Traditionally, a small percentage of the population received a university education paid completely by the government. In most countries, however, student demand for higher education is increasing, with the result that mass systems of higher education are becoming more prevalent. Countries with mass systems of higher education include the US, Canada, Australia, UK, Japan and some European countries (especially the Scandinavian ones). Because mass systems provide access to a larger number of individuals, they present a funding challenge. Indeed, very few countries in the world endeavor to provide a system of mass higher education for free. The notable exceptions are the Scandinavian countries, which are the richest countries in the world. And even here, free higher education will probably not be sustainable in the long term. How to fund universities remains one of the thorniest problems in higher education. The readings for this week will shed some light on economic and public policy aspects of funding higher education.

Learning objectives: Johnstone
1. What is cost-sharing, and what is the rationale for it?
2. What are the arguments against cost-sharing?
3. What are the forms of cost-sharing? Who is involved?
4. What are the politics of cost-sharing?

Learning objectives: Birch & Miller
1. Income-contingent loans, such as HECS, are considered worldwide the most equitable and efficient form of student loans. What are some of the negative effects of HECS, especially for students from lower SES backgrounds?

Learning objectives: Chapman & Ryan
1. How has the socio-economic composition of students in higher education changed?
2. What is the impact of HECS on the participation of students from lower SES backgrounds?

Starting questions from Natalie
Topic seven focusses on the funding of Australian universities. We have moved to a mass system of higher education due to increased demand, higher completion rates of secondary schooling and increased demand for a higher level of skill and knowledge base, propelled by technological and economic forces (Chapman & Ryan 2004, OECD Education Policy Analysis, 2002).

Demands for higher education require increased funds to meet the demand. In 1989, a student fee for higher education (HE) was introduced with a provision for an income-contingent student loan, interest free, indexed to inflation, available for students unable or unwilling to pay the fee upfront (Chapman & Ryan 2004).

Rationales for a partial user pay system include: offset the increased costs of mass demand for higher education, ensure students’ do not abuse a free system, reduce the burden of the cost from the Australian tax-payer, HE leads to valuable private benefits to graduates and as a means to increase resources to maintain the quality and improvement of higher education in an environment fierce with competition for funds from a finite source of public monies (Johnstone 2003, Chapman & Ryan 2005).

Under the current system, it appears the introduction of a user-pay system has not impacted on participation rates for HE, including those from lower socioeconomic status (SES) (Chapman & Ryan 2004, Birch & Miller 2006). In fact, the data presented by Chapman & Ryan indicates that even if HECS had not been introduced and HE remained funded out of the public purse, the composition of social group participation of HE would be the same. This suggests other determinants affect participation from disadvantaged and lower SES groups. This data reflects earlier observations by Wilks and Wilson (2012) that the decision to attend university is a result of many factors; cultural capital, positive educational experiences in the early years, early school performance, local environment and parental expectations to name a few.

With the above in mind, the case for an income contingent, user pay system runs strong and various forms of user pays system has been adopted across the globe (Johnstone 2003).

However, Birch and Miller (2006), express concerns that the current system disadvantages lower SES groups. These include, a greater debt burden upon completion of study, negatively affecting economic and social well-being after graduation, plus difficulties in accumulating wealth. In addition, the ability to take advantage of discounts on upfront payments or block repayments is less available to low SES groups, creating further disadvantage (Birch & Miller 2006).

The neo-liberal economic approach perceives a user pay system as advancing HE into a more consumer driven, competitive market framework with the benefit of greater sensitivity to consumer demand, efficiency, and responsiveness. The National Tertiary Education Industry Union paper (2008), expresses concern that moves towards a market based approach in the educational sector may impact on educational diversity and choice. It cites, Hotelling’s law, ‘competitors differentiate their goods and services as little as possible in order to maximise demand from the public’ (p 20).

In last week’s readings the Bradley Report (2008) revealed universities are redirecting teaching funds towards research programs. The response by the National Tertiary Education Industry Union (2008) named data that included, 70% of university funded research and development activity is funded from university funds rather than research specific funding (p 22).

Upon analysis of a user pay system, questions about whether user pay funds are actually contributing towards a student’s education experience or being used for other purposes would be worthy of pursuit.

