How dereg could be “the worst of both worlds”

Peter Macleod brings attention to the sorry experience of the recent UK experiment in higher education ‘reform’ that Christopher Pyne wants to rerun in Australia.

The UK government substantially raised student fee caps (while cutting government funding), only to see fees shoot up to that cap in a few years. MacLeod points out this has not made access less equal, contrary to the arguments from anti-deregulation advocates. But he also points out that a study for the Institute of Fiscal Studies estimates three in four UK students will not pay off their loans until their fifties (when, in the UK system, it is written off). Although protected from the worst financial hardship by a loans system like our own, such life-time debt burden will have a large impact on life choices and the economy.

But unrepaid debt is also debt that the government doesn’t recover. That IFS report also shows that the reduced repayment has eroded most of the intended savings to government. Something in the order of 45 per cent of loan volume will not be repaid. As put in the recent UK Higher Education Commission report:

The current funding system represents the worst of both worlds. The Government is funding HE by writing off student debt, as opposed to directly investing in teaching grants.”

One difference with the Australian proposal is that our fees will not be capped. The government argues this will stop fees converging on the fee cap, as they currently do under our much lower caps or as they did in the UK when the caps were raised. But at least as plausible, and what the government did not consider in its modeling, is the sort of fee inflation of the US system, where fees have increased at ferocious rates, faster than even their notoriously expensive health care.

(Image from Bloomberg)

Translated into the Australian system, universities would find huge new pipelines of cash, students would face long-term debt (insured at low incomes by the HELP system) while the government would make little saving, and could end up worst off.

You’d think the government would look at this? Especially since this is supposed to be a ‘savings’ measure. Yet the problem here is not simply negligence, more like incoherence, for the government clearly intends fees to rise. The Minister’s been banging on about how we need dereg to boost uni rankings, lest we fall behind the Asian unis — which are riding a wave of public funding. Boosting rankings through dereg means using student fees to ‘co-pay’ for research. This make a mockery of the proposal to get the ACCC to regulate the deregulated market to prevent any price-gouging. We already do this, and the intention clearly is to do much more of it.

But this all is nowhere in its shiny new propaganda, which instead comforts us with the claim “The Australian Government will continue to pay a big share, around half, of your undergraduate course fees.” That makes sense only if you assume fees don’t rise. But everyone else thinks they are likely to rise, indeed already have risen massively in prospective fees from UWA, and in that case the government contribution will be much less than half. If the government isn’t assuming fees will rise, no wonder it’s not worried about unrepaid debt blowing out.

Meanwhile, a lead proponent of deregulation argues “history suggests students are not overly responsive to prices“. Depending on your economics, you could see that as a good reason to deregulate, and shift as much debt onto students as possible knowing the public benefits will still be supplied. Or you could see it as a reason not to.

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