Why free uni is the wrong thing to wish for

Why free uni is the wrong thing to wish for

The image accompanying this article was taken by yours truly, on my first day of class this year, in a brand new toilet cubicle of Monash University’s brand new Learning and Teaching building. While I’m tempted to deal with the content of the bottom poster in a future piece, we’ll focus on the top poster today – ostensibly an attack on cuts to university funding. Intelligent people can most definitely disagree on the finer points of education policy, however the bottom left corner tells me that the National Union of Students (NUS) are also pursuing a more ambitious reform: a plan to ‘Make Education Free Again’.


I’ll assume from this that the folks at NUS would like to return to Australia’s policy of free higher education that was introduced by the Whitlam Labor Government in 1974 and disbanded by the Hawke Labor Government in 1989.[1] Arguments for this type of reform may be categorised into two broad camps – arguments for equality and arguments for efficiency. Examining both of these will paint us a clearer picture of the issue, and may also give a guide on how best to improve university attendance for the least well-off.


The question of equality

Firstly, the argument for equality. This line of reasoning centres on the notion that the costs of higher education should be fully covered by government in order to level the playing field between well-off and poor students. Full subsidisation should allow disadvantaged people the means to access a university education when they otherwise may not have been able to, putting them on a level playing field with the rest of society.



Figure 1. University participation rates by 2012 for young people who were in Year 9 in 2006. Source: Grattan analysis of Longitudinal Survey of Australian Youth: NCVER (2014).



This is a well-intentioned idea, however the logic behind the equality argument is, in my opinion, unsound. Figure 1 shows university participation rates for different socioeconomic groups based on final school results. Unsurprisingly, the participation rate increases the better the student’s results are. Perhaps more surprising is the high correlation of attendance between socio-economic groups. Indeed, a student from a low socio-economic background is almost as likely to attend university as a rich student for any given ATAR.


Nearly all domestic students who pursue undergraduate courses are eligible for HECS – a program that allows students to defer their fee payments until a certain income threshold is met (in 2017-18, this threshold is $55,874).[2] In 2016, 83.2% of students had Commonwealth assistance in repaying their student debt.[3] On a world scale, this is quite a generous system. For example, compare Australia’s HECS system with the US, which has more expensive fees, a repayment threshold under half the size of Australia’s, and requires interest to be paid on loans.[4]


NUS has protested loudly against recently proposed changes to the HECS system.[5] Education Minister Simon Birmingham’s reforms are set to reduce the compulsory repayment threshold to $42,000, and to raise costs paid by students by 7.5% in real terms by 2021. This sounds quite bleak; however, these figures should be contextualised by the remainder of our welfare system. $42,000 is a massive $20,000 more than the eligibility cutoff points for both Newstart allowance and low income health care cards – services which are unquestionably more targeted towards our country’s less well-off.[6] Hence adoption of the proposed HECS reforms will still leave us with a very generous system.


The ideology behind free higher education for the sake of equality is unapologetically progressive, yet it has the potential to become a regressive policy in practice. Figure 2 shows students from low socioeconomic backgrounds to be under-represented in participation rates. Free university will indeed lower the opportunity cost of attendance, incentivising more students to participate who would not have attended before. However, will these new students primarily come from low-income groups? Not necessarily. In fact, the opposite appears likely to be the case: combining Figures 1 and 2 brings us a clear finding – wealthy children do better in high school. And what is a key determining factor for university attendance? That’s right – high school performance.



Figure 2. The proportion of domestic students with low socioeconomic status, 2001-13. Source: Department of Education and Training



We’re therefore left with a strange situation where the entire population, including those from low socioeconomic backgrounds who disproportionately never went to uni in the first place, are taxed to fund university courses for disproportionately well-off students. This is not just an unfair burden on those who have entered the workforce without a degree – it is a real and hugely ironic consequence of a policy that would surely have been set up in the interests of the poor. The money still has to come from somewhere. What right should future doctors and lawyers have to bill their education to carpenters, factory workers and tram drivers?


The question of efficiency

Now for the efficiency argument. The logic here goes that education produces positive externalities that justify a subsidy in the form of either partial or full government support. High subsidies incentivise education, encouraging more to attend, raising the knowledge within the population, and giving more people the tools to improve their economic standing and better their lives.