Between 1996 and 2006, student contributions to the cost of their education in real terms increased from 20% to 36% at the same time as Commonwealth contributions for government –supported university places reduced by 24% in real terms (National Tertiary Education Industry Union, 2008, p37). These statistics provide weight to Johnstone’s `strategic’ rationale against a user-pay system. That is, increased emphasis on user-pay funding, creates a back-door to reduce the real cost of funding by the government of the day, resulting in real cuts to the tertiary sector (Johnstone 2003, National Tertiary Education Industry Union, 2008, p37).

The issues described above begin to highlight the complexity behind higher education funding an issue that remains contentious, yet politically and personally relevant.

Question 1)

Does the user-pay system, promote increased flexibility, responsiveness and a better product for the student consumer? Your personal experience and insights are welcomed.

Question 2)

Birch and Miller (2006) indicate that HECS – HELP schemes have specific implications for mature age students and requires further research. What do you observe as the specific implications for this group and any thoughts on how these may be addressed?

Question 3)

As a student of a HE institution in Australia, what percentage of cost would you feel is fair to contribute to your higher education experience and do you believe the current system to be equitable? Please justify your response?

Reference:

Birch, E. R., & Miller, P. W. (2006). HECS and HECS-HELP: Equity issues. Journal of Higher National Tertiary Education Industry Union, 2008Education Policy and Management, 28 (2) 97-119.

Bradley Report Executive Summary. (2008). Commonwealth Government.

Chapman, B., & Ryan, C. (2005). The access of income-contingent charges for higher education: lessons from Australia. Economics of Education Review 24. 49a-512

Johnstone, D. B. (2004). The economics and politics of cost sharing in higher education: comparative perspectives. Economics of Education Review 23. 403-410.

National Tertiary Education Industry Union. (2008). NTEU Submission to the review of Australian higher education. Retrieved from http://www.innovation.gov.au/highereducation/ResourcesAndPublications/Re...

OECD Education Policy Analysis, 2002

Wilks. J & Wilson. K (2012), ‘Going on to uni? ‘Access and participation in university for students from backgrounds of disadvantage’ Journal of Higher Education Policy and Management, 34: 1, p79-90

Julie's Response

. I completely agree that the area of funding of higher education funding is complex, contentious and being both politically and personally relevant. The whole education funding system from early education to higher education is definitely in that camp and I find it quite apt that the week we are considering funding in the higher education space is the week that strikes were occurring across primary schools in WA in opposition to funding cuts occurring.

Question 1)

Does the user-pay system, promote increased flexibility, responsiveness and a better product for the student consumer? Your personal experience and insights are welcomed.

Flexibility - yes, responsiveness – probably, a better product for the student consumer – I’m not quiet convinced on that one.

HECS-HELP scheme can certainly be used as a consideration for potential students when considering seeking further education – in the positive sense by removing the financial pressure of having to pay fees up front. On the negative side as Bree points out there is a lack of understanding about their use and how the repayment system works.

For me personally when I left secondary school, University simply was not part of my reality even considering HECS. To me it’s not really the actual costs of the university fees that is the deciding factor. It’s more about how do you balance being a full time student with being financially responsible for the range of other living costs – rent, bills, food etc. If we consider the average secondary school leaver moving into higher education unless they have that family support to continue to live in the parental home and rely on parental support for a range of general living areas then it is an extremely difficult and financially stressful time.

I did not have this parental support option and I was a full time student for a period in my late teens required to undertake significant hours of part time work just to make the basic ends meet and in the end it was just to taking both in terms of the financial stress but also personal stress of trying to balance the studies with having no decent time to put in the hours towards study required because when not at the campus I was working.

Even the Government contribution in terms of providing income support for eligible full time student really does not make a significant amount of difference due to the very low entitlement rate. Both Youth Allowance (independent rate for full time students up to 24 years of age) and AUSTUDY for full time students 25 years and over is only currently $407 per fortnight. That certainly does not go very far. There have been changes in terms of the amount of money form part time employment you can earn before is affecting your payment rate (as per on e of the Bradley review recommendations) but whatever way you look it being a full time student weather you are a secondary school leaver going into university or a mature age student going back to studies there is a significant financial impact to be considered.

