What is a fair amount for university students to pay?

Voiceover
Welcome to a special edition of The Policy Shop. This is a live recording of an event on 6 June 2017 hosted at the State Library, Victoria and presented in association with the Grattan Institute as part of their Policy Pitch series.

Jim Middleton
Thank you very much indeed and many thanks to the State Library for hosting this event. Clearly I am not Virginia Trioli. Virginia is sick. She sends her regrets. She was not on air this morning and she says that she's very sorry that she could not be here tonight to host this important event.

Ladies and gentlemen, welcome to this special event brought to you by the Grattan Institute and The Policy Shop podcast.

As we know, the recent Budget announced significant changes to higher education funding, changes that will have a significant impact on the bottom line of universities and the pockets too of students. Increases in maximum student contributions and lower income thresholds for repaying student debt are just some of the changes. The Turnbull Government argues that these savings are a fair rebalancing of public and private contributions to the cost of university education.

This evening we're seeking to answer the question, what is a fair price for university students to pay? We have a terrific panel to help us answer that very important question, not just for students and universities but also for the future of the nation as well.

Sophie Johnston is President of the National Union of Students. Next to me Glyn Davis, Professor of political science and Vice Chancellor of the University of Melbourne and, on my far right, Andrew Norton who is the Higher Education Program Director at the Grattan Institute.

Andrew first of all, you've written, been consulting, advising the government on all of this. Let's get to the basics of it first of all. How did we get here in terms of the Australian higher education model? It's a hybrid public/private system of funding at universities. Students do pay higher fees but the government also contributes quite a bit to their education. How did we get here?

Andrew Norton
This has got deep roots in Australian history. Australian universities started in the 1850s. They were set up as institutions independent of government and they had a mix of public and private funding sources from day one. That has persisted through almost all of their history with the exception of that 1974 to 1989 period.

One of the reasons I think this has been the prevailing system in Australia is if you look around globally the kind of funding system you've got really depends on your overall tax and welfare system. In Scandinavia we've got relatively high taxes. You've got a very comprehensive welfare state which includes a free higher education.

But in countries like Australia and New Zealand, Canada, the United States, many Asian countries the state is much smaller and, as a result, there's private payment for education, health, retirement, a whole lot of range of other things.

To me what's really important is these things integrate with the broader system rather than being anomalies. I think England is now the anomaly where you get high taxes and high fees but Australia's in a pattern where you have relatively low taxes and relatively high fees. That doesn't explain the detail of police but it explains I think the broad pattern of policy.

Jim Middleton
The Dawkins' reforms in the 1980s, why was it that we moved away from the free university education of the earlier 1980s? Why did we have to move away from that era of free education?

Andrew Norton
I think there were two reasons. One was that there were some people in Labor, including then finance minister Peter Walsh and the education minister John Dawkins, who had I think taken a longstanding Labor view that education was basically for relatively rich people and it wasn't the job of the Labor Party to subsidise these relatively rich people. That was not their constituency. There was always an element of Labor thinking along those lines.

But I think the key trigger was in the 80's there was a very large increase in Year 12 completion rates. They realised there was going to be substantially increased demand for higher education and the question was how can we finance an expanded system within a constrained budget?

Some form of fees was discussed from the mid 80's but I think in the late 80's they hit on the idea of income contingent loans which basically meant that students didn't have to pay upfront, would be protected from default compared to a mortgage system later on and really answered many of the access concerns that the Labor Party had. I think it was that combination of Labor views plus the need to expand that system.

Jim Middleton
On that score Sophie we'll move on to other models. But John Dawkins and Peter Walsh were right, were they not, that there was a disproportionate number of middle class and welfare students in the 1980s who were getting free education and with those Year 12 completion rates it was simply unsustainable, in budget terms, to continue? A contribution had to be made and the HECS introduced in the late 80's was, in its initial form, at least the way to go?

