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A simpler reset could have met Dan Tehan’s education aims

But the exact increase in student places will depend on how universities and students respond to the incentives in significantly revised per-student funding rates. Some fields, most prominently science and engineering, will have their total funding rates cut, reflecting the findings of a recent university study. These were highly profitable disciplines for universities. Other disciplines identified as under-funded, including business and humanities, will receive more in total.

Although there are winner and loser disciplines, the average Commonwealth teaching subsidy will go down. With these lower rates, universities are likely to have to enrol more students to reach their maximum possible Commonwealth grant.

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The most controversial changes are to student contributions. Under the current system, student contributions are set roughly in accordance with expected future earnings. Law and medical students have high anticipated incomes, and high student contributions. Humanities and creative arts graduates have low average career earnings, and so have low student contributions.

This link to private benefits would end. Instead, the government wants to use student contributions levels to steer students towards courses with relatively good job prospects, and away from fields in which the graduate market is, in its view, oversupplied.

Education, health, IT, architecture and engineering courses are among those that would enjoy lower student contributions. Business, law, arts and creative arts students would all pay higher student contributions.

Business, law, and most arts students face the highest student contribution of $14,500 a year, although existing students would continue on the current rates of $11,300 for law and business and $6,800 for arts.

From a university perspective, $14,500 is close to teaching costs in these fields. They could probably afford to meet student demand without the low proposed $1,100 government subsidy. In effect, these rates semi-restore the demand-driven system the government ended in 2017.

The big question is whether demand will fall at these prices. Basic economics says that when prices go up demand goes down and vice versa. But in higher education that is not always the case.
Student price sensitivity is low partly because the HELP loan scheme means that they pay their fees years later. But in choosing to go to university, and in what course they choose, prospective students are also making big life decisions.

Research shows that course choices are strongly linked to student interests. This is not surprising. In their course choices, students commit to years of education, and possibly decades of work, in that field. It makes little sense to forgo a preferred life to save what are, in the context of total career earnings, modest amounts of money.

However, many students have multiple interests, and so within the range of courses that might interest them price may make a difference. Grattan Institute analysis used university applications data to examine interests through what else students applied for after their first preference.

Humanities and commerce students are often committed to their choice, with more than 60 per cent of their later preferences for other courses in the same field. Unfortunately for them, many of their later preferences are also $14,500 courses. Few show interest in the engineering or health courses with better job prospects.

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Student interest theory also creates doubt that heavily discounting some courses will significantly change student choices. Education and nursing students would save over $3,000 a year under the new rates, and science, engineering, architecture, IT and allied health courses about $2,000. For these modest sums, only prospective students who were almost neutral between their options would change their minds about what course to take.

The central concern with the student contribution changes is that, to produce marginal changes in the pattern of student enrolments, many students would have windfall gains in lower fees for courses they were always going to do, while other students would spend many extra years repaying their HELP debt.

The strongest argument for the overall package is that it could encourage universities to offer more student places, at a time when demand for higher education is likely to be high. But a simpler reset of Commonwealth and student contributions could have achieved the same thing, while spreading the burdens more evenly across courses and students.

Andrew Norton is professor in the practice of higher education policy at the Centre for Social Research and Methods, Australian National University.

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