The case for Fee Deregulation: A Lesson in Real Sustainability

Alex Bedwany

Alex Bedwany argues that fee deregulation is actually about sustainability of our education and that the misinformation spread by the left needs to be countered with stronger conviction.

The past few years have seen left wing students around the country engage in intimidating, disruptive and sometimes violent action in protest of the Government’s attempts to reform the tertiary system.

It seems romantic doesn’t it; rallying students to fight in the trenches against perceived injustices towards them? The issue seems so black and white: a Government hell bent on narrowing opportunity to the rich and shutting out the poor. Of course, as with most policy issues, it isn’t as black and white as it seems.

Unfortunately, the government has failed to prosecute its case with the gusto it deserves. So the issue has been roundly seized upon by those who are intent on destroying any chance of the senate passing any meaningful reform.

The fact is that, under the Education Minister’s proposal, students will be secure in their pursuit of higher education. Their fees will still be subsidised heavily and the costs deferred until they earn a wage fitting of their effort. This is the line that has been pushed by the Abbott Government, albeit unconvincingly in the face a misinformation presented by those too blind to see the already proven benefits of reform.

Reason for Deregulation: Credit Bites Back

What leftist proponents of ‘heavily subsidised education at all costs’ don’t realise is, the tuition incurred over the course of a student’s time at university will be paid, in full, long after they have retired their HECS debt. Nothing is free. As taxpayers, the graduates will eventually be paying for the subsidies received by the succeeding generations. Some may not take issue with this “left hand owes it to the right” mentality, but several problems arise.

The first is fiscal sustainability. When differences occur across generations, such as an ageing population or a rise in the number of claimants on a program, the burden becomes fiscally unsustainable. This is not a ‘slight’ risk in the case of Commonwealth Supported Places, it is a guarantee.

Successive Federal Governments have committed to ensuring that, by 2025, 40% of those aged 25-34 years have a Bachelor’s degree or higher. Given the explosion in distance learning and the number of students now completing year 12, this is a target that is sure to be met, leading to higher costs if the Government continues to subsidise at current levels.

The government currently subsidises students on Commonwealth Supported Places to the tune of 60%, with students only having to pay 40% back though HECS, and even then, only when they earn over $50,000 a year. The Government’s plan would see government subsidy decreased to 50%. In the interests of fiscal sustainability as well as fairness, it is very reasonable to ask university students to contribute more to their education, as university students tend to earn 75% more than those without a university degree over their lifetime. And the facility to borrow from the government through the HECS system will still be there, providing students with an even better loan than what they will take out for a car, house or any other significant purchase.

The second problem, with the fact that government subsidises degrees heavily and sets caps on university degree costs, arises because of the misalignment of incentives that come naturally when a third party is footing the bill for the decisions of others. When the responsibility for fees is localised with the student, awareness of the consequences of not putting in an effort become stark. They are borne by the person responsible for making the decision.

Similarly, for those who switch in and out of courses, leaving behind credit that doesn’t go toward their final award (assuming they end up completing one), the cost is passed on to the taxpayer. While it is inevitable that there will be a significant portion of student who switch (it’s hardly fair to expect an 18 year old to make the right decision in every instance), it seems a strange idea to pass the cost of being indecisive on to those who are certain about their future.

Here’s one we prepared earlier: Full Fee Postgraduate Places

A system of deregulated fees, where universities are free to set fees and students can borrow from the Government and pay it back once reaching above a certain threshold, is in place within Australia’s postgraduate coursework system, and provides a great example of the potential for dynamism in the undergraduate tertiary market.

Australia’s postgraduate education sector has become an incredibly dynamic place, with programs evolving to cater for people who wish to change careers, further their existing knowledge or take advantage of new trends in the marketplace. This is contrasted with the undergraduate system which has coasted along with the same programs, where universities ride on the coattails of a good reputation (hardly an indicator of the ability to adapt to a changing workplace) or the fact it was established a long time ago. By deregulating fees, we allow universities to capitalise on their strength areas and compete on price to bolster their weaker subject areas.

Competitive pressures will ensure that prices aren’t unreasonable: which is why the left’s claim of $100,000 undergraduate degrees across the board is absurd. It’s precisely these competitive pressures that keep prices from going through the roof – just as they do for any of the products we buy (Personally, I’ve never seen toilet paper for $100k a roll – does it have some sort of price ceiling on it?). The fact is, most degrees will not cost anywhere near that, at most reaching between $35k and $60k. Where degrees reach $60k, people would be free to evaluate whether this investment will pay off in the future, and again have the facility to borrow from the government and pay it back once reaching a threshold, meaning no one is left disadvantaged.

Whenever consumers have choice they stand to benefit from a competitive marketplace – why wouldn’t we inject the same dynamism into education?

Originally published in the University of Sydney Conservative Club’s “The Sydney Tory”

Alex Bedwany is a vocal supporter of intelligent economic reform that slows the growth rate in Government expenditure and thus, taxation.
He holds degrees in Commerce and Economics from the University of New South Wales and is currently a Graduate student from the University of Sydney.