BRIEF FOR ABF ECONOMIC ARGUMENTS

Purpose:
To provide broad economic arguments that support and give legitimacy to our
campaign against the proposed higher education reforms. These arguments can
be based in either publicly accessible data or opinion of leading economists that
support the campaign arguments.
Scope:
A document of no more than eight A4 pages and ten hours work (paid at
$43.56/hour, pre-tax).
Timeline:
By 5pm Sunday 12th July, emailed to simon@gsa.unimelb.edu.au

Audience:
It is to be used by our two policy researchers who are not economists, or by EMC
to assist in the public campaigns. It is a reference document only for internal use
but must be in language that we can adopt in a public campaign. Therefore no
need for academic standard referencing or structure.

Criteria for our assessment of the documents value:

1. Relevance to the arguments contained in the EMC campaign strategy
document
2. Insights provided
3. Rigour of the arguments, and identification of sources that justify the
arguments
4. Useability in tone and in stance (dot points welcome)

Some thought primers

-

The economic arguments for committing to higher education funding. As

we move out of relying on a mining investment boom to drive our
economy in terms of jobs and government receipts - to remain an
internationally competitive, growing economy this will be driven through
new industries and innovation which will need to be underpinned by a
strong research and higher education sector. Our international neighbours
get this and a putting more into this sector and are moving ahead of us.
We risk being left behind.
De-regulation as it is proposed does not respect market forces (it is just
changing the skews in a regulated system), and how it is being managed
will be inflationary creating strong sellers and weak buyers.
Higher, unregulated fees funded through bigger students loans is by its
nature inflationary as it does not have a strong market control or cap

supply (on how much money can be borrowed) it just leads to higher
amounts borrowed.
Higher amounts in student loans at a national level can do more harm to
our deficit, take the example of student loans in the United States and the
percentage of its deficit it now equates to.

GSA Assignment Australia Needs a Brighter Future

Like many Australians, we at GSA were shocked and alarmed on budget night to hear the
governments plans for higher education. We believe the proposals to be fundamentally unfair and
damaging to Australias students and the future prosperity of our nation.
GSA is committed to improving the quality of and access to postgraduate education, research and
welfare at the University of Melbourne and throughout Australia. We have started a campaign to
highlight the weaknesses of these proposed changes, and to promote the need for truly accessible,
affordable and world-class higher education for all students in Australia.
Government policy proposals

Cuts to the Commonwealth Grant Scheme (CGS) for undergraduate students amounting to
an average of 20% per Commonwealth Supported Place (CSP), and a 10% cut to the Research
Training Scheme (RTS), which funds tuition for postgraduate research students.

Fee deregulation, allowing universities and other higher education and vocational education
and training (VET) institutions to set their own tuition fees, with the fee cost for international
students as the maximum limit.

Changing the interest rate of HELP loans from the Consumer Price Index (CPI) to the
Government Bond Rate, with a maximum rate of 6%.

Fees for RHD students from 1 January 2016: annual fees of either $1,700 for low-cost
degrees or $3,900 for high-cost degrees.

Extend the provision of Commonwealth Supported Places to non-university higher education

providers including TAFES and private colleges.

