CoPS/IMPACT Working Paper Number G-252

Title: Alternative Approaches to Fee Flexibility: Towards a Third Way in Higher Education Reform in Australia

Authors: P. J. Dawkins and J.M. Dixon


A major issue for the future of tertiary education is to ensure that Australia continues to expand its investment in skills and capabilities, to enable a future of prosperity which is available to all. This has been the aim of the demand-driven system of higher education. The Federal Government's current proposals for higher education reform include the expansion of the demand-driven system, by bringing sub-degree higher education programs into the subsided system and by bringing non-university higher education providers into the system.

At the same time the government has been seeking to achieve budget restraint and as a result proposed to cut the amount of funding per student by an average of 20 per cent, although there is considerable variation across the disciplines. The government has also proposed to uncap fees, so that universities could at least recoup the lost funds due to the cuts in subsidies.

The government's proposal for full-fee deregulation in higher education has stalled in the Senate. It has been subjected to criticism from the cross-benchers and from a number of expert commentators that there are serious risks with the proposal including the risk of excessive student fees and excessive debts.

We argue that what is required is not full deregulation of fees, or a return to a more regulated model with tight fee regulation and a possible reversion to more regulation of student numbers as well. What is required is a "third way" incorporating some degree of price flexibility, and an enhanced equity package, while retaining the demand driven model.

This paper, therefore, is concerned with exploring alternative ways of sustaining the demand driven system by allowing some degree of flexibility in student fees, while avoiding excessive fee rises and allowing for some degree of price competition. Consideration is also given to ways in which the equity aspects of the package could be enhanced.

Dawkins (2014) argued that three alternative methods should be explored to achieve a degree of fee flexibility: fee caps, loan caps and a "taper model" whereby government tuition subsidies are reduced according to a taper-rate schedule, when they raise fees above a threshold level. The latter concept is one that is also being proposed by Bruce Chapman (Chapman 2015).

Our analysis and consideration of the policy challenge leads us to the conclusion that the most promising way forward is a two-part package incorporating

  1. a taper model whereby tuition subsidies are reduced according a progressive taper rate schedule, when fees rise above a threshold level
  2. an enhanced Higher Education Participation Program (HEPP), incorporating scholarships for all low socioeconomic status background students across the system, and additional support for interventions for reducing the attrition rates of at-risk students.

Data has been provided by the Commonwealth Department of Education and Training to assist with this research and the modelling has been undertaken at the Centre of Policy Studies at Victoria University.

JEL classification: I22, I23, I28, H52

Keywords: higher education, taper scheme, government budget, education subsidies, HECS, deregulation.

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