The Case for a Free Market University

When I hear the words “fee deregulation,” I can imagine what comes next. It is usually an arts student from Sydney University who paints the picture of an education factory. They argue that neoliberalism is taking over the world and is now extending its claws into university. We will all become chained to markets and slaves to capitalism, the doomsayers say. This is quite a compelling case; I must admit, even I believed it for a while. However, the question of equity, beyond slogans and fearmongering reveals a very different picture. It challenges the plethora of student voices who either oppose the government’s policies or are afraid of it. The former are a very vocal and sometimes violent minority. The latter are the majority of students who want universities and government to remain in a complicated relationship. Neither approach understands what a free market university actually is. My article puts forward three propositions that are usually overlooked in the deregulation debate. Firstly, student equity is not diminished under free markets. Secondly, equity for broader society only occurs under deregulation. Thirdly, contrary to various assumptions, student equity itself is only possible with full privatization. True equity is when the students who receive the exponential benefits of a degree are liable to its inevitable costs. There is no getting away from the radical bourgeois idea that a person who makes a highly profitable investment should be the same person who pays for it.

There is an intoxicating belief that deregulation will harm the rights of students. It is an often heard maxim of the left that “education is a basic human right” and that it “should be accessible to everyone.” These are all excellent ideals for an educated society. However, they would be better served by looking beyond monetary solutions to wider social problems. Student equity is not diminished when students are liable to pay the full amount of their education.

In the past, one did not have to go to university to have a career with a high income. Today, the best paying careers require a degree. As of 2010, a female who graduates earns $800,000 more than a female who doesn’t go to university. For males, this gap is even wider, stretching over $1,000,000 in a lifetime. This means that poorer students get greater benefits in entering university than the middle classes who can depend on other sources of wealth. Until 2004, Britain had a subsidized fee structure that did not see substantial enrolments from students of lower socio – economic background. A degree was not as profitable then as it is now. Between 2004 and 2014, the government decided to deregulate the prices of university to cover the costs of university funding. Many believed this policy would hurt economically disadvantaged students the most. It has not turned out to be true. 70% of university enrolments during these years came from students with lower socio – economic backgrounds. The relatively higher costs of a degree have not offset its overall return. In consideration of its lifetime benefits, it is understandable that there is an increasing demand for tertiary education amongst less well-off students. Privatization is nothing more than a true reflection of the monetary value of a degree. It does not hinder the entry of students without an alternate sources of income.

There will still be those who say deregulation continues to hurt poor students, even though it doesn’t hurt as much as they’d like to believe. Let’s put this into reverse perspective. Does social mobility increase when students are not charged for tuition fees? The historical answer is no. Whitlam’s free education policy in the 1970s led to almost no changes in accessibility for disadvantaged students. Of the 276, 339 new enrolments in 1975, 80% were made up of students who already came from privileged backgrounds. Whilst a policy may be imbued with good intentions, it is only successful if its leads to positive outcomes. The only good outcome of Whitlam’s policy is the proof that free education does not increase accessibility. Sadly, this fact is largely ignored in the deregulation debate today. This not only distorts the historical facts but ignores the real challenges in education. Ascribing monetary value to a university education is the first step to realizing that money is neither the problem nor the solution to student equity. The greatest factor to determine accessibility amongst all backgrounds is previous school performance. This is where all sides of the debate should be focused, if bridging the socio – economic divide amongst poorer students is their main concern.

I will now show how deregulation is actually the only way to make equity possible. When I say “equity,” I refer not only to the welfare of students. I’m also referring to equity in terms of the entire Australian population. This the missing part of the equation when protestors against deregulation refer to role of government. The monetary benefits of a degree evidently set university students apart from the rest of society. Some students will say that while this is true, federal funds should still be allocated to subsidize tuition fees. They either do not consider, or are unaware of, where government funds come from. Taxes, and increasingly income taxes, are the main sources of revenue for the government. It is this money that turns into the discounted fees for university students, who are essentially living off a million dollar privilege. Nothing spoils true equity than working classes having to subsidize individuals with a profitable degree. Fortunately there has been mounting electoral pressure to cut university funding so as to get off the backs of the poor. Indeed, giving money to universities has reduced and continues to reduce for this very reason. Since 1989, public universities have raised their own income to the point where no more than 25% is provided by government funds. Both as a matter of principle and practicality, governments should not be funding tertiary education. A fully privatized university is one step closer towards the government’s ability to attend to more pressing concerns – like lowering the budget deficit.

Deregulation facilitates equity not only on a societal level, but for the students themselves. This may be hard to believe, but deregulation is necessary for two reasons. Firstly, it is the only way to sustainably ensure that all students who deserve to go to university can. Secondly, it is fast becoming the sole means by which universities can continue to deliver quality services.

When the HECS system was introduced, it was an efficient solution to student equity and university funding. Just as there were caps on student fees, HECS began in the knowledge that there would be a limit to student entry. The Gillard government however, dismantled this in 2012. They established the demand-driven system which allowed unlimited student admission. This was an excellent idea in increasing accessibility, but makes little economic sense when not followed by an increase in tuition fees. In other words, Gillard established the benefits of a free market university without following through on its inevitable cost. Demand must be paid for if it is to be sustained. The NTEU noted that the strain on teaching staff and the lower quality of education would follow Gillard’s proposal. Indeed, this has been the case where the increase in student entry has not supported by the funds to accommodate it. Full deregulation completes the market process under the Gillard government. It is indeed an applauded goal to allow unlimited demand in university. This is what equity is all about. No student who deserves a place should be barred from entering because of a government cap. At the same time, this policy goal cannot be sustained when the demand does not cover the costs of running a university.

Deregulation is the only way to cover university costs when government funds are declining. It is no surprise that Vice Chancellors have championed it for a long time. Many students protest directly against these authorities, claiming they are solely interested in the bottom line of profits. I find this amusing, considering universities would go bankrupt if Chancellors didn’t take profits seriously. One Chancellor however, strikes me as particularly useful in the case for deregulation. Greg Craven may be the head of Australian Catholic University but he considers himself “a pinko academic.” He supports deregulation, not because he supports the Liberal government but because it makes economic sense. Craven points out that if universities cannot set their own prices, vital research will suffer, quality teaching will decline and international competitiveness will go down. This comes from a university that caters for only 20,000 students. Imagine how much more relevant for Macquarie University with 30,000 students and Sydney University with more than 40,000 students locally. Craven makes the case that there is no other way to funnel resources into the university system. Whether you wish for government intervention within education or not, the reality is that it’s declining. The only way for universities to thrive is to deregulate.

A university that creates unbridled economic opportunities for students. A university that does not impinge on its financially disadvantaged. A university that does not punish those who take a different career path. A university that is accessible to all who earn a place. A university whose quality is superb and competitive. This is the free market university – whose prices I am indeed willing to pay.

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.