Could We Reform the Higher Education Loan Program (HELP) Without Fee Deregulation?

Although the university fee deregulation in Australia received rejection as early as 2014, the danger of its reintroduction is lurking around all the time. Not surprisingly, the federal government decided to cut 20% budget on higher education this March, which sparked heated debates as well as continuing protests. Before the situation turned too messy, the government took the fee deregulation off the table again. But, of course, it’s not the end. Everyone, especially students, can’t help thinking when would be the next time?

13th April, the Protest against Fee Deregulation in the CBD of Melbourne (Credit: the photo is taken by the author)

All About That Same Old Song

Due to the financial difficulty, the government sought to cut the budget from somewhere and it came to higher education this time. Education Minister Simon Birmingham said on 6th April:

“The nation has fiscal challenges that we must be honest about. … We need to make sure that in higher education … our promises and our policies are affordable.”

Based on the report of the Parliamentary Budget Office (PBO), the cost of student loans will rocket up to $11.1 billion in 2025–2026, six times higher than the current $1.7 billion. Once the PBO analysis got published, everyone was shocked by this giant figure. But then people started to wonder whether it is possible. There is a need to take a closer look at it.

It turns out that the deregulated approach, proposed by the government as a trouble-shooter, is likely to contribute generously to the potential blow-out. To deregulate tuition fees and to let universities set course prices without a cap will result in price hikes across the higher education sector. Experts further warned that this will increase the student loan debts and damage the sustainability of HELP. Hmm, the situation is pretty tricky now.

“The fact that providers [referring to universities] do not carry the risk of unrepaid HELP loans, and taxpayers [referring to students] take part of this risk, means that there was a ‘moral hazard’ problem in the design of fee deregulation,”

Said Dr. Geoff Sharrock, the Program Director of the L H Martin Institute at the University of Melbourne.

It seems unavoidable to ask what on earth went wrong — the HELP system or the government itself with budget problems.

“If you just focus on the university story, it seems that the government didn’t think through a complete package of reforms to properly fund universities [when fee deregulation was reintroduced],”

Commented John Freebairn, who holds the Ritchie Chair in Economics at the University of Melbourne.

New Zealand had already set a bad example, concerning university fee deregulation, to Australia as early as the 1990s. Unsurprisingly, once the New Zealand government allowed universities to set their own fees without a cap, the tertiary education fees started to soar. Eventually, it ended in getting too expensive, and the original policy had to be called off around 2010. Australia should learn from New Zealand’s costly mistakes so as to avoid falling into the same old trap.

In conclusion, fee deregulation is not only unable to save budgets for the government but also lethal to HELP’s sustainability. The government should be cautious about the implementation of fee deregulation at any time.

A Reform is Needed

The most popular argument against the fee deregulation as well as any slight higher education reform is that education a public right should be free, yet it is better to consider a certain policy in a specific context. Back then, when university education was free under Whitlam’s governance in the 1970s, there was a tiny portion of population that needs to be covered by the policy compared to the present. Right now, the government simply couldn’t afford that much.

Another common concern for the higher education reform is that it will cut off students from the lower economic background. The reintroduction of fee deregulation will arouse this kind of concerns, but modest changes to the HELP system will not. The establishment of HECS (known as HELP now) 27 years ago has enabled a wider and more accessible higher education, and since then Australia does have a higher attainment level than many other countries.

In order to keep the higher education sector stable and accessible, taking government’s affordability into consideration as well, modest reforms to higher education are needed. We do have several other options, but we have to think twice before we take any action.

In fact, it’s not enough to look into the university sector alone. The introduction of VET FEE-HELP is sending the whole tertiary sector tumbling like falling dominos. According to PBO’s analysis, the soaring cost of VET FEE-HELP loans is where a lot of big numbers come from, whereas only a small part of the annual cost’s growth is contributed by university graduates. The fact is that the government didn’t take the vocational education into account when it reintroduced university fee deregulation earlier this year.

Luckily, by the end of April, the government released a consultation paper on redesigning VET FEE-HELP and hence has put this topic on the table. It kicks off a new round of discussion on the tertiary sector as a whole and indirectly helps to accelerate reforms of the university sector. But at the same time, direct policies on higher education funding are needed.

Now come with me, let’s see what we can do to reform the HELP scheme besides fee deregulation.

What Some Other Options Are

The introduction of flagship courses is high on the list of reforms (in government’s recent-published higher education consultation paper). This model suggests that students who enroll in courses that potentially enable them to earn high wages should pay more. Under this circumstance, fees for these “identified high quality, innovative courses” are highly likely to skyrocket. The point is to settle detailed rules to avoid the expense blow-out. And even if the cost of flagship courses remains capped, there is a reason to query how to make sure that these courses are offered “on the basis of excellence and innovation”.

“Flagship courses are just some other forms of deregulation,”

Said Dr. Gwilym Croucher, the Principal Policy Adviser in Chancellery at the University of Melbourne. Indeed, it means that universities would be allowed to set fees for certain courses and therefore for “a small proportion” of students.

Who could guarantee that it wouldn’t become another way of ripping off money from teaching for research? And who could ensure that the supposed great “pathway to lucrative jobs” could lead graduates to what they expect? Universities have already lowered admission standards and taken students as “cash cows” in recent years, wouldn’t it get worse with flagship courses? The logic behind this model is based on a set of questionable assumptions. A lot of issues around flagship courses are waiting for further discussion.

Andrew Norton’s proposal to lower the repayment threshold of HELP loans could be a second choice for the reform. It is reasonable to reduce the threshold in order to increase the repayment, but if the threshold is brought down considerably in an instant, it wouldn’t be a fairer scheme for students as it claimed. Consequently, the threshold amount is critical to the fairness and sustainability of the HELP system.

Here a compensation has to be made, because if the government only has the budget in mind, when this proposal turns into policy, it is possible to lock poor students out.

How to Make It Plausible

Conor King, the Executive Director of the Innovative Research Universities at La Trobe University, said that some changes to HELP repayments are almost certain to take place. In this way, what Geoff Sharrock proposed could be a way out — to link students’ superannuation up with their HELP repayments.

In Australia, 9.5% of workers’ income will go directly into super accounts, and this part of earnings has nothing to do with their take-home pays. Since the use of super ahead wouldn’t interfere with student workers’ daily expenses, and could ease governments’ financial burdens, this proposal seems to be acceptable to all sides. However, it is uncertain whether the mismanagement of super accounts will hinder the implementation, and further discussions are needed.

Some may argue that it’s too complicated to put this set of policies into practice, but what we are confronting now is too complex to be managed in a simpler way. The model of flagship courses may need more labor to monitor the operation than this. In other words, to lower the HELP repayment threshold with super contributions could be as laborious as to introduce flagship courses but will be more efficient and sustainable in the long run.

Every single policy is a link in the chain, which suggests that a slight move in the tertiary sector may affect the situation as a whole. Fee deregulation is not a solution but a trap — New Zealand’s unfortunate mistake has already proved it. Australia should learn from it and step out of the higher education policy paralysis as soon as possible.

A Comment on Government’s Recent Action to Higher Education Policy (Started from 3:50)

In the end, let me invite you to see how Frances Shannon, the Acting Vice-Chancellor of University of Canberra, commented on government’s recent action to higher education policy (started from 3:50).

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