The federal governments proposed higher education reforms failed spectacularly in the Senate again
last week. Before the government tries a third time to secure support for a policy that has been difficult
to sell, it needs to learn from past mistakes in the tertiary education sector and think carefully about
how to move forward.
Australians rejected deregulation because it wasnt fair for all
The debate has advanced since the governments proposed changes to university funding were first
unveiled in the 2014 budget. The public is much better informed about the systemic underfunding of
Australian universities.
It is also much more widely accepted now that fee deregulation of the kind proposed is likely to result
in significant fee increases for students. The architect of the HECS system, Bruce Chapman,
hasconsistently argued this throughout this long debate.
The potential for the proposed policy changes to be highly inflationary was evident immediately upon
the unveiling of the package last May, when I wrote:
We do not support full fee deregulation for Australian undergraduate degrees. Full fee deregulation
will inevitably lead to much higher fees for our students [] Our system of higher education should
continue to encourage fees which are not out of reach for those capable Australians who aspire to
university study.
Since that time, my university has made a number of contributions both to the public debate on fee
deregulation and in the legislative process, warning the combination of uncapped pricing and
unlimited HECS loans would be a recipe for significant price rises.
While the media often reported that vice-chancellors were united behind fee deregulation, a closer
examination of the statements of many university leaders shows that this was not the case.
Though it might help, one didnt need an economics degree to understand the potential for big price
rises in a totally deregulated higher education market underpinned by generous government loans.
This helps to explain the publics visceral reaction to fee deregulation. Higher education is strongly
valued by the Australian public in a country that takes pride in giving everyone a fair go.
The public dug its heels in because it wasnt at all evident that change of the radical kind proposed by
the Australian government was either warranted or required. It is not surprising that crossbench
senators listened and responded in the same way.
De-regulation for universities but re-regulation for vocational education?
We need to take a step back from the higher education debate and look at what is happening in
vocational education the other half of Australias system of tertiary education, which often
commands less public attention.
It should not escape anyone that, even within the last fortnight, the federal government has been
moving rapidly in two very different directions within the tertiary education sphere.
Education Minister Christopher Pyne has been pushing with incredible force the deregulation of higher
education, with the total removal of fee caps for undergraduate degrees, the creation of unlimited
HECS loans and the decision to open the gates to 130 private providers to compete alongside
Australias 40 universities for public funding.
Meanwhile, Assistant Minister for Education and Training Simon Birmingham has been working just as
forcefully to rein in the atrocious and exploitative behaviour of hundreds of private vocational

education providers. These have been rapidly draining money from the public purse by taking
advantage of generous HECS-style loans to lure students into overpriced VET courses.
Some of the stories of the students who have been squandered their education entitlements and been
left in debt through the sharp marketing practices of these for-profit operators are incredibly sad. It is a
national disgrace that we have let our VET system reach this point. I give credit to Birmingham for the
action he is taking to restore some integrity to the system.
Can we learn from the mistakes that have so clearly been made in the deregulation of vocational
education to inform how we proceed in higher education? We should not be furiously re-regulating in
one domain just as we are trying to radically de-regulate in another.
This is why I agree with the call by the Business Council of Australia last week that we should lift our
eyes above the silo of higher education to take a broader look at how vocational and higher education
work together.
This is not to say that such a review will lead to the creation of a unified system of tertiary education,
nor should this be the goal. However, a more comprehensive examination of the links between the
two systems would be sensible. It is time to consider the contributions made by VET and higher
education and to examine the policy settings that are most appropriate to support quality outcomes in
both sectors.
The policy settings we determine must ensure that current and prospective students have access to
affordable, quality education. This principle is the touchstone that we must use as the basis for any
reform, remembering that the decisions we take will have lasting consequences for Australias future.

What is fee deregulation?

To recap, the federal government proposed a shake-up of the tertiary education system as part of its
annual budget. Although there were some positive changes proposed, talk of fee deregulation has left
students worried about the cost of higher education study. Fee deregulation would allow public
universities to set their own undergraduate fees, just like private education providers. This means that
the current caps on fees ($6152, $8768 and $10,266) would be abolished in 2016, with fee hikes a
likely outcome. Some of the other changes include a reduction in the governments subsidy of tuition
fees and an increase to the HELP loan interest rate.
Whats been happening?

The fee deregulation bill has not yet been passed in the Senate, with the Labor party vowing
to reject the bill entirely. Labors opposition to the fee deregulation bill will be key to its campaign
strategy for the next federal election, due to be held in late 2016. The bill is also being opposed by the
Greens and the Palmer United Party.

