How to prevent $100k uni degrees

Cross-posted from The Conversation:

In recent media reports, higher education policy experts Peter Noonan and Gavin Moodie dismiss the use of international student fees as an indirect “market cap” for domestic fees. Independent senator Nick Xenophon is also unconvinced:

Vice-chancellors say that international student fees are an effective cap, but if disingenuity was a subject, then vice-chancellors would get an A+ […] It would mean a spike in fees – in some courses of between 200-300%. It would make $100,000 degrees look cheap.

Implicitly, these are arguments for direct caps on fees or loans to prevent sector-wide overpricing – if federal Education Minister Christopher Pyne’s deregulation plan ever happens. As Noonan noted in a recent paper, the risk with fee deregulation is that:

… universities with the strongest market may raise prices significantly […] Other universities may price at only slightly lower levels as they will not want to be seen to be offering a cheaper and lower-quality product.

In other commentary, Moodie points to recent UK experience as evidence of the problem. Soon after partial deregulation, fees tripled. Most English universities now charge the new regulated maximum, A$16,000-17,000 per year.

Yet others see this example differently. The Group of Eight’s submission to last year’s Senate inquiry on Pyne’s initial bill argues that:

Capping tuition prices condones charging fees at the cap, which becomes the default price […] Both the Australian and UK experiences show that imposing a cap results in all providers moving to the cap.

How would a market cap work?

The direct cap debate won’t be settled except by experience. But a market cap hasn’t really been debated: the mechanics are not widely understood. The basic idea was outlined by ANU vice-chancellor Ian Young last year as:

… limiting the absolute maximum income an institution could receive for a domestic student (Commonwealth plus student contribution) to the international fee for the same course.

Tables 1 and 2 show how market caps would do this at universities charging high or low international fees. In rough figures, Table 1 shows an estimated range of 2016 prices for international students. It shows the public subsidy per field for domestic students (if planned cuts proceed). And it shows the maximum domestic fee under a high or low international cap, in these conditions.

ScreenHunter_5937 Feb. 09 13.52

Low price examples

Under a market cap, domestic fees at universities charging the lowest international price would, at most, be A$8,000 a year in nursing, A$11,000 in education or computing, A$13,000 in engineering or science, and so on.

Take education. In 2014, international students in Victoria in this field at Australian Catholic University, Federation University, Victoria University, Deakin University and RMIT University were charged fees in the A$18,000-21,000 range. On that basis their domestic places could be priced no higher than A$9,000-12,000 per year to comply with a market cap.

Critics of the idea have suggested that universities could simply manipulate international prices to maximise their domestic fees. But high reliance on international revenue makes it risky to play fast and loose with prices.

The risk of overpricing education in Victoria would be an enrolment drop in the domestic market, the international market, or both. Then the further risk is that entry standards fall to make up numbers, reputation erodes and the task of attracting students gets harder next time.

High price examples

Would universities charging higher international fees maximise domestic prices? This will depend in part on how much revenue they seek, beyond the price rise needed to offset the planned subsidy cuts. As I explained in an earlier Conversation article, the average break-even price for most universities is less than A$11,000 per year, and an average of A$14,000 would yield a 35% net increase in domestic fee revenue.

As Table 1 shows, a university with the highest international prices could charge, say, A$18,000 in all fields and lift net domestic fee income by 75%. In commerce its annual income per place from the fee plus the subsidy would then be A$20,000 compared with potential international income of A$40,000.

But in nursing, where the subsidy is higher and the international fee lower, domestic and international income would be the same at A$30,000. In theory, this university could charge domestic commerce students up to A$38,000. But it would then have to explain why they pay so much more than engineering students, who could be charged A$28,000 at most due to a higher subsidy.

The QUT example

In a minimum international fee scenario, Table 2 shows the maximum total course price for domestic students. This ranges from A$24,000 in nursing to A$72,000 in law. It also shows that the 2016 domestic prices published recently by Queensland University of Technology fit this picture, with most QUT fees set at or below the Table 2 maximum.

The exception here is nursing at about A$11,000 a year. With a strong market position in many fields, QUT currently charges international nursing students around A$26,000 per year.

ScreenHunter_5938 Feb. 09 13.53

Implications

On this view, a market cap is hardly a fig leaf for a free-for-all. It offers a reference point for institutional pricing strategies, for a price monitoring agency and for prospective students. It rules out the sector-wide price hikes seen in the UK. And A$100,000 degrees do not look cheap, as Xenophon suggests. They’d still be seen as expensive and exceptional.

Article by Geoff Sharrock, Program Director, LH Martin Institute at University of Melbourne

Unconventional Economist

Leith van Onselen is Chief Economist at the MB Fund and MB Super. Leith is an economist and has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.

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Comments

  1. GunnamattaMEMBER

    How to prevent $100k uni degrees

    Do them in Germany, Czech Republic, Sweden, Finland, Norway, Austria, etc

    • Also Slovenia, Hungary, Slovakia, Poland, France, Spain etc.., probably with an Erasmus/EU exchange semester thrown in.