This is a far stronger argument. There is clearly a certain level of public good that is derived from a university degree, such as a food scientist using their acquired knowledge to create a new hybrid crop that improves harvests, or a biomedical researcher creating a new drug that becomes widely available to the public through Medicare. These benefits are not necessarily encompassed in the private utility the student gains from their education, rather they may be widespread and beneficial to entire populations. Advantages such as these vary widely per student, and are therefore near impossible to measure in a systemic way.


There are of course negative economic effects stemming from subsidisation. As with nearly any form of government transfer, government subsidies of higher education will distort the incentives of participants. Due to the lower opportunity cost of attendance, there will be less incentive for the student to study hard and obtain the maximum benefit from their education, leading students to treat university as a holiday rather than a learning process. Free access may also encourage students to take degree they would not have taken in the first place, where they may have instead undertaken a VET course or immediately entered the workforce in a free market. These distortionary effects may therefore have far-reaching implications, such as shortages in vocational skills.


But how to measure these effects in the aggregate? One of the most comprehensive attempts to do so was made by Deloitte Access Economics in 2016.[7] They found the weighted ratio of public to private benefits of higher education across disciplines to be 45:55, or, in other words, they found that every $45 of private benefit generated by the sector also generates $55 of public benefit. This is roughly in line with current overall average funding split of 42% private to 58% public, which tells us that the current level of government funding is close to optimal.


The externalities of higher education produce a situation where a split between public and private funding is most efficient. While our current model of funding isn’t perfect, it’s much closer to an optimal solution that either total government funding or, for that matter, total deregulation. The most dangerous participant in the tertiary funding debate is neither the moderate progressive nor the moderate conservative, it’s the hardliner.


Helping the least well-off

Let’s go back to Figures 1 and 2. Students who do well in school attend university no matter their socioeconomic background, so the reason less students from poor backgrounds are attending university in the first place is obvious – their high school results are substantially worse.

Publicly funded primary and secondary education has become the norm in the developed world – in the OECD, 82% of students attend public schools. In Australia, the percentage in public schooling is 60%.[8] This belief in equality of opportunity has not translated into equality of results. There are a number of explanations for this, the first being that students in low socioeconomic backgrounds lack a nurturing home environment that stimulates academic results. Another suggests that poorer students systemically attend worse schools, which in turn impedes their ability to ‘escape’ their poorer environments.

Education reform in the interests of the poor should be applied at the primary and secondary levels. Evidence suggests that school completion differences by socio-economic group are due to aspirations, and numeracy and literacy scores at 15 years of age.[9] This is the level at which we should be improving equality of opportunity, be it through the funding of quality schools in disadvantaged areas, incentivising quality teachers to work there, or providing more opportunities for students in challenging environments to study at good schools.

Making higher education free won’t amend lacklustre high school performance. If anything, it will incentivise a disproportionate number of wealthy children to attend on the taxpayer dollar. We must address educational issues at its early levels before we turn our focus to the tertiary sector. When our society reaches a level where everyone may benefit from a tertiary education, full government funding will become a more appealing proposal. Currently, however, it’s the wrong point of focus.



Further reading

[1] Johnson, C. (2016). Higher education fees, how did we get to this? The Sydney Morning Herald. Retrieved from https://www.smh.com.au/

[2] Study Assist. (n.d.). When do I have to repay my HELP debt? Retrieved from http://studyassist.gov.au/

[3] Robinson, B. (2018). Data Snapshot. Universities Australia. Retrieved from https://www.universitiesaustralia.edu.au/

[4] Marcus, J. (2016). How Australia Gets Student Loans Right. The Atlantic. Retrieved from https://www.theatlantic.com/

[5] National Union of Students. (2018). Bury the Bill: Stop Government Changes to Help Debts. Retrieved from http://nus.asn.au/en/

[6] Norton, A. (2016). HELP for the future: Fairer repayment of student debt. Grattan Institute. Retrieved from https://grattan.edu.au/

[7] Deloitte Access Economics. (2016). Estimating the public and private benefits of higher education. Australian Government Department of Education and Training. Retrieved from https://docs.education.gov.au/

[8] OECD. (2012). Public and Private Schools: How Management and Funding Relate to their Socio-economic Profile. OECD Publishing. doi:10.1787/9789264175006-en

[9] Polidano, C. (2013). Explaining the socio-economic status school completion gap. Education Economics. 21(3), 230-247. doi:10.1080/09645292.2013.789482


Image supplied by author.