A snippet on higher education

As I mentioned a while ago, I’m using the blog as a database of snippets that seem likely to be useful, but need to be cut from articles for space or other reasons. Comments are appreciated as always

The recent higher education policy paper Backing Australia’s Future has estimated that students are currently contributing about 25 per cent of the cost of their education. However, this is a gross under-estimate. It involves an overstatement of the subsidy associated with HECS, ignores the tax deductions that would apply for alternative investments, and fails to take account of the cross-subsidies inherent in the university system, from undergraduate education to research and supervision of graduate students (far from recognising these cross-subsidies, Backing Australia’s Future tries to claim that research funding Îsupports individual [undergraduate] studentsâ.)
For undergraduate students in areas like commerce and business, the contribution is closer to 100 per cent of the resources allocated to them than 25 per cent. For law students the contribution may already exceed 100 per cent, and will certainly do so under new proposed arrangements.

6 thoughts on “A snippet on higher education

  1. For once, I agree with John on a higher education issue. The government’s figure seems to be based on their HECS cash receipts as a proportion of total university operating grant expenditure, which tells you nothing about what proportion of their nominal subsidies individual students will end up paying back.

    On the other hand, recent claims about what proportion of costs students will pay under the reforms are also highly dubious. The ‘costs’ in question are figures taken from the so-called relative funding model – costing figures that were dubious when created more than decade ago, and meaningless now. If Nelson’s reforms get through the Senate, these ‘costs’ will become even more irrelevant as benchmarks, since universities will be able to charge more and spend more.

  2. having accurate figures is important.

    but the costs to students are contingent upon income. since tax has to be paid by someone, all the new reforms do is shift the tax burden from workers now, to rich graduates later.

    this is fair.

  3. I would expect that those graduates with market power would demand, on graduation, wages higher than if they were not paying HECS, and because they would not lessen their demands once they paid off HECS, their earnings overall would be higher than without HECS and so the community would be worse off. Is there any evidence that this has happened?

  4. On Joe’s question: The Graduate Careers Council of Australia has compared starting salaries in 2001 with those in 1977. Law had by far the largest increase, but it is doubtful this is due to HECS. The main reason is that the once pitifully low wages paid to articled clerks are now competitive with other professions open to law graduates. This would have happened with or without HECS. Since HECS began, starting salaries as a % of AWE have decreased. On average, graduates are not going to be paid more than their value to the firm, no matter what HECS or other debts they have.

  5. And as I keep saying about HECS and other income-contingent loans schemes, it has existed since 1914 in Australia. Its called income tax. Once someone is on $50k a year or more, every additional dollar they earn that is due to their education is repaid at the rate of 48.5 cents. So if, for example, the taxpayer funded education has increased their earning power by $10k a year (a reasonable ballpark of the effect of a uni education), the govt is getting an additional income stream from it’s investment of $4800 a year.

    I haven’t seen any studies in Australia that actually try and measure the net IRR of a marginal dollar spent on tertiary education to the government, as against private or social IRRs, but it ought to be doable – are there any DEST people out there interested in getting some ammunition for the annual struggle with DOFA?.

  6. Derrida derider: I think DoFA believes (probably correctly) that their rate of return on higher education is negative. This is because they can reduce what they spend without reducing their returns via income tax, because private money makes up the difference. This is what increasing HECS has done. The current policy of fee flexibility will further increase returns to government, at no expense to taxpayers.

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