An inquiry into the changes has produced a number of recommendations, including providing
funds to universities to allow them to transition to a fully deregulated system and re-examining
changes to the HELP loan interest rate. It has also floated the idea of recovering HELP debt from
Australians living overseas. Labor senators on the inquiry panel have pushed for a separate bill to be
introduced, dealing with non-controversial matters such as extending funding for research. The
Greens have gone even further, calling for the abolition of student fees altogether.

Deregulating fees isnt proving popular with the public either, with a recent Fairfax poll finding
that almost two-thirds of Australians oppose the reforms. Opposition is even greater among uni
graduates, at 72 per cent, and stronger still among current tertiary students, at 76 per cent.

If approved, its possible that the fee reforms will be delayed. With 1 January 2016 the
proposed start date, education experts are pushing for a delay to allow the government to give greater
consideration to its legislation while also benefiting students by providing more notice of potential fee
increases. Delaying the start date has received support from some universities as well as peak body
Universities Australia, which is calling for the 2015 cohort of students to be exempt from any changes.

The message for universities from this budget is, Fend for yourself. Over the three years from 2015,
$1.1 billion will be withdrawn from higher education by decreasing the Commonwealths contribution
to undergratuate student places. The actual amount that will be lost to the university sector will in fact
be far higher, as funding for government supported places will be extended to non-university higher
education providers (TAFE and private colleges). The pie will become smaller, with many more at the
table to eat.
The government rhetoric paints a different picture. The changes will
for the first time enable competition based on quality and innovation in the higher education system
And innovation there will need to be in spades. For the first time since Whitlam, universities and
other providers will be able to charge what they wish for a place at the table. Caps on fees are gone.
In essence, the public contribution toward a persons education will shrink, and the private
contribution will rise to what the market will bear. This will be good news for prestigious institutions,
which will get a solid return on their name and the social status it denotes, but it is unclear how
deregulation will play out across the sector as a whole. Quality control will be essential if we are to
avoid the worst elements of the US system (yet funding for the quality regulator, TEQSA, has been
reduced).
Students will continue to be able to defer repayment of their fees under HECS (and in a small
concession the modest start-up fees on these loans will be scrapped), but in a truly startling move the
cap on what an individual can borrow (presently $96,000 to $120,000) will be removed. These loans
will also be subject to interest - at the moment they are adjusted only in line with CPI. Interest will be
tied to that of ten-year government bonds, with a cap of 6%, or about the rate charged on the average
mortgage.
What does this mean for Australian higher education?
Be in no doubt that this is a major shake-up. These changes throw the logic underlying HECS, and the
policy settings of the last quarter century, out of the window. HECS was introduced on the assumption
that the benefit of a higher education accrues about 30% to the individual (primarily in the ability to
earn a higher wage) and about 70% to society (in sharing the benefits of the graduates knowledge, and
the higher taxes they pay, for example). So the HECS a person accrued was the cost of about a third
that of their overall education.
This equation was muddied somewhat with the introduction of different levels of HECS for different
courses, but the overall logic remained. The reforms announced tonight will lower the amount the
Commonwealth contributes, but set free the total amount charged. Any thought of relative proportion
or benefit is gone. Ironically, this budget measure is subtitled, Sharing the cost fairly. It is hard to
say whether it is fair or unfair, since the long established policy definition of fair for higher education
has been abandoned.
How much are students willing to pay?
We also do not know how a radically uneven distribution of fee levels will affect participation.
Research undertaken by Bruce Chapman and his colleagues at the Crawford School has consistently
shown that fluctuations in HECS fees do not deter students, regardless of their socioeconomic status.
Of course, debt at these levels is untested.
Further, the flip-side of Chapmans research is that it implies a non-rational market in higher
education, that will likely be exacerbated when fees are unequal between institutions. Consider, for
example, the big companies advertising retail goods as buy now, pay later. They do this because they

