Opinion & Commentary
Unis should kill their funding proposal
The finance industry has long had its eye on student debt, which reached $14.5 billion last year. They wanted to buy this asset from the government, and receive future student repayments of HECS (now HELP) debts. The government could use the money it received to pay off its own debts or for other purposes. The student debt’s new owners would also take the risk of lower-than-expected repayments.
Universities Australia’s proposal last week to “securitise” the HELP debt is quite different. The government would keep the debt and its associated risks. The idea is that they would use the HELP repayment revenue stream to finance interest payments on bonds sold in the capital markets. The money raised through selling the bonds would be put into a HECS Fund. Investment returns on the fund would be spent on universities.
Clearly this is a worse deal for government than the finance industry version of HECS securitisation. Their $1 billion (and increasing) a year in student HELP repayments is currently discretionary revenue. Under the Universities Australia plan, it would be locked into bond interest payments instead. In its financial consequences for government, this scheme is no different to simply re-directing HELP repayments to universities.
For the higher education sector, only two real differences exist between this Universities Australia request for more money and their routine requests for the same.
The first is that HECS Fund investment returns would be guaranteed to go to universities, while government spending depends on the Budget. The second is the suggestion that the federal government use the relatively low interest it pays on its bond issues to finance investments with higher returns. Universities Australia wants to extract added value from government subsidies by playing the stock market with borrowed money. As some prominent business people are now finding out, this isn’t always a good idea.
A proposal for the government to commit itself to significant future spending will, I expect, quickly find its way to the Finance Department and Treasury rejected Budget bids file. But in case it doesn’t, universities themselves should kill this idea.
The HECS Fund wouldn’t eliminate financial risk for universities. Investment returns go up and down more dramatically than government funding, which even if inadequate is at least reasonably predictable.
Universities also need to consider the regulatory risk. A key structural weakness in the higher education sector is tuition price control for Commonwealth-supported students. In the United States, most public universities have the option of increasing student fees. This has helped them avoid many of the problems facing Australian higher education.
Recognising the need for change, last year the Group of Eight called for partial deregulation of the maximum student contribution amounts. And all universities have increased full-fee paying student enrolments to cover financial shortfalls.
Under Universities Australia’s proposal governments are unlikely to agree to further deregulation, and may wind back the deregulation that has already occurred. Otherwise, universities will in effect be able to set their own subsidies. If HELP repayments are turned into money for universities, higher course prices now means higher government subsidies, via the HECS Fund, later on.
The federal government closely scrutinises fee increase claims by the private health funds, for which the government ends up paying 30% of the cost. If they have to pay 80% of the cost of student fee increases—that’s how much of the student contribution amount charged is turned into loans—they will be extra vigilant about fee levels.
Universities Australia’s plan could also trigger re-regulation of the domestic postgraduate coursework full-fee market, where universities currently have complete freedom to set student numbers and prices. Though the Universities Australia position paper only talks about HECS, the HECS-HELP and FEE-HELP debts are one HELP debt for repayment purposes. The government may control postgraduate coursework enrolment and fee levels to prevent universities generating more subsidies for themselves. Of it might reduce the maximum FEE-HELP loan.
Universities Australia hasn’t thought this idea through carefully enough. Behind the financial market gimmickry, their position paper is an old-fashioned request for taxpayers’ cash. Nothing in the paper supports the idea that the HELP repayment stream is the correct additional amount of funding for universities. The financial needs of universities aren’t driven by the taxable incomes of graduates. Guaranteeing universities all income tax revenue from certain postcodes would serve just as well as a semi-random number with no clear rationale.
So Universities Australia should request an intellectually defensible dollar amount, to be taken from consolidated revenue. Without a link to HELP repayments, the government would feel no need to reduce their future financial exposure by further regulating fees, student numbers, or loans. The universities could have additional government money, and avoid more of the overly-prescriptive regulation that has already done them so much harm.
Andrew Norton is a Research Fellow at The Centre for Independent Studies
