student fees to 40% of total current funding, that is student and taxpayer payments combined (see Table 2 further below).

At total funding of around $30,000 a year a medicine student paying 40% would have a higher HECS debt of around $60,000. An engineering student’s debt would also be higher at $38,000. But a law student’s debt would be lower at $18,000. Likewise a commerce student’s, at $13,000. Meanwhile a nursing student’s debt would be higher at $22,000.

That nursing students should incur higher debts than for law or commerce in a 60:40 scheme highlights the design challenge for policy makers. The question is how can universities finance each discipline sustainably, while making places affordable for students, while recognising that graduates in some courses benefit more highly, while spending public money frugally.

The Review also argues against deregulating HECS prices, noting that public universities have all lifted their fees for public places to the maximum allowable. This has been partly for the income; partly because price is seen as a proxy for quality, and partly because with deferred repayment, HECS loans reduce consumer pressure to be price-competitive.

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