know consumers make less rational choices, and spend more than they otherwise might, when they
can put off payment. Similarly, a student may be unlikely to choose a more affordable course, all other
things being equal in terms of quality, if they perceive added prestige in a more expensive course and
payment is deferred anyway.
There is a very tight, but complicated, synergy between what students will pay, how much they can
borrow, and what institutions will charge. The history of changes to HECS levels shows us that
students will pay as much as they can borrow, and that institutions will charge as much as students
will pay. A potential outcome of todays new world could be an upward spiral, where price could
become a de facto signal for quality, but no genuine connection between cost and true quality.
The scope for massive debt to government from these loans is difficult to guess at. How un-repaid
loans will affect the budget, and the general instability this will cause, are also difficult issues. Perhaps
another line from the budget papers puts it best, that it will be the decisions of students, the needs of
employers and the initiative of our academic leaders [that] drives the future of our higher education
system. Government has stepped away from the table.

The government fell three votes short of the six crossbench votes it needed to pass the changes.
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Senators Bob Day, David Leyonhjelm and John Madigan voted with the government while senators
Ricky Muir, Glenn Lazarus, Nick Xenophon, Zhenya Wang and Jacqui Lambie voted against.
Earlier on Tuesday Education Minister Christopher Pyne vowed to continue to argue for deregulation
even if the Senate voted down the bill, saying, "You couldn't kill me with an axe."
Independent senator Nick Xenophon said the current funding system for universities was
unsustainable but called for a comprehensive review of the sector before considering fee
deregulation.
"There has been a lack of preparation and consultation before such a fundamental change to
Australia's higher education policy," Senator Xenophon said.
"This is the biggest, most radical change Australia has seen in higher education.
"Right now, what we have is a mess. What has happened to date has been less than satisfactory."
Senator Lambie accused the government of launching a "disgraceful political ambush" and employing
the tactics of a "third-world tyrant" during negotiations with the Senate.
"I oppose this legislation with every fibre of my being," she said.
Senator Lambie said all Australian should be able to complete their first university degree for free and
called on both Labor and the Coalition to commit to spend one per cent of gross domestic product on
higher education.
Senator Madigan warned his fellow senators against succumbing to populism and urged them to seek
to improve the government's bill rather than vote it down.
"I have serious concerns with the bill in its current form, but I also fear the consequences of doing
nothing," he said.
Assistant Education Minister Simon Birmingham said voting against the bill would deny universities
much needed freedom and autonomy, as well as denying Commonwealth support to 80,000 students
in pathway programs, TAFEs and private colleges.

The Finance Minister, Mathias Cormann promised on budget eve that the government remains
committed to the package of changes to higher education reforms announced by Education Minister
Christopher Pyne last budget.
So the budget may produce a few surprises. Or it may not. In the months before the 2014
Commonwealth budget then opposition leader Tony Abbott quietly claimed that masterly inactivity
can be the best contribution that government can make when he addressed the Universities Australia
Higher Education Conference.
We cannot completely rule out moves by the government that may have dramatic implications for
Australian higher education.
So what might Pyne and the government decide to do and what could it mean?
The government has not been shy in proclaiming the need for savings, so some form of cuts look to be
the order of the night. Pyne has committed to saving the National Collaborative Research
Infrastructure Strategy (NCRIS) which could well come at a price for other funding support for
research infrastructure and graduate training.
The advantage with cutting from these pools of money is that Pyne can make cuts without having to
get the approval of parliament like he does with attempts to deregulate student fees.
While a cut to research block funding might be politically possible, they will have real consequences
for research output. Australia will do less research, because the research effort in universities relies
heavily on these funds to allow projects to happen and universities already cross subsidise heavily to
keep the research effort going.
Of course the government could choose to try for a smaller cut to teaching funds but matched with a
capped increase to HECS. This might solve some of the immediate need to prosecute deregulation, but
such a proposal would likely make attempts to convince the Senate to ultimately support the Pyne
plan even less likely, if key crossbenchers didnt just dismiss the idea outright.
The lesson from previous increases in fees caps is that all universities, even if it takes them a year or
two, go to the top of the cap. After all, a cap set by the government sends a strong signal as to what the
state suggests students should pay for a high quality education.
Fears that deregulation will see significant price rises across the board could be all the more plausible
if it is introduced when students are paying more than they do now following an increase in the HECS
cap. Then the government could, as some have suggested, run a pilot for its plans for deregulating
undergraduate universities fees.
To do this it could allow some universities to take deregulation matched with a significant cut, while
keeping the others within the present rules.
This would be a brave move for Australian higher education, and could see two quite different types of
institution in the higher education landscape.
One type of university that delivers teaching funded by what the government deems to be the
appropriate top level of fees to be paid.
Such an institution is just acting in line with the rules, following government signals as to the cost, and
some would argue the value, of a degree.
And another type of university that can charge what it likes but must justify the higher fees it charges.
And higher they must be, to make up for the cuts if nothing else. There is not the same guiding rule for
these institutions, having chosen to be judged by the market.