Question 2)

Birch and Miller (2006) indicate that HECS – HELP schemes have specific implications for mature age students and requires further research. What do you observe as the specific implications for this group and any thoughts on how these may be addressed?

As everyone has indicated in the discussion in general mature age students are usually trying to juggle employment, family responsibilities and financial responsibilities. With the increased flexibility for this group to now commence university this later stage and this is often because they were not previously in a position to do so. As pointed out many are likely to be already earning over the threshold in which HECS-HELP would be a viable option for them however again as pointed out above it’s not just the university fees but the wider living costs to be considered. Potentially this means that they actually have more financial considerations to take into account (caring for children or older parents, mortgages and other already existing loans etc). Not sure about any great solutions – RPL could go towards reducing the amount of time having to study to achieve a specific qualification but overall it’s the flexibility of the university system allowing part time or external studies which give better capacity for the student to balance living costs with student requirements.

Question 3)

As a student of a HE institution in Australia, what percentage of cost would you feel is fair to contribute to your higher education experience and do you believe the current system to be equitable? Please justify your response?

My personal view is that it simply not an ongoing, economically feasible approach to consider higher education to be free of charge such as the Scandinavian model. However saying that I am very intrigued about the Scandinavian system as it seems that they are quite often touted as the best education system in the world. I could not see that such a system would be something ever considered in Australia without wide ranging reforms about the whole of government funding not just education.

In terms of what I would consider reasonable I do see that for many people being responsible for 100% of the costs is completely reasonable as it is a personal choice to build their knowledge and skills and pursue career development. I agree here with Bree that it is then up to the individual to plan for and to balance financial considerations with other financial and life responsibilities. What I do question though is how much of a reality this is for the wider population and if it is 100% user pays for all education what are the wider implication on the choice to pursue higher education and the actual areas people choose to study. Will there be mass choices to study areas where employment outcomes and potential earnings are significantly higher (thinking mining and engineering etc) to the detriment of other areas which you could argue may include things such as education or other humanities areas? If that was the case then would this result in universities focus more and more on the courses where they are able to secure large numbers of students (and therefore fees) and less on these other educational areas.

I don’t think the HECS-HELP is a terrible system but just needs to be better promoted and understood.

My response

Of course, one of the interesting issues concerning HECS/HELP is that courses that are available as up-front fees are currently tax deductible if (a) the student is paying tax and (b) the course is used to improve their future earnings - regardless of whether or not they are involved in the area of study.

The requirements is available on the ATO website.

http://www.ato.gov.au/Individuals/Income-and-deductions/Deductions-you-c...

Interestingly, this means that people who are taking a course like this and are paying full-fees as it will improve their income earning in the potential in the future effectively are receiving "free eduation" again. Those who are not, and are studying via HEC/HELP, are on a deferred andi income contingent loan scheme.

This is probably an unresearched equity issue, as we can assume that those who are in the former category have the available cash reserves or credit line to pay up-front, whereas those on HECS/HELP are doing so from a lower-income category. This is aside from a small number who may be undertaking such a course for non-vocational reasons.

Helen's Introduction

This week readings are all about the common topic of, ‘who will pay?’, and the product of discussion is; higher education. Johnstone (2004) gives detail of the issue of cost-sharing. This cost sharing is a responsibility of the government’s revenue or the consumer being the combination of student and parents. Birch & Miller (2006) introduces the affect of Higher Education Contribution Scheme, which was introduced in 1989, has on the ability of attendance to higher education by student and the dynamics of their socio-economic status. The paper talks of this deferred debt and thresholds of repayment once graduation and employment is gained. The student’s socio-economic status has an impact on the ability to pay debt, also the reality of the expenses that are a part of life during the course: for example, housing, food, health, general bill paying. The student undertaking higher education has limited time for wage earning whilst doing tertiary study and therefore the socio-economic status of family is important for the backup financial support. The HECS debt equation is set up as per threshold and tax assessment when employment gained. Is this a burden or a means to be able to have opportunity to have a higher education?

