Source: Alamy

When the Australian government declined in January to implement recommended increases in teaching funding, or to permit the franchising of a university¡¯s degrees, some observers perceived a growing nervousness about the cost of the country¡¯s uncapped higher education system.

Some believe the cost of the loans system could prompt a future government - particularly one from the coalition grouping of right-of-centre parties - to reintroduce the cap on student numbers.

The removal of caps on undergraduate numbers was recommended in a 2008 Review of Australian Higher Education, chaired by former University of South Australia vice-chancellor Denise Bradley, to boost skill levels in the Australian workforce.

Since then, undergraduate numbers have shot up in the wake of aggressive expansion by many universities, including Group of Eight members such as Monash University and the universities of Queensland and New South Wales. According to government figures, all 39 Australian universities saw their count of government-subsidised students grow by more than 10 per cent between 2007 and 2012, with overall growth at per cent.

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University fees are largely met by students, who typically borrow the money from a government-subsidised, income-contingent student loan system set up in 1989, and now known as the Higher Education Loan Programme (Help).

According to the latest government figures, highlighted in a January report by the Grattan Institute thinktank, student debt is rising quickly. It currently stands at an unprecedented A$26.3 billion (?17.7 billion), a rise of A$3.3 billion on the previous year and nearly A$10 billion in real terms since 2008. That sum accrues a net interest cost to the government of A$600 million a year.

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The proportion of the total student debt that is expected not to be repaid is also steadily increasing, currently standing at 17 per cent of the total, or A$6.2 billion. The figure has risen by A$1 billion in one year.

Chase debt abroad, report urges

Meanwhile, annual government spending on tuition subsidies - which do not have to be repaid - is expected to increase from A$5.5 billion in 2011-12 to A$7 billion in 2015-16, according to the Grattan Institute¡¯s report, Mapping Australian Higher Education, 2013.

The report was written by Andrew Norton, the thinktank¡¯s higher education programme director and in the 1990s an adviser to the centre-right coalition government of the day. Upon its publication in January, Mr Norton was quoted in Australian media calling for the country to fall into line with the UK and New Zealand and require debtors to keep up repayments even when they move overseas.

In his response to the report, Chris Evans, minister for tertiary education, skills, science and research at the time, said the government was working to ¡°determine an effective way¡± to do this.

The wisdom of such a move was also supported by the original architect of the Help programme, Bruce Chapman, professor of economics at the Australian National University. He has estimated that graduates living abroad who took out loans through the original Help programme, known as the Higher Education Contribution Scheme, now owe the government around A$450 million.

Professor Chapman said it would be ¡°easy and important¡± to institute a legal requirement for graduates who emigrate to keep up the minimum repayment of A$2,000 a year.

However, he was unconcerned by the estimates of how much Help lending would never be repaid, noting that an income-contingent system necessarily involved debt forgiveness for those earning below the repayment threshold - which currently stands at A$49,096 a year.

Mr Norton said ¡°a lot¡± of cost-saving measures had recently been introduced to the Help system, including reduced discounts for repayment up front, increased contributions from science students and ending access to loans for Australians studying at Australian universities¡¯ offshore campuses.

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Caps on the number of students permitted to study for ¡°associate¡± - similar to foundation - degrees and higher education diplomas were also restored in 2011, while 2012 saw cuts and freezes to research budgets that Universities Australia, the universities¡¯ national lobbying body, said would amount to A$1 billion.

The government is ¡°obviously concerned about overall costs¡±, Mr Norton said.

The sense that the cost of the Help programme is creating strains elsewhere in higher education funding was heightened by the government¡¯s rejection, in January, of a recommendation to increase per-student teaching funding by 10 per cent, made by an expert body set up to advise on the implementation of the Bradley Review.

Franchising plans blocked

Then came the government¡¯s block on the University of Canberra¡¯s attempt to offer degrees via the Holmesglen Institute of Technical and Further Education (Tafe) in Victoria. A government spokesman told The Australian newspaper that there would be no further expansion of higher education delivered by Tafes until the full impact of the uncapped system had been assessed.

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According to Gavin Moodie, principal policy adviser at RMIT University, the government feared that such ¡°franchising¡± arrangements could spark an ¡°explosion¡± in claimants on the Help system, as well as an erosion in quality.

However, he said he did not believe the Australian government was worried about the cost of Help loans, noting that successive reports it had commissioned called for the expansion of tertiary education to support economic growth. Meanwhile, the fact that Help loans did not cover living expenses meant that the amount Australian students borrowed was relatively low, he argued.

Dr Moodie questioned why, unlike other kinds of debt, Help debt should be written off at death. But he rejected Mr Norton¡¯s view that limits on the tuition fees universities can charge, which vary by subject, should be swept away. Deregulation would see elite universities raise their fees by the most, he said, ¡°further increasing the resources for students who are already the best resourced¡±.

Professor Chapman also dismissed deregulation as a ¡°poor idea¡± because it would allow universities to charge very high fees, safe in the knowledge that they would be met by Help loans. It was inevitable that such a scenario would see a rise in the amount of debt per student that is never repaid.

Simon Marginson, professor of higher education at the University of Melbourne, noted that vastly higher fees would deter poorer students despite the Help system - which would be ¡°bust open¡± by its skyrocketing cost to government.

Mr Norton accepted that higher fees would lead to more debt, which was why they should not be deregulated before the repayment system was reformed.

One suggestion was to charge a real rate of interest on student debt, which currently merely tracks inflation. Mr Norton said this would provide an incentive currently lacking for those debtors who can repay early.

Dr Moodie claimed that such a move would also be regressive since ¡°the students who would pay the most interest would be those who earned the least income¡±. Mr Norton countered that higher interest payments by the slowest repayers was ¡°not a controversial idea outside student loans¡±.

But he said an alternative reform would be to introduce a standard ¡°loan fee¡± for all Help schemes. Currently, students on some schemes must pay a one-off fee of up to 25 per cent of the value of their loan to compensate the government for the cost of providing the loan. Mr Norton believes a standard rate would ¡°improve consistency and fairness¡±.

It would also impose less of a burden than real rates of interest on graduates with low earnings, and would provide an incentive for students to pay fees up front, he added.

Other reforms that have been mooted include raising repayment rates or lowering the payment threshold.

The latest figures on university applications suggest that the growth in student numbers in Australian higher education may be slowing significantly, potentially easing pressure on the loan system.

Nevertheless, Professor Marginson said, student debt ¡°still may represent too high a fiscal risk for cash-strapped governments in future¡±.

He said that if, as predicted, a coalition government is returned to power in September¡¯s general election, the cost of implementing its promised abolition of carbon and mining taxes could see the demand-driven system axed - particularly given its concerns about declining quality.

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¡°Most people in higher education expect the cap to come back on, especially if there is a change of government,¡± he said.

paul.jump@tsleducation.com