Deregulation, whether implemented as proposed or by a lesser degree, will likely have implications for
Australian higher education that go beyond what a student pays.
Universities are clear on the value they place on autonomy, as the often vocal call to protect academic
freedom shows. A deregulated system as proposed by Pyne, asking universities to set prices, could
further their autonomy as they become more independent of government.
But equally, it asks universities to work much harder to continue being truly public institutions, part
of broader civil society but answering to their staff, student communities, and ultimately to the nation.
This years budget may not bring the fireworks of last year, but it may bring some surprises.

Good: there is significant public support for universities.

Recent research (here and here) in Australia tells us something about public perception of
universities. It suggests that over 75 per cent of Australians have a positive view of them. Near 80 per
cent said they would encourage their kids or young people they know to attend. This is unsurprising
when near 40 per cent of 25-34 year olds now hold a Bachelors degree.
Bad: Australians dont know what universities actually do.
Only around one in ten people report they are aware of the different fields studied at university. Near
half say that universities exist solely to educate for skilled and professional jobs. When business is
asked this question, 75 per cent give the same answer.
When asked what sort of research universities should undertake, over half respond that focus should
be exclusively on research that leads to practical outcomes or objectives. Narrow this to people who by
their own report have had little to do with universities and it is closer to 70 per cent.
It is hard to know exactly what practical means to different people, but it is not a far stretch to claim
that universities are seen as instruments for either personal or national economic benefit. They should
make lives better in obvious ways. Jobs and medical advancements: making bucks and saving babies.
This can be confronting to supporters of higher education who still firmly believe that pursuing
knowledge for knowledges sake is the cornerstone of the enterprise.
And public support for higher education can be surprisingly soft, with almost 60 per cent of people
rating their support for universities on the milder end of the spectrum. (Unsurprisingly people that
have greater involvement in universities students, staff and parents are stronger supporters).
Ugly: By one report nearly a quarter of businesses and general public say they oppose international
education.
If accurate this is very worrying, given the importance that international students have for the
vibrancy and viability of Australian universities, not to mention their host cities. It seems all the
features of the contemporary university system in Australia are not universally supported.
There is clearly scope for institutions to do a better job of explaining what they do to the public. What
is fuelling public perception of universities, and how it might be changed, is worth pausing on,
especially in tight fiscal times for government.