      Issue for university funding (and TAFE/VET/Schools) is demographics, in the 80s the Labor govt. foresaw increasing budget demands from ageing baby boomers etc. not wanting increased taxes, but requiring increased funding for health and pensions (why super was introduced).

      Importantly for the working future of youth, as opposed to middle class ‘white collar’ aspirations, break the linkage between high school and university entry. In addition to using vocational pathways, there are now TAFE and private college degrees, allowing more economic fees, hands on and smaller class study, with time to work.

      In Germany there have been reported behaviours on high school leavers, and more mature students, even with no or low fees. The phenomenon, that has been encouraged, is to do technical or trades training allowing one to find employment and use their hands versus graduate unemployment (if one has studied degree where grads are not in demand).

      I fear too many young Australians have received sub-optimal study and career counselling at high school (along with peers and family) whereby too many expect to enter or are pushed into higher education, for middle class appearances or mobility, via degrees that have inadequate or unclear outcomes, thus precluding fulfilling or related employment, much like southern Europe and the Mediterranean.

      The obsession with post school university entry has been a clear policy of govts, parents and universities, me thinks to maintain income and employment in universities for a particular generation…..

      Must include this excerpt from an insider, article from Campus Morning Mail Australia:

      ‘Workers uprising. “The last refuge of a Soviet-style command economy is university systems across the OECD. It makes no difference whether a university is public or private. They all spend vast amounts on the production of gratuitous functions, labyrinthine administrative processes, pointless marketing, failed competition, spurious plans, useless strategies, vacuous documents, inane branding, dysfunctional databases, needless committees, tendentious grant seeking, comic institutional ambitions, vain rhetoric, inaccurate metrics, shell game budgets and brittle self-justification. Today seventy cents in every dollar that a student or the taxpayer hands over to a university goes to the nomenclatura and its myriad of offices.” From Peter Murphy‘s (James Cook U) forthcoming, Universities and the Innovative Economy (Ashgate). This book is going to intrigue some people, amuse others and infuriate a few. The debate it deserves is going to be fun.’

  2. ceteris paribus

    Just abolish higher and vocational education altogether and climb back up into the trees again with the monkeys.

  3. In some ways we only need a handful of professions to service low skilled highly paid mining types eg legal medical engineering accountants and physios . The rest just go into the public service .

  4. I don’t see the case for deregulation of fees.

    Most Australians don’t care if a university is in the top 100 list – we just want our kids to get a good University education at an affordable price.

    What is the actual goal of deregulated university fees?

    • One would imagine that so many vanilla Uni Courses could be done online where the prerequisite was an english speaking lecturer from anywhere and the world is awash with them, or it will be if we adopted online Uni Degrees and only made space at physical lectures for our best and brightest or where physical presence was a must.

      We should be slashing the cost of education and making it far more accessible.

    • What is the actual goal of deregulated university fees?

      Drive up the costs of “prestige” Universities so rich kids only mingle with other rich kids, and further enforce and entrench class boundaries.

      • Agreed. The problem with the current system is that smart poor kids sometimes end up with a better degree than dumb rich kids so you can’t tell who went to a top private school.

      • It would be good to have a uni lottery. If you qualify for a course, say medicine, you don’t get a say at where you study it. Your name goes into a pool and is randomly attached to a university.
        There may be 10 unis in Australia that offer it so you could end up at JCU, Melbourne, Tasmania, Flinders, Curtain, etc….
        (This is of course in an ideal world where all unis are equally well funded.)

  5. Elite universities are “positional goods”.

    The normal laws of supply and demand do not work with positional goods.

    As with an arms race, there is no point in “coming second” with positional goods.

    The result is that prices are driven up by capacity to pay and the final price has little to do with the quality of the product produced.

    • Not how demand for law degrees is playing out in the States. Based on that experience, not even every group of eight member will find willing victims for $100k degrees here.

  6. cruze2005MEMBER

    Whether they are high or low is irrelevant if the educational outcome is in a flooded market (accountancy), limited market (Arts) or if the individual losses the drive to achieve a wage base that would require them to pay it back.

    I know of at least 2 friends who spent what seemed like eternity at Uni getting their degrees who now refuse to earn any more than they do as it would require them to pay out more to pay off their debt.

    How much of that is true I cannot be sure as I didn’t take that road, instead choosing to work, gain experience and contacts and going into business ownership. I can say though, that most Uni graduates are not worth the paper they receive at the end which ultimately leads to a pile of student loans that will likely never be paid off.

    • I am a bit of a hardass when it comes to this. There is a real argument that the repayment threshold is too high and repayments should occur from a lower income level. Many people are able to manipulate their income to avoid repayment. Plus I have no problem with any outstanding balance being recovered from someone’s estate when they pass away.

      • I’m cool with that. But it would be good if they bought back the big incentives to pay back early. Sure the gov. made a loss but I’m sure that more people put in the effort to pay it back when there was the 25% bonus. Right now I don’t have any incentive to kick in anymore than I have to.