Sophie Johnston
We've moved past that now. We're in an era where almost 50 per cent of Australians are going into some form of vocational training or university education. It's becoming a universal good in Australia. The HECS system, or the HELP system in its current form, doesn't support or doesn't work with the new era or the new labour market that we're going into at the moment.

This is a labour market where people are having to be re-trained and re-skilled maybe four or five times throughout their lifetime. Every time that someone needs to be retrained they can't rack up $50,000 or $60,000 in a HECS debt. That's going to just contribute to this ballooning of the debt that the government's receiving and it's just simply not working at the moment.

I think it's an important conversation to ask what students should be paying but I think something else that we should be talking about is, is the system in its current form working for the needs of the labour market in the twenty first century?

Jim Middleton
Glyn, to you. You can pick up on Sophie's general point about whether it is in fact working and the question of social good but also the issue of looking at the Australian model, this somewhat unique hybrid. Are there better systems that would be suitable for a community like Australia's?

Glyn Davis
Those of us who work in the system and have spent our lives in the system of course passionately believe in higher education and want it to be extended to as many people as possible and therefore tend to be the people who most support low fees or no fees at all across the system.

That's a general view but it's not a view shared by the Australian population. I can say this with feeling having served as the chair of Universities Australia trying to go out into the general population and say you should pay higher taxes so that people going to universities pay lower fees is a really tough sell.

It tells us that most Australians expect students to make some form of contribution and they're pretty comfortable with the system. Our attempts to make higher fees a political issue have always failed which tells us we are pushing against a pretty firm sense of public opinion.

Jim Middleton
Yes, I have had senior figures within the Labor Party say to me that all their polling shows that parents want their children to go to university but they think it is fair that there be a contribution. Now the argument is over what level of contribution?

To the other point though. In terms of other systems is there a better way of doing what we are doing here? Are there better examples overseas? Glyn, I'll start with you.

Glyn Davis
Sure. I don't know if there's a better system because Andrew's point that the system has to make sense, in terms of the taxation system is the right one, there are lots of different choices.
If you go to Germany it's all but free to go university and universities are very high quality. If you go to France it's also all but free. The universities struggle. The public funding for universities in France is very low and so the quality of the student experience is commensurate with that. Even in free systems you get quite different outcomes.

In North America you've got both public and private, so you can see the difference in the provisions. The Australian system most closely resembles the public system in the United States, the great land grant universities, the University of California and those systems. I think both the costs to Australia are slightly higher, the quality is probably slightly lower because the public income is greater. But our system is essentially the same as the rest of the Anglo American world.

If we want to argue for a very different system I think it's not just a conversation about higher education. It's about what sort of country are we? What sort of taxation are we prepared to pay? Who do we aspire to be like? That's a really important debate and one we haven't really much had. We just carry on a path we've accepted without debate.

Jim Middleton
Sophie, to you on that. Yes there are countries around the world which provide much higher levels of public funding for universities but they tend to be countries, do they not, where levels of taxation are much higher as well? Do you accept that we are not going to get a system in Australia with substantially more taxpayer funding of the system regardless of the argument about what level of debt students ought to incur?

Sophie Johnston
Well it's important to note Australia has the sixth highest fees in the OECD but we are also one of the worst government funded education systems. Students in Australia are paying significantly higher fees than the rest of the world but our quality of education is much lower because the investment that the government is making is significantly lower.

Jim Middleton
Is that right Andrew?

Andrew Norton
It's very hard to do international comparisons of quality because we don't have any measures of how much people have actually learnt. That's one major issue.

There are some international - or there are some surveys of student satisfaction that have similar questions across countries. Australia comes out a little bit lower than the US, sorry, substantially lower than the US, a little bit lower than the UK. That's one possible indicator.

On the other hand we're probably not worse funded than the UK universities. A lot of this is around the academic cultures in different countries, that if you look at surveys of American academics they see things like the personal development of students as part of their jobs. Whereas in Australia you'd be lucky if an academic knows your name let alone develops you as a person.

So there are very different cultures and no matter how much money you throw at a university it's not going to change that culture any time soon.

