The longer-term effects of upfront discount rates

Rajat asks about deferral trends over time. The figure below is the percent of total student liabilities deferred 1989-2009.


Source: Higher Education Report 2009.

As you can see, the trend is consistent with discount rate having an effect. When it increased in 1993 from 15% to 25%, more people paid up-front and the deferral rate dropped. When the discount decreased from 25% to 20% in 2005, the deferral rate increased, ie fewer people considered it worth paying upfront.

The data is also consistent with the effect building over time. Continue reading “The longer-term effects of upfront discount rates”

Should the upfront student contribution discount be halved?

According to media reports this morning, the government is planning to cut the discount on student contributions paid up-front from 20% to 10%.

According to The Age’s version of things, ‘the government will justify the cut on the grounds that the benefit goes mostly to wealthy families.’

But contrary to common impressions, the discount was not intended as a benefit to anyone other than taxpayers. Because it is very expensive to lend money at zero real interest, students paying up-front can save the goverment money. In a couple of scenarios I did last year, for male arts and law graduates earning median incomes in professional or managerial jobs, it was slightly cheaper for the federal government to pay the discount than to pay the interest subsidy on the HELP debt.

However, the economics of the discount depend on how long students would otherwise take to repay. For quick repayers (or people who would pay upfront anyway), the government would be better off not giving the discount. If students are going to repay slowly, the discount looks like a better deal for taxpayers. Another factor is that up-front payment removes the risk of non-repayment.

Whether or not halving the discount makes financial sense for the government depends on the behavioural response. Continue reading “Should the upfront student contribution discount be halved?”

Why are English uni students going to be charged so much?

To great controversy, England is lifting the cap on university fees to £6,000, with charges up to £9,000 if access measures are put in place. To the government’s unpleasant political surprise, most are going to the full £9,000 from 2012. This is similar to the experience in Australia in 2005, when universities were permitted to charge up to 25% more than the previous HECS rates (except in education and nursing). Pretty soon all were charging the maximum fee.

While not all these fees are rip-off prices, given the cuts to tuition subsidies, I don’t think this is a very good outcome. Even on zero subsidy, in some courses £9,000 in income would translate into significantly more than cost, if Australian costs are any guide. So what’s going wrong?

Without being expert on English higher education, the mistake appears to me to be partially deregulating prices while regulating supply. In the UK as here in 2005, when the government restricts supply to well below demand it’s a licence to increase prices. If people want a degree, they will have to take what is offered even if it is over-priced (though we are yet to see if in practice demand will dip in the UK). Uncapping supply and letting new entrants into the system would create more pressure to keep fees down. Continue reading “Why are English uni students going to be charged so much?”

Our ‘over-enrolled’ universities

Some Vice-Chancellors will be relieved that tertiary education minister has issued a media release talking up the promised demand-driven funding system. It is an obvious savings measure for a cash-strapped government, with no parliamentary approval required for delay and few punters having any idea what it is.

Data released by Evans’ office (though not in the link above) can be compared to funding agreement data to see university ‘over-enrolment’ levels. Under a phase-in to the demand-driven system, universities can receive government tuition funding up to 10% more than their agreed amount for 2010 and 2011 (up from 5% under the previous government). For students enrolled above that, they get the student contribution amount but not any direct Commonwealth tuition subsidy.

Though we can’t directly extrapolate from student numbers to $ amounts, 23 universities have hit 10% undergraduate over-enrolment, and 7 have hit 20% undergraduate over-enrolment. Australian Catholic University is a staggering 41% over-enrolled. Across the whole system, over-enrolment is at 13%.* Continue reading “Our ‘over-enrolled’ universities”

Dubious ideas submitted to the higher education funding review, part 3

Of all the dubious ideas likely to be submitted to the higher education funding review, the most dangerous because most likely to be accepted is that deregulated supply – from next year, the Commonwealth is scheduled to abolish the controls that currently tell unis how many students to take and broadly what disciplines they will be in – should be combined with capped prices.

That however is the message of the higher funding review submission of the Innovative Research Universities lobby group.

For them the price per discpline would be simplified version of the current ‘cluster’ funding model, with many disciplines given the same funding rate, and a flat maximum student price.