Over recent weeks, some staff have written to vice-chancellors, urging them to reject the university
deregulation measures(link is external) advocated by federal Education Minister Christopher Pyne.
Public universities, they argue, should not be left to the vagaries of the market. I disagree and would
like to explain why.
Declining levels of Commonwealth support
The idea of a public university is worth defending. The term suggests commitment to merit-based and
equitable entry. A public university means a curriculum that emphasises intellectual inquiry regardless
of the course chosen. It indicates staff, facilities and services to support student learning, and campus
life to encourage exploration and growth. A public university is home to academic freedom in thought,
teaching and research, with governance that ensures academic oversight of academic matters.
Australian public universities meet these tests. What they lack is adequate public funding. A
generation ago, public universities received almost all their income(link is external) from Canberra.
This changed from 1989(link is external). Within a decade, public universities were raising most of
their income. Today, direct Commonwealth recurrent funds cover just 23% of the running costs of the
University of Melbourne.
Like other Australian public universities, the University of Melbourne relies on student fees,
competitive research grants, commercial activity and philanthropy to pay its staff, keep open the
libraries and support student life.
So, if majority Commonwealth funding is a defining characteristic, there is no public university in
Australia.
Australia shares this trend with other nations. Direct public funding at Oxford in 2013-14 met just 16%
(link is external) of running costs. The University of California, Berkeley, receives less than 15%(link is
external) of its income from base funding. Yet Oxford and Berkeley retain the goals, ethos and culture
of public universities as do their Australian counterparts.
As overall enrolments in tertiary education rise, governments invest less per student. For Australia the
high point of university funding, measured as government spending on each student, was 1975-76. A
40-year decline has followed, with two recent federal(link is external) reports(link is
external) confirming Australian public universities are underfunded for key teaching responsibilities.
This change reflects the reality of participation. When Australia supported free tertiary places from
1974 to 1989 only a small percentage of young people went to university. This changed in the
1980s(link is external) as school completion rates rose and more jobs required tertiary qualifications.
Faced with continued budget increases to fund tertiary expansion, the Hawke government introduced
student contributions, encouraged fee-paying international students and began the reductions in per
student funding that continue 25 years later.
This decline in funding was not inevitable, but stronger demand for places has made governments
less willing to fund the full costs. Creating new places is expensive. Recent regulatory impact
statement figures suggest(link is external) projected student growth in Australia will cost an additional
A$7.6 billion in the next few years. It is disappointing, but perhaps not surprising, that governments
baulk when facing such sums.
For those who see tertiary education as central to personal opportunity and community well-being, tax
increases to fund system expansion are more than justified. A great public purpose requires adequate
public funding. Alas, not all share this view.

In response to a question(link is external) to the National Press Club, I once argued for higher taxes
on people like me so more Australians could access a quality university education. The reaction was
immediate, hostile, personal and visceral. The experience made me appreciate why politicians who
argue for higher taxes remain rare.
The difficulties of changing public perceptions
Some who are against fee deregulation propose a broad community debate about the nature and
funding of Australias public universities. It is a worthy aspiration, but the record is not encouraging.
I have watched many intelligent and committed vice-chancellors, along with generations of talented
student leaders, present the case for national investment in higher education. There is little evidence
that all those speeches and media appearances, reviews and debates, detailed presentations and
tearful pleas made much difference. Like student leaders, vice-chancellors work hard for policy
influence but prove marginal to the big political choices.
Politicians dont necessarily disagree with the need to fund universities, in public or private. Almost all
are graduates who recall with affection their days on campus. But when they go out in the electorate,
the plight of universities is on no-ones lips.
Politicians are skilled in reading the public mood. They know the electorate is focused on other issues.
People rarely rate tertiary funding as a pressing issue compared with hospitals, schools or border
security.
Let me offer an example. During my term as chair of Universities Australia from 2011, vice-chancellors
around the nation agreed to fund a sustained professional campaign(link is external) for increased
public funding. We began by commissioning research to understand public attitudes. This confirmed
that Australians value access to tertiary education(link is external) nearly 90% of parents hope their
children will consider university study.
Yet focus groups suggested little willingness to consider tax increases. Many felt that university
funding was already reasonable, or even too high. Some believe that tertiary students hold a ticket to
privilege and higher salaries. In their view, universities and their students hold little claim on further
public contribution. The research revealed what politicians already knew.
Undaunted, Universities Australia carefully framed the planned campaign, employing one of the
nations most skilled political advertising firms to hone the message. The tone was positive
Australias public universities do a great job, but national investment is too modest for the nation to
remain competitive. Across the country, vice-chancellors reinforced the campaign with local
messages, explaining to city and regional audiences the importance of vibrant tertiary education
promoting exactly the broad public debate you recommend.
We soon learnt a tough political lesson. Despite the campaign promoting the contribution of
universities, the Commonwealth government announced two swift cuts to the sector to research
investment in the 2012-13 MYEFO statement(link is external), and then more broadly to student and
university funding in April 2013(link is external). Even as Universities Australia ran advertisements and
promoted public meetings, the then-tertiary education minister, Craig Emerson, announced reductions
to university funding so the government could finance the schools package recommended by David
Gonski.
Emersons decision made clear that schools have political salience but universities do not. It is an old
message. At different times, all recent governments have cut university funding per student in real
terms. There is no evidence that any paid a political price for doing so. When challenged,