Jim Middleton
I just want to turn to one other issue which is clearly a problem with the way in which we've seen universities develop particularly in the last half a dozen years and it's this.

When Julia Gillard and Labor were in office the government lifted and removed the controls that had been there on the numbers of government supported students in undergraduate degrees. What effect has that had on the higher education system in Australia, Andrew?

Andrew Norton
It's meant that it's much bigger than it would otherwise have been, probably 20 or 30 per cent bigger than it might have been otherwise. It meant that when we hit fiscal problems very soon after the demand driven system was introduced instead of what happens normally, which is the government freezes the number of student places, the number of student places just kept on growing until it stabilised in 2015.

This has meant - I think the one clear upside of this is that the portion of students from low SES backgrounds which have been stuck on 15 per cent for 20 years finally started increasing because it was drawing in much larger numbers of people.

The effect on quality? The student surveys are basically showing the same results. If that's an indicator of quality there's been no real change.

The big impact for government - there's obviously been substantially more spending on higher education and that's really why we're here today talking about some shift in the public/private balance.

Jim Middleton
Glyn, beneficial socially but sustainable financially?

Glyn Davis
Well Andrew made the very important point that in the same year they introduced the system they started cutting the per student funding rate as they found out how many additional people went to universities and that's been the pattern ever since and we've had a series of cuts. So the funding rate per student has fallen steadily since the introduction of the demand driven system.

There are two other effects that I'd point to. One is the extraordinary growth of institutions. Australian universities are now on average amongst the largest in the world. You pointed about you're lucky if someone, they know your name, you're lucky. In many ways it's not a surprise.

We now have huge universities compared to the rest of the world because we've started no universities despite a 20 to 30 per cent increase just this decade. There have been no new institutions started. They've all been crammed into existing institutions which has made life difficult.

The second and related outcome is we gutted the vocational education system unintentionally, I hope, as a consequence because if it was easy to get into university, in fact cheaper for many students because of the HECS system to go to university than to go to TAFE, we've actually made - we've changed the balance of attractions.

Now I'm not against lots more people going to university but we have not thought about the consequences for those Australians who may prefer a skills-based education, who might have preferred to go to a TAFE and who've watched that system suffer tremendously under this change.

Jim Middleton
As this government is discovering we are running into a very severe skills problem in this country which can only be [explained by] migration which raises other questions as well which we won't go into tonight.

But Sophie, clearly from what Andrew and Glyn have been saying, we're talking about universities as a market. I wonder if I could ask you a basic question? How do students react when it is put to them that what they are in is, in effect, a market?

Sophie Johnston
In the next 10 to 15 years 40 per cent of the current jobs will no longer exist. There is going to be a huge need for us to be re-skilling our population. Not only that but when you're educating your nation you're developing highly a skilled workforce. You're developing new industries. But you're also contributing to the social responsibility of individuals.

Not only that but there was data that came out that said that for every 1000 university students that received an education an additional 140 jobs were created for people who never went to university at all.

I think you need to really look at this spill-over effects of higher education and what it means for Australia as a whole rather than just looking at those individual benefits.

Jim Middleton
Let's move on a bit to the impact that it has most directly on students because that's a very important issue here of course. They are the people that the university system is there to support. That's why the university system exists.

Andrew, the HECS system, as we've known it - now called HELP, I rather prefer HECS. It seems a bit more honest and a bit less euphemistic...

Andrew Norton
Everyone uses HECS. It's a very strong brand.

Jim Middleton
..but let's stay with that. Just how generous is it to students?

Andrew Norton
Well I guess there's two elements here. One is how much you pay in the first place which we've been talking about and the other is how you repay.

At the moment you repay nothing unless you earn about $55,000 a year and at that point you repay four per cent of your income. It's about $2200. My view is that $55,000 is fairly high and, as a result of that, we've got major financial problems in the HELP loan scheme with a very large percentage of the debt probably not going to be repaid.