Lastly Chapman & Ryan (2005) describes the affects of Higher Education Contribution Scheme has had on the attendance of higher education. The ability of students in varying levels of socio-economic status to seek attendance in higher education. The reality of secondary education completion not a priority, so the expectation of higher education not a norm or what is called the, ‘family culture’. My perception of this paper is that the wealthy pay and the middle and low status people either get a loan or go without. This is also relevant in my field of health, or what is termed the ‘gene thrift.’ One is set up from birth to have a certain health profile. Due to our background we are set up for a certain culture to approach an opportunity, in this case to seek a higher education.

Question:

1. What are your thoughts of this topic: Higher Education Contribution Scheme? Is it a fair equitable approach to an individual obtaining a higher education and an acceptable means of enticing attendance to higher education?

2. Does cost-sharing need to be re-negotiated by the government policy makers concerning payments of higher education tuition fees? Could this cost be better subsidised by public revenue to reduce the burden on the student/parent of whatever socio-economic background they come from? Through direct and or indirect taxation on the citizens to pay for this service. This provision of funds seen as an advantage to potential economic productivity as a priority in spending of public revenue.

3. The introduction of the HECS has not deterred attendance to higher education therefore the policy is a positive and needs to be maintained by future Federal Budget Schemes? The promotion of higher education available to all students within all socio-economic backgrounds as a part of secondary education promotion sessions and information available to families to encourage this participation. What methods do you think could be used in the encouragement of seeking higher education?

Reference:

Johnstone, D. B. (2004). The economics and politics of cost sharing in higher education: comparative perspectives. Economics of Education Review 23. 403-410.

Birch, E. R., & Miller, P. W. (2006). HECS and HECS-HELP: Equity issues. Journal of Higher Education Policy and Management, 28 (2) 97-119.

Chapman, B., & Ryan, C. (2005). The access of income-contingent charges for higher education: lessons from Australia. Economics of Education Review 24. 49a-512

My response

The question of funding has been a vexed issue in Australian higher education policy for a number of years, and especially with the reintroduction of tertiary fees in various forms from the mid-1980s; first the "Administration Charge", which lead to widespread boycotts at various campuses, then the Wran report, and finally the introduction of HECS and its transmorgification into HELP.

The three articles (Johnstone, 2004., Birch and Miller, 2006., and Chapman and Ryan, 2005) were all an excellent contribution to the debate, each representing a rigorous analysis of the question of funding with strong use of empirical backing.

The principle of cost-sharing is an interesting one. It operates on a premise that the student is not the sole beneficiary of higher education, and that there are "positive externalities" (social benefits) in having an educated population. However the degree to which the individual or society is the beneficiary is difficult to calculate (as externalities often are) and funding decisions are usually the case of political expendiency more than administrative rationality.

Couple with the fact that the provision of higher education as a service is likely to increase in cost faster than general incomes (c.f., William J. Baumol and William G. Bowen's cost disease of service provision), a very challenging situation results where the price is higher, the demand is higher, the need is higher, and governments want to provide less direct funding. Inevitably this has meant that more of the cost of higher education has been borne by the direct recepient.

On the face of it, the HECS/HELP scheme seems to be a method which allows for a degree of the cost to be borne by the direct beneficiary of higher education, but as an income-contingent loan, applicable only if the receipient is a beneficiary and at an income level that it becomes affordable. There is evidence that this Australian "invention" is being considered elsewhere as a means of providing both cost-sharing and ensuring a degree of equity. Yet as Birch and Miller (2004) illustrate not all is well on that metric. Certainly part of the evident problem is that the repayment rates have increased significantly, the level of contribution has increased, and the threshold for repayment has began at lower real levels.

With somewhat of a grimace (with some experience of the heady days of free tertiary education), it would seem that the general principle of cost-sharing is sound, as is the idea of a income-contingent loan scheme, such as HECS/HELP. However the the current application overestimates the degree by which students are a direct beneficiary, sets a repayment threshold that is too low (it should be where there is evident benefit, i.e., above average weekly earnings), and a repayment method that is too high. Implementing these changes would provide the right incentives for equity issues. However in the current political landscape it seems unlikely that they will occur any time soon. Indeed, one suspects that the reverse will be the case - lower repayment thresholds, higher contributions, and increased rates of repayment - with resultant equity issues.