Why university fee deregulation will leave us worse off

The deregulation of tertiary education fees will disadvantage lower-income earners, and the effects will flow right through the economy.

Earlier this week the University of Western Australia shed some light on what students can expect from university fee deregulation, and the numbers are far from pretty. Basic three-year degrees are set to jump to $48,000, and specialised degrees in medicine and law could reach six figures.

But have politicians disregarded the long-term effects of such a change? Fee deregulation will have considerable and undesirable effects for not only university enrolment but also household spending, investment and property prices.

The University of Western Australia was the first of the Group of Eight to outline their fees under the deregulated model proposed in the 2014-15 federal budget. The new model would effectively allow universities to charge a market-driven price for courses.

It is important to remember that these fees remain largely hypothetical given a hostile senate, which has come out strongly against these reforms.

It’s unclear whether the other major universities will follow suit, but based purely on demand and supply I would expect degrees at the likes of University of Sydney, Australian National University and the University of Melbourne to be somewhat higher. However, initially there may be some pressure to keep fees fairly similar across universities.

Earlier this year the National Centre for Social and Economic Modelling (NATSEM) at the University of Canberra modelled the likely impact of university fee deregulation. They found that the reforms were particularly costly for those pursuing science degrees and those in lower-paying occupations such as teaching and nursing (Tinkering with education will tear through Australia’s social fabric; June 26).

The reforms are particularly hard on women, who tend to repay their student loans over a longer period. Of course, this is also the case under the existing HELP system but, as fees rise, the repayment period for men and women diverges further.

The graph below shows modelling by NATSEM on the effect that deregulation will have on the repayment of student loans under a variety of scenarios. The base case is a scenario where the university is happy to simply recover the cost of the government’s planned funding cuts. The other three scenarios show how the repayment period rises as universities increase their fees by 10, 20 or 50 per cent above the level necessary to recover costs.
Graph for Why university fee deregulation will leave us worse off

It goes without saying that these reforms are hardly equitable. The higher cost of university will weigh disproportionately on lower-income earners and women.

No matter how you try to spin it, this provides a disincentive for lower-income earners and women to enter university. It’s not only sexist but a pathway towards greater inequality.

There is some precedent for this. The vice-chancellor of the University of South Australia, David Lloyd, said earlier this week that similar reforms in the United Kingdom in 2012 actually reduced the number of university enrolments the following year.

Defenders of the reforms will simply say that the deregulated system will still operate under the HELP model and most students will be exposed to limited upfront costs. But that would miss the point.

Higher university fees reduce the economic value of higher education by reducing the net return on gaining a university degree. This is particularly the case for degrees such as teaching or science, which have a high social value but not necessarily a high economic value. Deregulation will encourage students to shift from these degrees towards higher-earning programs such as commerce and law.

The long-term implications are more difficult to measure and are yet to be formally modelled but they should be at the centre of the political debate.

Higher student loans reduce the purchasing power of household incomes. Even assuming that the annual repayments remain similar after deregulation, the longer repayment period ensures that the effect on household spending will be more persistent than under the existing arrangement.

Alternatively, households could simply save less, in which case deregulation would result in a downward shift in aggregate savings and investment. Realistically, higher student loans will weigh on both spending and saving.

Due to lower savings, banks will be less willing to lend to households burdened by existing student loans. Either housing affordability will deteriorate further or house prices will plunge.

The federal government hasn’t realised it yet but their education reforms are putting at risk their considerable property holdings (The conflict of interest killing housing reform; August 6).

Those are just three of the long-term effects of university fee deregulation as promoted by the federal government. It doesn’t even include the potential structural shift in university courses, the implications for productivity and growth or the potential shortage of teachers, nurses and scientists.

Australia won’t secure its economic future by making higher education more unaffordable or exclusive. It certainly isn’t in our best interests to drive women away from university and widen the gender gap.

The federal government may believe that the university system is unsustainable – and I have some sympathy for that view – but to convince the electorate they’ll have to come up with a more equitable plan that clearly leaves our economy better off.

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