Ever since the Abbott Government first presented the 2014-15 Australia Federal Budget, there has been a hailstorm of anger, confusion and overall outrage at the budget. Prime Minister Tony Abbott and Treasurer Joe Hockey have tried to weather the storm, but between conflicting and mixed messages, Australians and the media have had a hard time making sense of what the budget actually means for higher education.
If you’ve been living under a rock and need a little refresher, here are some of the bigger points of the high education aspect of the budget:
- During the next four years, $4.7 billion dollars will be cut from high education’s budget
- The government will cut funding to university degrees by 20 percent
- Starting in 2016, HECS interest rates will be set at the government long-term borrowing rate, not the consumer price index it has previously followed
- Any HECS debts will begin payback when a borrower’s income reaches $50,638 per year
- Universities get to set their own prices for their courses
Bad news for students
The deregulation of university fees seems to be what has driven most student protesters out into the streets. Now new risks are cropping up, and students worry whether they will be able to afford a higher education at all. They feel as though their voices aren’t being heard, and the ones making decisions don’t seem to care.
In economics, this term is referred to as “moral hazard,” where the ones making the tough, moral decisions are not actually the ones who will be affected by the choice if it the worst case scenario should happen. Politicians won’t be affected, and they will ideally have enough to send their children to universities.
So what really makes this budget a moral hazard mess?
- The budget package connects uncapped prices to unlimited loans in a repayment schedule that is created to give buyers solid protection from price impacts
- Education equates prestige with quality, so their prices will be driven up depending on their prestige. Students don’t know what they’re getting until they’ve already got it
- Educational institutions are known for spending surpluses on research, rather than teaching because research often enhances prestige
Competition does not lower prices
As of publication, the Senate has not voted on the 2014 budget, but as the Abbott government does not have a majority there, it is not expected to pass. Hockey has thus far has only commented that some fees will rise and some will go down, but most other experts expect fees to only rise.
Here’s what some of them are predicting:
- Emma Alberici reports that university students are going to be expected to pay double the amount of fees they do now. That’s a rough start for any student.
- Simon Marginson agrees and even further speculates three times the amount of fees. University with lower statuses will become a “bargain market.”
- Andrew Norton of Weekend Australian estimates courses will go up from the $18,000-$30,000 range to the $30,000-$60,000 range. Though there will be cheaper options, there will also be more expensive options, depending on where and what you study.
You get what you pay for
How many times have you heard that phrase? Maybe you’ve been in a grocery store and looked at two identical products from two competitors. In your mind, you know they are the same, but you know that a higher price usually means a better quality, right? So you want to go with the more expensive option because it’s of better quality.
This is what most economists fear. Bruce Chapman, the creator behind the original HECS setup, believes that elite universities won’t restrain their fees when they know students will pay them. They want the prestige, no matter the cost. Rival universities will also raise their fees in an effort to seem more prestigious. The more money you charge, the better the institution must be.
The bottom line is that so few students will ever be able to repay their HELP debts, and with the higher rates of compound interest, they’ll grow at an alarmingly fast rate. Chapman further speculates that 40 percent of female graduates will not repay their debts within their lifetimes.
That’s a massive amount of debt the government never gets back. Chapman fears students will altogether stop trying to pay back these debts and the burden will go to the taxpayers.
Peter Dawkins, economist and vice-chancellor of Victoria University, recently put forth three possible solutions to the problems discussed above.
- Cap the size of loans
- Cap the fees
- Or reduce the Commonwealth subsidy if the fee reaches above a certain level
Whether these solutions will be implemented remains to be seen, but it sure is a start.
Where do we go from here?
Naturally the demand driven system review and the Commission of Audit are pushing for more work on fee deregulation before any reforms are passed. While there could be some upsides for fee deregulation, both agree that this particular budget will not flush out those benefits.
The Senate won’t be voting on the budget until September, and until then, we’ll all wait with baited breath to see what happens.