Opinion & Commentary
Graduates can afford to top up funding
The new government faces the same old problem: too many demands, too little money.
In higher education, the key issue of funding rate per student remains unresolved. When it reports in 2011, the promised review of base funding levels will almost certainly recommend higher rates for at least some disciplines.
And that will come on top of the expenditure needed to finance large enrolment increases. Student numbers are already increasing rapidly ahead of the full deregulation of public university student numbers in 2012.
And if overseas student enrolments decline significantly, some universities may need bailing out.
More money is going to have to be found. The question is, where will it come from, with the commonwealth budget still in deficit, many other competing needs and a fragile government needing to buy the support of independent MPs and the Greens.
Two new studies of graduate outcomes released last week contain information that can help guide us to sources of new money.
The first, by Australian Bureau of Statistics researcher Hui Wei, tracks private rates of return to education since 1981. Wei finds that on average Australian graduates continually get a good return on their investment in higher education. Their investment is mainly the time they spend out of the workforce and, since 1989, their HECS or student contributions. Their return is the added income a graduate receives through their lifetime compared with someone who did not study beyond Year 12.
At the time of the 2006 census, Wei estimates, the rate of return on undergraduate higher education investment averaged about 13 per cent for employed graduates compared with workers who only finished Year 12. Graduates also benefit from lower rates of unemployment.
The return on higher education investment has gradually been increasing for employees, which suggests rising student contributions during the period of the study, from free education when the research began in 1981 to between $4000 and $8000 a year when the research ended in 2006, have not undermined the private incentive to invest in education.
Wei's findings also suggest that flooding the labour market with extra graduates, particularly with the big expansion in student numbers between the 1986 and 1996 censuses, did not push rates of return below previous levels. This is a hopeful sign that the labour market will be able to absorb the graduates who will emerge from the present expansion.
The policy conclusion that we can draw from this is that student contributions could increase without the private incentive to invest in higher education being pushed down to unattractive levels.
The second study, Beyond Graduation 2009 from Graduate Careers Australia, looks at graduate outcomes during the much shorter period of three years. But it has the advantage of offering us far more detail about differences in income by discipline.
One interesting finding is that graduates with bachelor's degrees in engineering have the highest median salaries three to four years after completing their qualification. They earn a median salary of $75,000 a year, compared with $60,000 for all graduates. This raises the question of whether engineering should be reclassified from the second highest student contribution amount category to the highest category. Business courses were put into the highest category a few years ago, but the median graduate with a qualification in management and commerce earns $10,000 a year less than an engineer. Other student contribution amounts should also be revisited in light of recent earnings data.
One rarely discussed aspect of an expanding higher education system is that the cost of the FEE-HELP loan scheme will also increase, thanks to the cost of lending money at a zero real interest rate and writing off debt that will never be repaid. This year's federal budget put the estimated 2010-11 cost of FEE-HELP at nearly $1.8 billion.
Beyond Graduation 2009 identifies one source of this cost: graduates working overseas. Nearly 7 per cent of graduates in the survey were working overseas, with no current obligation to repay their student debt. Although most will eventually return home, in the meantime Australian taxpayers pay their interest bills.
By far the most popular destination for Australian graduates working overseas is Britain, which requires its graduates working overseas to repay their student loans. Australia should investigate reciprocal arrangements with Britain to collect each other's student debt.
These evidence-based reform ideas could, through additional revenue and savings, help ease the financial pressures on Australian higher education.
But whether a precarious government can push contentious higher education reforms through parliament remains to be seen.
Andrew Norton is a Research Fellow with The Centre for Independent Studies.
