The Universities Accord should scrap Job-ready Graduates and create a new multi-rate system for student fees

This article is part of our series on big ideas for the Universities Accord. The federal government is calling for ideas to “reshape and reimagine higher education, and set it up for the next decade and beyond”. A review team is due to finish a draft report in June and a final report in December 2023.

The university fees (known as “student contributions”) paid by most domestic undergraduates are a difficult issue for the Universities Accord review.

Student contribution rates have significant consequences for student, university and government finances. The success or failure of the whole reform process may depend on managing the politics of who pays and how much.

Some university lobby groups are calling for a flat rate student contribution for all subjects and courses. This would reduce costs for many students but substantially increase student contributions for politically sensitive groups, including teaching and nursing students.

A multi-rate student contribution system – with the aim of making average student debt repayment times similar across different courses – would be more politically acceptable.

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

Current student contributions

The Morrison government’s Job-ready Graduates policy set current student contributions in 2021. For subjects the government deemed “job ready” or “national priorities,” student contributions were lowered to attract students. Other subject prices were set at neutral levels or increased to deter students.

The cheapest annual charge for a 2023 full-time student is A$4,124 for nursing, teaching and agriculture. Engineering, science, IT, allied health and performing arts cost $8,301. Students in medicine, dentistry and veterinary science pay $11,800. The highest rates are for law, business and most arts disciplines, set at $15,142.

These student contributions are added to federal government subsidies called “Commonwealth contributions”, which also vary by discipline, to create a total funding rate received by universities.

What are university groups calling for?

Two university lobby groups, the Group of Eight (which includes the University of Melbourne and University of Sydney) and the Australian Technology Network (which includes Curtin, Deakin and RMIT universities), want a single student contribution rate regardless of subjects taken.

The Innovative Research Universities group (which includes Flinders, Griffith and James Cook universities) recommends a two or three tier student contribution system, with prices varying according to graduate employment outcomes.

Before the Job-ready Graduates scheme was introduced, student contributions were roughly linked to future expected earnings in a similar way.

Read more: Nobel laureate Brian Schmidt's big ideas for how Australia funds and uses research

My submission to the Universities Accord

Job-ready Graduates assumes student contributions significantly influence student course choices.

But student interests, and within those interests employment prospects and expected salaries, are the main drivers of course choices.

In practice, the Job-ready Graduates scheme delivers financial penalties and rewards for course choices students would mostly have made anyway. For students who borrow under the HELP loan scheme, this means longer or shorter repayment times than previously.

My submission to the Universities Accord review focused on practical consequences for students, the government and universities.

Consequences for students

On the surface, a single annual student contribution rate makes repayment burdens more equal.

Students in longer courses would pay more in total, but final HELP debts on completion would be more similar across courses than under Job-ready Graduates or the previous student contribution system.

In practice, however, the same debt has different on-average consequences depending on degree taken. Annual HELP debt repayments are based on the debtor’s income, so students with degrees leading to better-paid occupations make more annual progress towards paying off their HELP debt.

With a single student contribution level graduates in high-paying fields would repay their debt much more quickly than graduates in lower-paying fields.

Slow repayments mean a larger number of years of outstanding HELP debt being indexed to inflation. This year’s indexation will be 7.1%. With more debt to repay as a result, repayment times will increase.

Student contributions based on expected future income narrow these differences in repayment times. The available analyses of repayment times have flaws, (including mixing HELP debtors who started and finished their degrees at different times) but nonetheless support this proposition.

For example, before Job-ready Graduates law students were charged more than humanities students, but graduates from both fields on average took nine years to repay their HELP debt. Typically law graduates earn more than arts graduates and so repay more debt each year.

Setting student contributions based on future income leads to more equality of effort in repaying than a flat rate student contribution system.

Consequences for government

HELP debt costs the government money as well as students. Normally the government incurs interest subsidy costs, calculated as the difference between what it costs the government to borrow money in the bond markets and the CPI-linked indexation rate.

Unusually CPI exceeds the bond rate this year, but this is not expected to last. Not all HELP debtors repay, with 15% of new debt estimated to be eventually written off at taxpayer expense.

Job-ready Graduates made HELP more costly. For example, more than doubling the debt of humanities graduates means they will take much longer to repay fully than previously, if they ever do. Interest and bad debt costs will increase.

A repayment times-based policy would help manage the government’s own financial risks by allocating a high share of HELP debt to students likely to repay in full.

Consequences for universities

For universities, the total funding rate matters more than how it is divided between Commonwealth and student contributions. But student contributions matter independently in one specific set of circumstances: when universities “over-enrol”.

This happens when a university reaches its maximum level of Commonwealth contribution funding. Any additional students are funded at the student contribution rate only.

Student contributions alone may not cover costs in courses with labour-intensive teaching methods or practical training components. For students in health courses, for example, universities pay hospitals and other health services for clinical placements.

Job-ready Graduates significantly cut student contributions for teaching and nursing, which have compulsory work placements. Universities would lose money if they over-enrol in these courses, discouraging them from offering more student places.

Both the single rate and tiered student contribution systems would be an improvement on Job-ready Graduates, by improving on the economics of over-enrolment in teaching and nursing.

Read more: Why arts degrees and other generalist programs are the future of Australian higher education

The politics of single rate student contributions

A flat student contribution that left the government and universities in the same financial position as now would be about $10,000 per year for a full-time student.

$10,000 is more than double what teaching and nursing students pay now. While most would still pursue their career goals, a large price increase would confuse the messaging when policymakers are trying to increase enrolments in these fields.

Nursing and teaching students need to pay more than now to make the system work for all stakeholders, but a multi-rate system would put them in a low or mid-tier student contribution band of less than $10,000 a year.

Teaching and nursing are highly feminised and popular with low socioeconomic status (SES) students. Based on 2021 enrolment data, a flat student contribution would, on average, lead to women paying slightly more than under Job-ready Graduates. Low SES students would also, on average, pay slightly more.

The dollar differences are not huge, at about $1,000 extra for women and $1,500 more for low SES students on average over a three year degree. But again, it would confuse the government’s messaging, with the Universities Accord terms of reference requiring policies to increase low SES enrolments.

What now?

A flat rate student contribution would be simple and improve on Job-ready Graduates for universities and students in high student contribution courses.

But a three or four-tier student contribution system would do more to equalise repayment burdens between students. It would be fairer overall, and politically easier for the government to sell.