The inequity of Job-ready Graduates for students must be brought to a quick end. Here's how

Labor’s promise of a “universities accord” suggests a slow and careful approach to higher education policy. A new education minister without a strong background in the portfolio may also want time to get across the issues.

In general, taking this time to get policy right and build support for it is a good approach. But when current policy is causing problems and lacks significant support there is a case for acting more quickly. This is the situation with the previous government’s Job-ready Graduates student funding policy enacted in late 2020.

Job-ready Graduates imposes unfair HELP debts on some students, adds to the government’s costs of running the HELP loan scheme, and distorts university incentives in distributing student places between courses.

Read more: Labor's promised universities accord could be a turning point for higher education in Australia

How are university courses funded?

A mix of contributions from the Commonwealth and students fund domestic undergraduates in public universities. Added together, these contributions are the overall funding rate per subject.

The government sets Commonwealth contributions, which vary by academic discipline. The government pays universities according to their enrolments up to a capped total grant amount.

Universities set student contributions up to a legal maximum, which also varies by discipline. Universities are paid directly by students or through HECS-HELP loans. Total student contribution revenue is not capped.

Once universities reach their maximum Commonwealth contribution grant they can still increase enrolments, but on student contribution revenue only. These extra students are called “over-enrolments”. Historically, over-enrolments have been an important source of flexibility in meeting student demand.

In its basic architecture, Job-ready Graduates has similarities with previous funding policies, other than the demand-driven system, which uncapped both Commonwealth and student contributions.

Where Job-ready Graduates differs is in the setting of Commonwealth and student contributions.

Read more: Demand-driven funding for universities is frozen. What does this mean and should the policy be restored?

Commonwealth cut per student contribution

Job-ready Graduates increases student places by keeping total university grants at roughly the same level but reducing the average Commonwealth contribution. Universities need to deliver more student places for each million dollars in public funding.

Labor has already promised a small, and possibly temporary, increase in total Commonwealth contribution funding. Given the government’s overall budget position, a significant increase per student may not be feasible.

Read more: Labor offers extra university places, but more radical change is needed

For universities, increases in student contributions at least partly offset reductions in Commonwealth contributions under Job-ready Graduates.

Student contributions changed radically

The most radical element of Job-ready Graduates was a further change to student contributions. Before this policy took effect, a mix of assumed private financial benefits and course costs explained student contribution levels by discipline. The price gap between the cheapest and most expensive discipline was about $4,500 a year.

Job-ready Graduates abandoned this system. Instead, it uses student contributions to manipulate student demand.

In nursing and teaching, “job-ready” courses the previous government favoured, student contributions were cut by about $2,700 a year. In disfavoured courses they went up. The biggest increases of $7,800 a year were in humanities other than languages.

The gap between the cheapest and most expensive course more than doubled, to $10,550 a year.

Higher or lower Commonwealth contributions partly offset these changes to student contributions, so overall funding rates changed by less than the student contribution levels.

Read more: 3 big issues in higher education demand the new government's attention

Job-ready Graduates has long-term impacts

The Job-ready Graduates assumption that students would respond to these price signals and change enrolment patterns was never sound. Course preferences still depend on student interests. For financially motivated students, differences in job and salary prospects are also more significant than how much they pay for their course.

Job-ready Graduates annually shuffles hundreds of millions of dollars in HELP debt between students. Some students, like those in nursing or teaching, will owe less than previously and repay their debt earlier.

Others, like those taking humanities courses, will owe much more and keep repaying for years longer than before. Some may never fully repay their HELP debt.

While HELP is designed to allow slow or incomplete repayment, this should reflect varying individual circumstances. It is not sensible or fair to assign repayment periods and risks based on course choices.

Slow or no repayment increases the cost of HELP to the government. This is not prudent when it already faces large budget deficits.

The system also affects the economics of over-enrolment.

In fields such as arts, law or business, the student contribution covers more than 90% of the maximum revenue a university could get per student. These fields are close to a de facto demand-driven system, with only minor financial constraints on increased enrolments for universities already earning their maximum Commonwealth grant.

In fields such as education and nursing, less than 25% of maximum per student revenue comes from the student. Over-enrolments in these fields are almost certainly loss-making, creating a deterrent to accepting more students.

How can this system be fixed?

To fix the system we need student and Commonwealth contributions that vary within a narrower range.

This change can be close to budget-neutral. Course that are too expensive, relative to other fields, would have student contributions decreased and Commonwealth contributions increased. Courses that are too cheap would have student contributions increased and Commonwealth contributions decreased.

Estimates of 2022 enrolments could be used to ensure contribution increases and decreases balance each other, leaving the government and universities in the same financial position.

A fast or slow change?

Student contribution increases are normally “grandfathered”, so only new students are affected and continuing students are retained on the old rates.

Grandfathering is generally preferable, so students partway through their course are not suddenly hit with unexpected extra charges to finish it. But Job-ready Graduates creates so many problems that it should be ended as quickly and comprehensively as possible.

If the new student pricing system was introduced for 2023, students facing higher charges would have benefited from up to two years of discounted student contributions. Their total course cost at graduation would still be lower than for other students.

A fast fix for the problems of Job-ready Graduates does not preclude later changes coming from the accord process. It is an interim measure to correct errors rather than a long-term policy.