Postgraduate fee system an ethical minefield, says Hecs architect

Australia’s “Byzantine” approach to postgraduate places allows universities to “set their own prices”, forcing thousands of higher degree students to pay fees upfront, according to the architect of the country’s widely imitated student loans system.

Economist Bruce Chapman, an emeritus professor at the Australian National University, warned of moral hazard in a bewildering system that sees some postgraduate students granted subsidies while others pay full fees.

Professor Chapman said some people paid twice as much as peers in similar courses, because fees for unsubsidised places were not regulated. While students typically accrued an extra A$28,000 (£14,305) in debt by undertaking postgraduate study, some saw their loan balances blow out to six figures.

This rammed them against a regulated borrowing limit, which currently sits at A$121,844 for most students. “If you go through a pretty expensive course and you do honour’s and maybe a master’s…you’ll be over the cap,” Professor Chapman told the National Press Club in Canberra.

“How do you pay it? I don’t know how you pay it. You have to find the cash.”

Professor Chapman said this situation was “totally in contradistinction” to the principles underpinning the Higher Education Contribution Scheme (Hecs), which he designed in the late 1980s to help fund an escalation in university study.

He said perhaps 20,000 people were paying at least some of their postgraduate fees in advance because they had exceeded the loan cap. “Hecs was motivated to take away the upfront financial cost of participation in the system,” he pointed out.

“If people…have to pay cash, what’s the point of having a Hecs system? If the government takes the conceptual basis of the system seriously, this needs to be addressed.”

He said allowing universities to set their own fees was a “very bad idea” when taxpayers bore all the risks, as they do in an income-contingent scheme such as Hecs.

The potential risks were illustrated by the Vet Fee-Help scheme, when training colleges duped thousands of students into taking out income-contingent loans to pay for diploma courses of questionable quality. More than A$7 billion flooded through the scheme before it was scrapped in 2016. Hundreds of millions of dollars of student debt was subsequently scrubbed by the federal government.

Unscrupulousness of this scale is hard to imagine in higher education, where institutions are less numerous and regulation more rigorous. However, Professor Chapman stressed the potential for abuse of “a potent financial instrument” like Hecs. “That’s a pretty big ethical issue for me,” he told the Press Club.

He said universities were using inflated domestic postgraduate fees to cross-subsidise research, which – as “a public good” – should be shouldered by taxpayers rather than postgraduate students slugged with “extremely high prices”.

But he said calls for free higher education were “about as regressive as policy can get”, because tax-paying adults – most of whom still lacked degrees – would end up footing the bill for a minority of relatively privileged graduates. “It would markedly help the advantaged and make the less advantaged worse off,” he said.

“It would be great if it could also be free food, free housing, free love, Free Willy, free everything. If free was everywhere, there would be no need for economists hanging around with our miserable and dour insistence that there are trade-offs to be made with all public policy decisions.”

john.ross@timeshighereducation.com