The wealthy will get a cheaper education

June 6, 2014

6 June 2014

By Allison Orr

How would you reconsider your life choices if one of the options were suddenly $100k more? This is a question that struck me in a conversation with my father over the Budget.

It’s surprising that we’re three weeks past the Federal Budget, and still talking about it, and it is still the top news story. I can’t remember a time when a Budget has generated so much news, conversation, debate and angst. It is usually something that is of little more than passing interest to anyone who is not an economic or political junkie.

But the conversation with my father gave me a bit of insight into perhaps why this one is different. He said that if his degree had left him with a $120,000 debt, he might not have done it. From a working class family, he was the first in his family to go to uni, and with a baby on the way by the time he finished his studies, it’s not surprising that the calculation of going to uni, which was already going to cost him four years’ earnings, might have had a different conclusion if it also meant starting out his working life with a massive debt hanging over his head.

It’s in conversations like this that we can see why we are still talking about the Budget. Many of the measures proposed are so much more than line items in a budget; they have the potential to have far wider implications.

The release of modeling by Universities Australia finds that under the proposed changes, an engineering degree, the degree my father did for free, will cost as much as $119,000. This is a significant change, and will affect the choices and decisions made by Australian students and parents.

The discussion over the future of tertiary education is about more than entitled middle-class kids having a whinge, it’s about the kind of society we want, and need, to build. It’s unlikely that we’ll ever go back to free universities, and it’s debatable whether that is even equitable at a whole-of-society level. But we need engineers, doctors, scientists, teachers, nurses, and it is in all our interests that people take up these professions, so it makes sense that society cover part of the cost of their education.

It’s generally true that those who have university degrees tend to earn more across their lifetime, so it is only fair that they also contribute. The current deal between the government and individuals is a 60-40 split. The government now intends to change this deal. They are proposing a 50-50 split, which may still seem fair at first glance, but it is a disingenuous claim if the university sector is deregulated. Belinda Robinson, CEO of Universities Australia made clear on Lateline on Tuesday night that the 50-50 split is based on the existing fee structure. Once fees are deregulated, and universities are able to set their own fees, the share contributed by the government will be much lower. Individuals will carry most of the financial burden of their education, and spend a great deal of their working , and taxpaying, life paying back.

A further proposed change is that student debt will now be subject to real interest. Currently, HELP is indexed to the consumer price index, so that in real terms, there is effectively zero interest. It is now proposed that the debt will have an interest rate equal to the Commonwealth bond rate. Since students will be covering most of the cost of their education, it seems unfair that the government wants to make extra money on the savings it is achieving. It would perhaps be more useful to think of a HELP loan as borrowing against your own future taxes.

The addition of interest also means that the experience of repaying the loans will be unequal depending on wealth. Currently you get a discount if you pay your university fees upfront rather than pay it back through the HELP scheme. Those who have parents with the capacity to pay all or part of the fees upfront will benefit most under the new system (as they do under the current system). Interest costs will increase the time taken to pay back the loan, and those who take the longest to pay it back, that is those on lower incomes, will pay more across time. Essentially, the wealthy will get a cheaper education.

Sweeping changes to the university sector should not be introduced and pushed through as part of a Budget process as if there are no wider implications other than dollars. This might be why we are still all talking about it, we are demanding the debate on our social priorities that we are entitled to have before they are altered.

At the National Press Club 50th Anniversary Address yesterday, former Prime Minister Bob Hawke, when asked about fairness in the welfare system, argued that education is the key. Give people the opportunity to use their talents, he said, and they will look after themselves and the social security burden is less. This ideal is displayed in my father’s experience. His education was his pathway not just to a good job for himself, but had ripple effects for so many others – he raised a family, ran a small business, paid his taxes, employed people, mentored young engineers. You could make a strong argument that the Commonwealth has well and truly earned a good return on the investment it made in my father.