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Farrago talks higher ed: The National Commission of Audit

Friday, 6 June, 2014

 

So it seems like a whole lot of people are upset about the Budget. We get it—a big stack of paper that threatens to make you pay more for education and take away your welfare isn’t very nice.

But let’s take a moment to step back in time, to a month ago when the Commission of Audit was released. The National Commission of Audit (NCOA) is written by an independent body. The body reviews the government’s performances to date and makes recommendations based on its findings. These recommendations are often taken up by the government in the Budget. That’s because—like most other things in politics—a whole lotta money is at stake. The NCOA had some recommendations for higher education that were wordy and confusing, so we’ve deconstructed them for you:

 

a. decreasing the average proportion of higher education costs paid by the Commonwealth through the Commonwealth Grants Scheme from 59 per cent to 45 per cent and increasing the average proportion of costs paid by students from 41 per cent to 55 per cent

 

Breakdown by Gajan Thiyagarajah

 

The NCOA signalled a reduction in the proportion of students’ course fees to be paid by the Commonwealth. Currently domestic university students (citizens of Australia and New Zealand) are eligible to apply for Commonwealth Supported Places (CSP) in their respective courses at undergraduate and postgraduate level. The fees for CSPs are subsidised. Universities specify the number of students they intend to enrol into each course. The government then provides the universities with funding accordingly, allowing them to offer subsidised places to a portion of these enrolments.

The program, known as the Commonwealth Grants Scheme (CGS), is to be overhauled in response to suggestions outlined by Section 7.13 of the NCOA. Currently the federal government funds approximately 59 per cent of undergraduate tuition costs for CSP students, with students contributing the remaining 41 per cent. The suggestion made by the NCOA is to adjust these figures so the government contributes 45 per cent, and students 55 per cent. (These figures differed in the Budget).

The change to the CGS is accompanied by a number of other readjustments to tertiary education financing, including the move to deregulate course fees—also outlined in the Budget. The effect of deregulation upon students will be exacerbated by the reductions in the CGS, as well as the lowering of the income threshold at which point HELP debts must be repaid, and the imposition of a real interest rate on these loans.

 

b. tasking the Minister for Education with developing options to increase competition in Australia’s education system through a partial or full deregulation of fees for bachelor degrees, taking into account any relevant recommendations of the Review of the Demand Driven Funding System. The Minister should report to the Prime Minister in 12 months’ time on progress and a preferred way forward

 

Breakdown by Nathan Fioritti

 

This part of the higher education recommendation called for Education Minister Christopher Pyne to partially or fully deregulate fees for bachelor degrees. The report stated this was to increase competition in Australia’s education system. It also suggested that any relevant recommendations from the Review of the Demand Driven Funding System, released on April 13, should also be considered.

In 2012 the Labor government introduced demand driven funding. The idea was to ensure every domestic student enrolled in an undergraduate course at a public university would be provided with government funding. It marked the end of places being determined by the government, allowing public universities to make the call based on student demand and employers’ needs.

The Review of the Demand Driven Funding System (or Kemp and Norton Review, after its authors) recommended the system be extended to private universities and TAFE providers, as well as introduced for some postgraduate courses. It did not suggest a reduction in the regulation of fees. It did, however, recommend that the standards for all higher education providers be reviewed to improve innovation and competition.

Deregulating or reducing the regulation of fees may make higher education less accessible for the vast public. Criticisms of deregulation say it would push public universities to run more like businesses than public services.

 

c. reducing the cost to the Commonwealth of the Higher Education Loan Programme by:

i. increasing the interest rate applying to HELP loans from the current rate (equal to movements in the CPI) to a rate which reflects the full cost to the Commonwealth of making the loan (incorporating the government borrowing rate, as well as the cost of bad debts and administration costs);

ii. increasing the repayment of HELP debt through reducing the threshold for HELP repayment from $51,309 per year to the minimum wage of $32,354 (with a low starting repayment rate of only 2.5 per cent);

iii. changing the indexation arrangements for the HELP repayment income threshold from movement in Average Weekly Earnings to movements in the CPI); and

streamlining the five current HELP schemes, including removing SA-HELP and aligning administrative fee arrangements and incentive payments for early repayment.

 

Breakdown by Martin Ditmann

 

The current HECS-HELP system (explained in more detail here) was found to cause the government to lose money.

The NCOA said the government should spend less on higher education.

It actually costs the government to give you a loan – and interest rate changes

Well, the government doesn’t charge students for the administration work it has to do to organise student loans. It also might lose money on the loans because some people don’t pay back their loan at all. Finally, the government might not have enough of its money to loan out—so it has to borrow the loan money from others at a fee.

The NCOA says the government should charge students more so that loans reflect “the full cost” to the government (as seen in c.i. above or on the NCOA website).

Repayment threshold

Remember how the government only makes pay start paying your loan back after you start earning just under $52,000 a year?

Currently the government requires students to start paying back loans when they earn $51,309 per year. This is known as the “repayment threshold”. However the NCOA recommended that students begin paying loans back as soon as they earned the minimum wage: $32,354. (This figure was different in the Budget).

This would ensure the government gets its money back sooner. If the government has borrowed the loan from another source, it can then pay them back sooner with fewer fees,

However, arguably students would have to pay the government earlier and would have less money to spend at the early stages of their adult lives.

Not loaning the SSAF

The government can currently loan students the Students Services and Amenities Fees (SSAF). The SSAF is a compulsory student services fee students pay every year. It funds student support, student unions, university sport clubs and other services.

The NCOA recommended that the government remove the loan and that students pay it upfront.