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Tearing through Australia’s social fabric

29 July 2014

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The prospect of university fee deregulation, as proposed in the Budget, has divided the university sector.  The Group of Eight is strongly in favour, with ANU vice-chancellor and Go8 chair Ian Young saying that, in an environment of declining public funding, without fee deregulation, the university sector is unsustainable.  The Australian Technology Network universities “reluctantly”  agrees and the peak body, Universities Australia is not opposed. But number of individual vice -chancellors have been strongly critical of the proposal, most recently University of Canberra vice-chancellor Stephen Parker, describing proposed reforms, with fee deregulation as the centrepiece, as ” a potentially calamitous package” .
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 Yet the university groups, individual universities and many commentators agree on one thing: never mind fee deregulation, in its current form, the package would be deleterious, if not actually calamitous,   for many graduates in later life, through the combination of higher fees and real interest rates.   Writing in the Business Spectator (Tinkering with education will tear through Australia’s social fabric), Callum Pickering reproduces modelling by the National Centre for Social and Economic Modelling (NATSEM).

Their modelling shows that the effect of deregulation is likely to be felt most strongly for those pursuing science degrees and those in lower-paying occupations such as teaching and nursing. Those pursuing business degrees take a hit but to a far lesser extent given their higher earning capacity.

The graph below shows the estimated increase in repayments based on a number of scenarios. The first is the base case, which assumes that the university is happy to simply recover the cost of the government’s planned funding reduction. The other three scenarios show how the repayments change as universities increase their fees by 10, 20 or 50 per cent above the level necessary to recover costs.

Graph for Tinkering with education will tear through Australia’s social fabric

As a result of higher indexation, the average repayment length will increase across all degrees. This is pushed higher again if fees increase. Note that the graph below is the increase in the repayment length rather than the total repayment length.

Graph for Tinkering with education will tear through Australia’s social fabric

Pickering concludes

….fee deregulation is going to disproportionately hurt females since they tend to repay their student loans over a longer period. …. In the absence of lower fees for women, some females may be discouraged from entering university….these deregulations have the potential to fundamentally change Australia’s social fabric. Potentially we could be looking at a shortage of nurses and teachers – hardly ideal given our ageing population and the important role teachers play in society. Whether this proves problematic will largely depend on how responsive wages and university fees are to changes in demand and supply. But these deregulations are also set to have a broader effect on economic activity. Higher student loans will directly affect household spending but there may also be unattended consequences for the housing market.

Modelling by Universities Australia shows that, “applying reasonably conservative assumptions”, the student debt levels are likely to at least double and repayment periods significantly extended.

For example, a nursing graduate under a medium fee increase scenario who works part time for six years after working full time for six years will pay off their student loan of $51,620 over 20 years, compared with 17 years to repay a HELP debt of $24,646 under the existing arrangements.

Universities Australia has called for a rethink on the design of the proposed changes to the student loan program and the 20% cut in the government contribution to student fees.

The government is unlikely to revisit the 20% cut, if it can possibly avoid it, given that most of its saving strategy lies in tatters.  It may attempt to cut a deal with the crossbenchers on moderating the impact of interest rates on the long term cost of student loans.

We don’t know what such a deal may look like but the Higher Education Legislation and Financing Working Group, chaired by John Dewar, vice-chancellor of La Trobe University, recently reported to the government on implementation issues relating to the proposed reform package.   You can bet that group has an idea what a deal might look like.  We await its report with interest.

 

See
Call for rethink of key higher education measures as new modelling shows debt likely to double
The calculator of doom
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