It would be a blunter price mechanism than now when we need a sharper one. Continue reading “Dubious ideas submitted to the higher education funding review, part 3”

Dubious ideas submitted to the higher education funding review, part 2

It is quite plausible that there are public benefits from higher education on top of the private benefits accruing to graduates themselves. And there is an at least theoretically plausible argument that, in some cases, these public (and private) benefits may be under-produced if higher education was simply left to the market. This is a conventional market failure argument used to justify public subsidy of higher education.

But is it the case that taxpayers should fund public benefits even if there is no market failure? That seems to be the claim made in the Universities Australia submission to the higher education funding review. They tell us that:

McMahon [an American academic] concludes that the value of external benefits (excluding equity funding which is separate) to wider society beyond those appropriated privately through education by the former students themselves ranges from a lower bound estimate of public benefit of 37% to an upper bound estimate of 61% as a share of the total returns to education. Fifty per cent is close to the midpoint estimate. Universities Australia believes this can serve as a reasonable benchmark for discussion of the public: private benefit shares of higher education.

Later in the submission they call for this to be the basis for public funding: Continue reading “Dubious ideas submitted to the higher education funding review, part 2”

Dubious ideas submitted to the higher education funding review, part 1

With submissions to the higher education base funding review due on Thursday, some organisations are starting to put their ideas out into the media. I thought I would start an occasional series on dubious proposals made to the review (though I suppose this is just a more specific version of what this blog has been about since it started).

Behind the AFR‘s paywall is a story about the Australian Technology Network’s submission. They are suggesting that graduates who work in areas of skills shortage get a discount on their HELP debt repayments.

But generally where there are skills shortages the market deals with financial incentives: the pay goes up. And why should taxpayers rather than employers fork out when staff get more expensive?

The only example given is a rather sexist one, that female engineers should be given an added incentive to stay in the profession. The Beyond Graduation survey, of graduates three years out, found that engineering graduates were already earning good money (median salary $75,000) and had the second highest rate of income growth since their first job (63%). If there is a problem with women in engineering, I doubt it is money. A female engineering graduate isn’t likely to earn more doing something else. Continue reading “Dubious ideas submitted to the higher education funding review, part 1”

The increasing pass rate for international students

With renewed debate about ‘soft marking’ (Club Troppo here, my original post here, Catallaxy here), I revisited a post from last year about pass rates for international students.

Back then, I noted that international student pass rates had increased since 2006 after a long period of stability. In previous analysis I had taken stable pass rates as prima facie evidence that there probably wasn’t widespread or systemic increases in soft marking of fee-paying students as unis had become more reliant on their fees. But after 2006 that seemed to be changing.

We now have another year of data (appendix 4), which shows that domestic and international student pass rates are converging. The figures are for commencing undergraduate students, and the figures represent units passed/ (units passed + units failed + units withdrawn).


Continue reading “The increasing pass rate for international students”

Some tough ‘soft marking’

Claims of soft marking are common, but evidence is rare. This makes UNSW academic Gigi Foster’s paper on business students at UTS and the University of South Australia particularly interesting. She has the academic results and other details for domestic and international students, as well as other information about student background and classes taken.

There is certainly no sign of the grade inflation common in American universities. The average mark for domestic students is 62%, and for internationals 57%. A figure showing the distribution of marks shows very few at the high levels and many fails, particularly for international students.

Foster concludes that there are signs of soft marking because though international students get lower grades overall, when there is a high concentration of international students in classes their marks improve. She thinks that this is consistent with grading to the curve, of ensuring that there is a similar distribution of marks between classes. When classes are mostly internationals, the better students get the benefit of a statistical adjustment to their marks.

In The Australian‘s report of Foster’s paper, not everyone is backing this conclusion: Continue reading “Some tough ‘soft marking’”

This minister isn’t a threat to academic freedom. But what about the next one?

In Senate estimates hearings last week (they only put the transcript up today, large pdf):

Senator MASON [shadow minister for universities] —Andrew Norton wrote an interesting article the other day opposing the establishment of a national regulator. I often agree with Andrew, but can I—
Senator Chris Evans [minister for tertiary education] —I am writing a response so I will send it to you.
Senator MASON—Very good, Minister.

My original article is here, the minister’s response is here.

Evans’ key response to my article is this passage: Continue reading “This minister isn’t a threat to academic freedom. But what about the next one?”