Uni fee deregulation will result in choice and value?

31 October 2014

Don’t hold your breath, says Schwartz

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Steven SchwartzSteven Schwartz was vice-chancellor of Macquarie University from 2006 to 2012 and is currently director of the Council for the Humanities, Arts and Social Sciences. Interestingly he is an academic advisor to Centre for Independent Studies, libertarian thinktank “actively engaged in supporting a free enterprise economy and a free society under limited government where individuals can prosper and fully develop their talents”. With this background, you’d think Schwartz would be a natural proponent of university fee deregulation. You’d think wrong . In this opinion piece published in The Australian on 29 October Schwartz demonstrates himself to be somewhat of a sceptic that fee deregulation will result in a market in which price will reflect course value.

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In 1989, the federal government set undergraduate university fees at $1800 a year. If prices had increased in line with inflation, the fee today would be $3481.

Instead, university fees range from $6044 to $10,085, vastly outstripping inflation.

This stratospheric increase would be an argument for government-mandated price controls except for one problem: the government did control univer­sity fees during the entire 25-year period. And it still does.

Without government price ceilings, university fees would have soared even higher. Vice-chancellors certainly wanted them to. If university prices are deregulated, as the government proposes, they will get their chance.

In an extraordinarily generous act to its competitors, the University of Western Australia has signalled it will charge $16,000 a year, about double the current average fee. Get ready; the price of studying is about to skyrocket.

What additional value can ­students expect to receive for higher fees? Smaller classes? Extra tutorials? New courses?

On this topic, universities have been silent. There will be money for ­research, salaries and new cadres of administrators (non-teaching staff numbers already exceed teaching staff in all universities).

What’s in it for students? So far, the answer is: nothing at all. Indeed, graduates may find themselves worse off.

Consider the story of a plumber who was called out to unblock a brain surgeon’s toilet. The job took 10 minutes and the bill was $300. “What? Three hundred dollars for 10 minutes?” said the doctor. “That’s $1800 per hour. I don’t make that much, and I’m a brain surgeon.”

“I know,” the plumber replied, “I didn’t make this much when I was a brain surgeon either.”

This story is an exaggeration, of course. Brain surgeons make more than plumbers, and the average graduate makes more than the average non-graduate, but the gap is narrowing around the world.

The British graduate premium — the difference between the salaries earned by graduates and average national salary — has shrunk 22 per cent in the past decade. The same thing is happening in the US, where 9 per cent of university graduates have no job at all, even a year after graduation.

The Australian budget papers tell a similar story: reduced employment prospects for graduates in the coming years. It’s already happening. Ian Li, of UWA, reported a rising trend for graduates to wind up in non-graduate jobs or have no job at all. Using 2011 census data, economist Phil Lewis has reported a decline in the earnings advantage that our graduates enjoy over school-leavers. Most still have an earnings advantage, but 20 per cent would have been better off financially if they had never gone to university.

Graduates will face a double whammy: higher fees and lower employment prospects. In other words, they will pay more and receive less. If graduates never make enough to repay their loans, taxpayers will have to absorb the difference. So, it is inevitable that taxpayers will be paying more too.

Please don’t get me wrong; a university education is not just about money. As the director of an organisation dedicated to advancing the arts, I know that education confers many valuable gifts.

It broadens horizons, supports citizenship and, when it works, it creates a respect for learning. Still, the government’s rationale for making students pay more for higher education is the financial benefit they will receive. This rationale is severely undermined if these benefits fail to materialise.

Perhaps this is too pessimistic. Maybe, deregulation will create an education market in which ­students will have access to all the information they require to make rational choices. A market in which price will reflect course value. It’s not impossible, but don’t hold your breath.

 

 

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