The Parliamentary Budget Office's report on the future cost of the Higher Education Loans Program highlights the contradiction at the heart of the federal government's plan to deregulate university fees.
The government tries to argue that cutting subsidies for undergraduate places by 20 per cent and allowing universities to charge whatever fees they want is necessary because higher education has become too great a burden on the Commonwealth budget.
What the report shows, however, is that implementing the government's plan would be the worst possible course of action if the aim is responsible budget management.
The amount of outstanding HECS debt would blow out massively, potentially making the whole HELP system unsustainable. The PBO report estimates that within 10 years the annual cost of HELP loans – now $1.7 billion – will have risen to $11.1 billion, accounting for 46 per cent of the nation's public debt.
The report finds that the growth to 2026 will be "driven mainly by the projected increases in student fees from 2017 due to the [Abbott-Turnbull government's] announced higher education reforms". In other words, it is the government's own policy that would cause the problem.
The Liberals' plan, as unveiled in the 2014 budget and reaffirmed this week by the Education Minister, Simon Birmingham, allows for complete deregulation of fees. Universities would be allowed to charge whatever they like, and there is no doubt the result would be substantial fee increases leading to out-of-control HELP debt.
Independent analysis, such as that undertaken by the National Centre for Social and Economic Modelling at the University of Canberra, has consistently found that fees for many courses would double and treble under deregulation. Because students don't have to pay upfront – because of our world-leading income contingent loans scheme – there is nothing to stop universities charging domestic students the same as they charge international students, minus the reduced Commonwealth contribution.
That's why the prospect of $100,000 degrees, which the government tries to dismiss as a scare tactic, is very real indeed. According to NATSEM analysis, medical, veterinary, dental and optometry degrees would all cost more than $100,000. In other fields, nursing students, who currently pay about $6300 a year, would be charged more than $12,000 a year under deregulation. The cost of a three-year arts degree would skyrocket from less than $20,000 to almost $50,000.
The experience of deregulation abroad backs up this analysis. It demonstrates that higher education markets do not function according to textbook theories. There is no competitive pricing.
In Britain, fees were partially deregulated in 2012 with a cap of £9000. The government made assurances, as the Abbott-Turnbull government has, that smaller and less-established universities would be able to compete for enrolments by charging lower fees.
Yet in the present academic year, only two of Britain's 123 universities do not charge £9000. The outcome is not surprising because in higher education, price becomes an indicator of quality. British universities that initially charged less suffered because they were perceived to be inferior.
That is what happened in a market in which fee rises had an upper limit (which the Tories are talking about raising again).
What would we see in Australia if the Liberals get their way and remove the cap completely? The most established universities would charge as much as they think the market will bear, and other institutions would have no choice but to fall into line behind them.
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