That's really why at Grattan we've done a report and the government's now adopted this of this lower $42,000 threshold which is two things. More realistic about having vocational education people in the system and reflecting the kinds of salaries they earn.

Second, being realistic that many graduates will be the second income earners in their households working part time. Under the current system we're going to have lots of HELP subsidies to households that are relatively affluent.

Jim Middleton
Now Sophie I don't know how specific you want to be in terms of your response to that but there were a number of key points there made by Andrew.

Number one, $55,000 as the threshold is too high, both financially and in terms of fairness as well. $42,000 is a more realistic figure and it brings people studying in the vocational system into the business which one would think that that is, in part, designed to restore vocational education to a genuine place within the culture. Thirdly this point about it getting at people who are second incomes within a family group.

Sophie Johnston
Lowering the repayment threshold only adds to a crisis that we're already in at the moment. That is that this generation is going to be priced out of the housing market. We've had stagnant wage growth for decades. Our penalty rates are being cut and now we're expected to take thousands and thousands of dollars of debt when we're earning just above minimum wage.

Now there's an argument from the government or from Andrew that it should reflect different income support models and minimum wage. But a repayment plan of HECS, that's something that you take on for a significant portion of your life. Income support is not meant to be something that you're on for 10 or 20 years. It's something that lifts you up until you are self sustainable, can get into a full time job and pay your own way. HECS doesn't work that way. It is going to be something that you take on for a significant portion of your life.

Jim Middleton
Do you see Andrew the point, the struggle that this change and this recommendation can make for people? Tipping the balance is effectively what Sophie's arguing.

Andrew Norton
Most of the new graduates will not be on $42,000 for very long. Often this is a transitional salary and they move up. In some ways they're not the main concern here. The main concern are the people who are going to work part time potentially for their entire careers and either never repay or only repay a small share of it.

What the government has done here - we actually recommended a three per cent repayment of $42,000. The government's gone for one per cent, so this is only about $400 a year. So this is not a massive impost compared to a lot of other expenses, indeed compared to what we recommended.

Jim Middleton
$400 a year Sophie? That's $4 a week.

Sophie Johnston
What we're arguing is this budget it...

Jim Middleton
$8 a week, my apologies.

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Sophie Johnston
Yeah. This comes in a long stream of attacks on higher education though. It's been used as a piggybank for decades by governments. I think we need to ask the question, do we want an educated nation or do we want a nation that is completely locked out of education that only a privileged few can actually access education?

Jim Middleton
Look I'll move onto you Glyn. It's $2000 to $3600 in the increase in student fees for a four year course. Are you able to calculate what these changes might or might not do in terms of demand for higher education?

Glyn Davis
I guess my view about the legislation that's been discussed that has this $2000 to $3500 increases is why are we increasing the financial burden on students at all? What is it about the Budget that requires it? It is after all a Budget that spends a lot more on the schooling system and a Budget that has tax cuts for well-paid people and for small businesses. What's the rationale that says universities should take a hit alongside banks in distinction to the rest of the community?

Sophie mentioned before the spill over effects of universities, the difference they make in communities. Higher education is now this country's number one service export. It's also Victoria's largest service export. In fact the University of Melbourne is the largest exporter in Victoria. So it's not that universities aren't doing their part for the economy, for the Budget, so why are we lifting the burden on students?

Even if we want to argue about the incremental nature of the lift, $8 a week, it's still cumulatively - as Sophie rightly says - we've done this so many times now that we're actually asking an enormous amount of our students. It's not like we're putting more money into income support. It's not like we're spending more scholarships to support people while they're students which seems to me the main problem with our system.

The HELP or HECS system works very effectively and it's a great innovation, even if it was invented by Milton Friedman as it was, but we don't match it with money to support people while they're studying which is often the most difficult part of it.

Jim Middleton
Now look one other question. I'll stick with you Andrew for a section for a moment here. The question of students from disadvantaged backgrounds. Now we saw how removing the cap on places, as you noted, very rapidly increased those from lower socio economic backgrounds. What impact do you think these changes, this lift in student fees - another $2000, $3600 - will have on people from lower socio-economic backgrounds?