governments point to growing overall public expenditure on tertiary education. Few point out that
enrolments grow even faster, so the resources available to support each student decline. Markets
have vagaries, but so does reliance on government. The public perception remains that public
universities are adequately funded. Australia spends proportionally less public money(link is
external) on universities than most OECD countries, yet few outside the sector argue for international
standards of investment.
The current settings are unsustainable
This leads, inevitably, to the question of why vice-chancellors support aspects of an unpopular
deregulation agenda.
Start with the status quo. As everyone who works on a campus knows, classes are at times too large;
teaching contact hours too few; opportunities limited for extended engagement with industry and
community. Fluctuating sources of income mean that universities rely on a large array of casual staff
with insecure employment.
The sector has been marked by large-scale redundancies, particularly for professional staff. Research
funds are tightening, with less than one grant application in five attracting support(link is external) from
major funding schemes.
The status quo presents similar challenges for students. Student support is insufficient, yet was cut in
2013. HECS remains a vital equity measure, but staying alive through years of study can be hard.
There are few cheaper university alternatives. Since current regulation imposes uniform fees (with
some marginal discretion, nowhere exercised), it costs the same to go to any public university in
Australia.
This is the unhappy reality of relying on government to fund higher education. These are not the
elements of a sustainable system. And if no policy settings change, some or all of the additional $7.6
billion required to accommodate new students will come from further cuts to universities.
What are the alternatives?
We might see a future government keen to improve funding for universities. Occasionally higher
education ministers buck the trend. Brendan Nelson and Kim Carr each delivered major additional
investment in research funding. Julia Gillard expanded enrolments for young Australians, as did John
Dawkins a generation earlier. David Kemp and now Christopher Pyne sought to change fundamental
policy settings.
The political process can matter, and we should not give up on lobbying, marches and canvassing.
Yet to achieve OCED standards of public investment in higher education, Australia would need an
unprecedented boost in outlays. This implies a major shift in public opinion, and a willingness by
government to contemplate higher taxes. It would run counter to the trend of the past 40 years, and
against trends in comparable nations.
Improved investment is worth a campaign as people have done for decades but experience
cautions against pinning all hope on a shift in community sentiment.

