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The myth of student debt versus university funding

The myth of student debt versus university funding

One key recommendation of the Higher Education Base Funding Review final report was to increase investment in higher education by increasing the average level of base funding to "improve the quality of higher education teaching and to maximise the sector’s potential to contribute to national productivity and economic growth". But what does this have to do with raising student debt?

Last week, then Minister for Tertiary Education Senator Chris Evans responded to the Higher Education Base Funding Review final report, rejecting the recommendation to increase funding on the basis that the government had already done enough and that it was reluctant to increase student debt. "The Gillard government does not want greatly increased debt to burden young people well into their working lives," he said.

Apart from the apparent flaws now evident in Evans' claim that the government already increased funding (the 2012 Ernst & Young report on government contributions cited included allocations that were not part of base funding), and the surprise over the weekend that Evans is now no longer minister (Chris Bowen now has the portfolio) it's the spin that really irks me, as it presents a false dichotomy.

In any business, if the cost of providing a product or service increases, the traditional choices are to raise the selling price to cover the cost and retain your profit margin, or retain the existing price by swallowing the increase and decreasing your margin. Some businesses see cost rises as a trigger and realise they are not as efficient or productive as they could be and take steps to improve processes.

Students are not consumers

Public education, however, is not a business in the traditional sense and should not act for profit, and undergraduates are not consumers. The direct beneficiaries of education are graduates, who acquire the skills and knowledge to attain employment, and the indirect beneficiaries are the public, which is the recipient of those skills and knowledge. It stands to reason that the 'price' should be borne by both.

Students already pay for their education, either upfront through fees or via the Higher Education Loan Program (HELP) where the government loans them the money to study and graduates repay the debt through the tax system when they earn over a particular threshold. The public also contributes through government funding of universities. The report recommended that the government increase this amount.

Let's look at what students pay. Students now have debt totalling $26 billion in the HELP scheme, with Treasury expecting only $20 billion to be repaid. This suggests that the scheme needs to be overhauled to increase return. Therefore increasing student debt will not actually provide a magical pipeline of more money, at least not until HELP is fixed so that more of the debt is repaid, and faster.

So a reluctance to increase student debt is not the real reason the government won't back the paper's recommendation. I suspect it's because the Treasurer is keen to bring the budget into surplus that more spending is a no-go zone, despite the fact that the Gillard Government has pledged to invest in higher education. How convenient then, that Evans issued a belated response to a report that was more than 12 months old and then left the team just as the Prime Minister launched an election. One would think they are trying to bury the issue.

Too much debt is no good, but a budget in surplus is a lot of money not being used for the betterment of Australia. I quote the first principle of base funding: "Base funding is provided for universities to fulfil their fundamental role of providing teaching in an environment informed by scholarship, and maintaining a base research capability, in order to contribute to Australia’s economic and social development." Doesn't this correlate with Labor's policy of investing in higher education and skills for a brighter Australia?

On efficiency and productivity

I should also note that in the media storm following Evans' rejection of the recommendation for more funding, a couple of other things have been forgotten, and these relate to the efficiency and productivity of the base funding model. The paper recommends uniformity of student contributions in ratio to government contributions at 40:60 because the current structure sees some students paying a greater proportion of their fees than others. The government did not accept this suggestion.

In fact, the paper includes 29 recommendations, some of which are dedicated to improving how the funding is allocated, accounted for and leveraged. Recommendations include that performance objectives to promote quality teaching be "funded separately from base funding using transparent indicators and assessment processes" and that the government "should include measures relating to student retention and completions in its Performance Funding framework for universities in a manner that acknowledges the provider of each year of student attainment". Combing through the government response, you can see that most of these have been noted, with some accepted 'in part'.

I am eager to see what Minister Bowen will do with these notes and let's hope that he will not take more than a year to act on the review's recommendations. It's an election year, after all.

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