Andrew Norton
Again history suggests very little. Even though it's counter intuitive, most of the research shows that once you control for the ATAR, the rates of going to university are very, very similar right across the socio economic spectrum. The reason we see low SES students under represented is they either don't finish school or don't get the higher ATARs.

What the demand driven system has done is mean that the ATAR required to get into university has gone down and that has made it accessible to a much larger group of people than has been historically true.

I guess they're all making very similar calculations, that if I go to university I'll get myself into a different labour market and there'll be jobs that are higher paid than the ones I would get if I just left school without further education or possibly went into the vocational system.

I think there's an interesting question about whether going to university is the right judgement call but, having made it, I don't think these fees would make a big difference.

Jim Middleton
Glyn and Sophie, on this subject, what then - if we're talking about lower ATARs having on the quality of the education that students are getting - Sophie, you have a point to make with that too if you could?

Sophie Johnston
Now increasing fees and lowering the repayment threshold, for people from disadvantaged backgrounds they have experienced financial pressures their entire lives. Seeing a huge sum of money in Year 7 or Year 8, they're going to make that decision then and there that university education is not something that those kinds of people can aspire to.

I've seen it myself. Very few people from the high school that I went to - it's increasing now but very few people actually go to university because it's just not something that seems like a possibility for those individuals.

Jim Middleton
Glyn, before we move on, has this stressed the university teaching system? Are you worried about what the consequence of increased numbers is doing in terms of quality of the education your students are receiving?

Glyn Davis
I guess one of the things that's worrying me about the cuts in the Budget proposed for this year is that it'll hit hardest the most stretched already institutions for whom providing the additional support required is most difficult. It's a differential effect. It'll make life more difficult for those least able to respond.

Jim Middleton
Glyn, you mentioned the cuts to university funding so let's go directly to that. As an issue there are two main changes. You've got basically a five per cent cut to funding and 7.5 per cent of funding held back if universities, if institutions, don't meet indicators around - KPIs effectively around - areas such as student retention, you've just mentioned student satisfaction with teaching and employment outcomes.

Now you've got some beautiful new buildings up there on the campus nearby. Arts West in particular is an absolute delight.

Glyn Davis
Best wallpaper in the campus.

Jim Middleton
But the government says things like that are an indication that universities have been splurging money on physical infrastructure. They would say - Simon Birmingham, the Education Minister, and Malcolm Turnbull too - that it's time for universities to tighten their belts. What do you say to that?

Glyn Davis
They did say that. That was part of the justification for - so the first thing to say about those new buildings is there's not one cent of Commonwealth money in them. There is no Commonwealth funding for new buildings. It's not like spending the Commonwealth's money to build them. They're all funded through the surpluses that universities generate and so you get it coming and going.

The Commonwealth criticise universities for having surpluses and then criticise what the surpluses were used for which was to provide better facilities for the students which is what those buildings are about.

There's been a big shift in the way learning operates. There's been a really big drive toward providing facilities so students can spend more time on campus - more library facilities, more common areas, more wireless rolled out across the campus, more infrastructure in IT so that students can access materials online rather than in person. All of those cost money and they've all been funded by the universities, not by the Commonwealth.

Here are university's trying to do a better job and it's been used against them to justify budget cuts, so not entirely impressed.

Jim Middleton
I know we'll come in more detail to the change in the funding mix universities that affects universities, but isn't there always a danger for public institutions that when other sources of funding are found government will say, well you don't need the taxpayers' assistance in such great amounts?

Glyn Davis
We've now seen a succession of higher education ministers who've sought to cut funding to universities. That means cutting funding for the quality of education and that means cutting funding to students to support students.

You start to wonder at what point does government and does the broader public say, no we have to invest in universities for all the reasons Sophie said and so that all the people who are educated by them and who aspire to be educated by them might have a chance of going? Instead of which we are turning them from a largely mixed economy into largely private institutions because that's how money is being raised.