Alternatively, a future government could hold present funding rates but limit further enrolments to
reduce demands on Treasury. This raises immediate equity problems and runs counter to the stated
policy of both the Coalition and Labor. Yet it will become part of the conversation.
Assuming no further public funding is made available, universities will need to lift international
enrolments. This seems inevitable, but is it reasonable to ask the families of our region to fund
Australian universities because Australian taxpayers will not?
More radically, we could change the nature of Australian higher education and create (or convert)
institutions that only teach(link is external). This would hold down costs for students. It is an old
solution Australia funded an early period of enrolment growth by directing many students into
colleges of advanced education, which were not eligible for research support.
Not surprisingly, this solution attracts little support from most vice-chancellors. We argue that every
tertiary student should have access to research-informed teaching on a campus where research is
part of the infrastructure and culture. Nonetheless, we will hear more of this argument, particularly
as private providers(link is external) seek access to the title of university and a bigger share of the
tertiary market.
Those against fee deregulation oppose further fees for students. They point rightly to the risks
of higher debt(link is external). That concern must be weighed against the most likely alternative
further cuts to per student funding.
Graduates are the primary beneficiaries of tertiary education, and HECS ensures only those who earn
a return on their degree pay back some of the cost. Current funding rates mean the tertiary education
offered to Australians at times falls short of global practice. In the absence of public appetite to invest
in public education, a measure of fee deregulation is the only way left to fund education quality to a
reasonable standard.
It has been a long and difficult journey for Australian university leaders to reach this conclusion. Many,
including me, were the beneficiaries of more generously subsidised places on campus. Years in the
classroom makes vice-chancellors deeply committed to the importance of a quality education for as
many young Australians as possible. It is hard, nonetheless, to ignore the stark realities of current
funding policy.
For many, the federal funding cuts of 2012 and 2013 finally tipped the scales, turning idealists into
reluctant pragmatists. Colleagues who long opposed higher student fees (and still find them deeply
unpalatable) now face the consequences of chronic underfunding. They know a poor education is no
bargain, whatever the price.

These amendments address some of the concerns raised by Senate crossbenchers. However, particular
attention must be given to the sustainability of HECS-HELP. Since HECS was introduced in 1989, the
money raised through the reintroduction of student contributions has helped fund the sectors
expansion, radically increasing the supply.
At the same time, the creation of the HECS system has ensured more students particularly those
from disadvantaged backgrounds are not discouraged from participating and can afford to do so.
Rising fees means rising public debt
This comes at a public cost. Some students are never able to repay their student loan and at this point
it becomes public debt. Like the health or welfare system, its a red line in the national budget; one
that is accepted because of the overwhelming benefit it brings to the nation.
The HECS-HELP scheme is, rightly, a shared national responsibility and we must protect it against
any changes that have the potential to undermine it. The government is adamant that, under its
proposals, HECS-HELP will be maintained. However, as part of the changes, the government did not
clarify how high future debt might rise if universities were able to set their own student fees and the
government continued to guarantee a HECS-HELP loan for the full amount.
This increases the risks to taxpayers, and that increases it for students.
Consider that by one estimate, doubtful debt (student debt that will never be repaid) is likely to be as
high as A$13 billion by 2017. This is an estimate before fee deregulation, when the government still
controls the cost of education to the student and the public. On average this figure will rise, not fall, if
fees are deregulated. The question remains, by how much?
A key assumption underpinning fee deregulation is that market forces will create more competition,
thus tending to keep prices down and providing better value for students. This relies in great part on
the notion of price elasticity or the extent to which price affects consumer behaviour.
Increasing price sensitivity that HECS was meant to reduce
In principle, if a student is required to pay full tuition fees at the point of entry, they will be far more
sensitive to price. But the whole point of HECS is to reduce that sensitivity, so that no-one is
prevented from attending university on financial grounds. Instead, HECS is meant to encourage
students to focus less on the price of education and more on its future benefits.
The degree to which this relative lack of student sensitivity to prices will continue under fee
deregulation is unknown. Nor do we know how universities or private providers will react in a
competitive market in which the price signal is disguised.
No-one can really be sure how fee deregulation and HECS-HELP will play out together, nor how this
will affect students or the taxpayer. This uncertainty should be of great concern to the Senate when the
bill is put to a vote again next year.
If fees, on average, dont rise significantly under fee deregulation then neither should public debt.
However, is there any evidence, or modelling, that can be provided to the Senate to support this
scenario?
Rising student debt is a problem confronting other countries right now. Student debt in the
US exceeds US$1 trillion. In the UK, the Higher Education Commission is worried that three out of
four students will never be able to pay off their debts, creating public debt that is not sustainable.

The Senate needs to be assured that the government has a long-term strategy for managing student
debt. We all need to be reassured. Now is not the time for rushing through legislation; now is the time
for the government to pause and reflect.