Should universities have to pay back unpaid student debts?
Thursday, Aug 27, 2015, 08:00 PM | Source: The Conversation
At a recent ANU forum on higher education financing, economist Lorraine Deardon said that since UK universities were allowed to treble their fees in 2012, more than 60% of UK students may never repay their loans. She suggested that with income-contingent loans, allowing universities to set their own fees should entail some “risk sharing” between governments and universities.
Since last year’s push to let Australian universities set their own fees, critics have highlighted the risk to taxpayers of a student debt blowout. Would all institutions hike course prices if fees and loans were uncapped? Not just for the revenue, but to signal that their courses are among the best?
HECS architect Bruce Chapman believes that most would. He notes that price competition is weak in higher education systems with HECS-type income-contingent loans. After all, these were designed to neutralise cost aversion.
Student debt that is unlikely to be repaid is already becoming a problem, according to a report by the Grattan Institute’s Andrew Norton. For such reasons, ANU economists Rabee Tourky and Rohan Pitchford argued last year that Australian universities should have “skin in the game” on Higher Education Loan Program (HELP) debts.
How might risk sharing work?
Under the Tourky-Pitchford proposal
universities receive a share of student repayments when they are made and not before students pay their HECS debt. So if a student delays a repayment, full payment to the alma mater is also delayed. In the extreme case where a student’s lifetime income remains below the repayment threshold, then the alma mater does not get the full fee.
Education Minister Christopher Pyne has reportedly been considering a similar idea to help win Senate support for fee deregulation.
This would not withhold part of the fee paid by government on behalf of students. Instead it would link the university’s annual grant (a direct subsidy per student, which varies by field of study) to how well it meets a set of performance indicators, such as the debt repayment performance of its graduates. Conceivably, such an agreement might also include dropout rates as an indicator.
A third approach would have universities receive both fee and subsidy in full, but repay the government a percentage of unpaid HELP debts after a certain period: say 10% or 20% once 10 years had elapsed after students graduate (or drop out). Repayment could take the form of a cut to the annual grant. The formula could vary by field of study or by institution to allow for regional and other differences.
Risk sharing would focus attention on student success in recruitment, advice and support. But since HELP repayments rely mainly on labour market participation, these mechanisms might have unintended consequences. For example, since female graduates generally take longer to repay, would institutions enrol more males?
Would fields of study or student cohorts with poor repayment records decline, despite wide support for the social value of their degrees? Other complexities would arise when students change institutions or incur later debts with further study.
Options for limiting fee increases
These ideas add to a growing list of options to ensure that students and taxpayers aren’t ripped off if university fees are uncapped. An early response to the 2014 budget from Victoria University Vice-Chancellor Peter Dawkins suggested three basic mechanisms:
a cap on the size of the loans; a cap on the fees; and/or a reduction in the Commonwealth subsidy when fees increase above certain levels.
After the Senate rejected the first Pyne reform bill, higher education researcher Gavin Moodie argued that a higher fee cap would meet the main aims of the reform package more simply:
An increase of 30% would compensate for the Coalition’s planned cuts. An increase of 55% would compensate for the cuts and give universities the 10% funding increase they argue they need.
Meanwhile, supporters of fee deregulation argue that this would lead all providers to lift prices uniformly: as in the UK, sector-wide loan costs would rise but price flexibility would be limited.
Using international student fees as a flexible cap for domestic pricing would widen the spectrum, since international prices in Australian degrees already vary widely from institution to institution. But, for many, this may seem too loose and easy to manipulate.
For those seeking direct yet flexible fee caps, a proposal by Chapman to cut direct subsidies as fees rise is a simpler option. This “HECS tax” was explained by Moodie earlier this year:
If a university charged fees A$5,000 above the current fee cap, it would lose 20% of the increase from its government subsidy. For fees A$10,000 above the cap universities would lose 60%…
A difficulty here is that subsidy cuts induce larger price increases. And in fields like law or commerce, with subsidies below $2000, a HECS tax could soon cut these to less than zero.
For policymakers, there are no easy answers.
Geoff Sharrock works at a Group of Eight university which stands to benefit from fee deregulation.