Jim Middleton
In the work that you did for government was this question of the change in funding mix that the sector now enjoys or has to deal with part of what you presented to them? Was the question of the consequences of nickel and diming funding, public funding for universities part of your brief? If it was, what did you say? If not, why not?

Andrew Norton
Look I think one of the issues here is that there's claim and counterclaim about higher education costs but there is really no rigorous analysis out there of these costs.

There was a study done by the government or commissioned by - Deloitte did it for the government -
which essentially found that on average universities spend less than their total teaching budget on teaching. That has good historical reasons. They were originally funded to do research and other things as well. The government is using that.

I think the problem is we've not sat down and said what exactly do we want to get from this system? What is the desirable level of quality and other services? Then what is a reasonable cost for that? A whole lot of other sectors, like hospitals and medical professions, there's been really sophisticated work done to work out what is a reasonably efficient cost and to try and hold hospitals to that. We've never had an equivalent in the higher education sector and, as a result, we're in this claim/counterclaim where there's really no robust evidence base and no standard against which we are agreed and judging what's happening.

Jim Middleton
Glyn, Andrew's point, do you do anything of this kind internally within the University of Melbourne to attempt to get evidence based data that enables you to look internally at least at your performance?

Glyn Davis
Yes. Universities do a huge amount of work on this and the report by Deloitte's that Andrew mentioned drew heavily on work done inside [universities] entirely appropriately.

It's important to understand that government sets the funding rates, not universities. The funding rate for an arts student, which is different from the funding rate for an education student, which is different from a nursing student are rates set by government. Some of them cover the full cost and some of them go nowhere near.

Universities are very complicated internal systems of cross subsidy to keep the range of disciplines going because the only way you can do it is by taking money off some disciplines that do well in order to translate it. Otherwise you'd be closing down whole bits of valuable parts of education that can't pay for themselves.

Even if you knew the precise costs of delivering a law degree that wouldn't answer all the questions about how a university should be funded and where the cross subsidies should be. At the University of Melbourne we do significant cross subsidies into education because we think training really first class teachers is a hugely important social good for the community and a really important obligation for us. But if we just did the numbers we'd close the education faculty.

That's not how anyone wants to run a university but it's the reality of a system where the costs on the ground bear no relationship to the income that government sets.

Jim Middleton
Glyn, to you, a very basic question. Should students be paying for research as part of their fees?

Glyn Davis
Well ideally no. Research grants should cover the cost of research but they don't even come close and so students do end up cross subsidising research. As Andrew says, this is part of the mandate of a university. In fact it's required by law that universities do research so you can't just decide not to do it.
But even if it wasn't mandated by law you'd then have to ask should research be part of the university mission? Absolutely. Students should be taught by people who are expert in the field, who are contributing to new knowledge and who can help students to do the same. Research is intimately bound up in the mission and yes it necessarily is part of what we do when we fund a university.

Sophie Johnston
Sophie, Glyn's largely dealt with it from his perspective as someone who runs a university but I wonder if I could ask you, from the students' perspective, do you think that universities ought to be funded on performance indicators, on measures such as how many students get jobs which, after all, is one of the key reasons that people like you come to university?

Sophie Johnston
No, I don't think they should. I'm quite concerned about how the performance indicators are going to hit the less well-off universities, some of the regional universities. If they're looking at retention rates those areas have much higher rates where students are taking a few years off study to go into part time work or dropping out completely.

I'm worried that these performance indicators are going to mean that the worse off universities have more resources ripped from them and they get pushed into the already well off universities and how that's going to reflect on students and the quality of the education that those students are receiving, it's just completely unfair really.

Jim Middleton
That is unfortunately all we have time for. I'd like to say thanks very much to The Policy Shop podcast team, also to the Grattan Institute for planning this event and also to - if you do get a chance to subscribe, you should, to The Policy Shop on iTunes. Their last episode with Angus Deaton on America's prescription drug crisis, superb. As I said, thank you very much to the State Library and thanks to all of you for attending. Thank you very much.