HESA

Higher Education Strategy Associates

Category Archives: tuition

November 21

Variation in Tuition in the United States

One of the things foreigners always get wrong about the American higher education system is tuition fees.  The external perception of tuition is driven by what’s happening at the famous private institutions, mainly in the country’s northeast.  But that’s not even close to being the whole story.

Figure 1: Tuition by Type of Institution, United States, 2014-15

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It is true that tuition at private non-profits is pretty high – $31,231, on average; though it goes much higher than that (one-sixth of these colleges charge over $45,000/year for tuition alone).  Of course, discounts are rife, and few actually pay the sticker price.  Net tuition and fees in this sector are actually only about $12,500.  And more to the point, only 2.7 million undergraduates (i.e. fewer than 20% of the total) attend schools in this sector.  In contrast, 6.6 million students attend public 4-year colleges, where the average sticker price is only $9,139 (avg. net tuition = $3,000), and 7.1 million attend public 2-year colleges (i.e. community colleges), where fees are just $3,347 (avg. net tuition = -$1,900).

But the differences aren’t simply by sector, they’re also geographic.  In-state tuition at 4-year publics varies widely from one state to another.  In Wyoming, tuition is $4,646; in Vermont, it’s $14,419.  There are some broad regional trends you can see in the data, but they aren’t quite as stark: in New England (i.e. Maine, New Hampshire, Vermont, Rhode Island, Connecticut, and Massachusetts), average tuition at public four-year institutions is $11,436; in the South and Southwest, it’s about $8,300.

This often makes people stop and think: why is it that tuition in the liberal, blue-state northeast is higher, while in the conservative red-state south and Midwest it’s cheaper?  Well, the answer is that politics in the US didn’t always break down the way it does today.  Back in the 1890s when the big Land-Grant universities were starting to grow, most of today’s low-tuition states were run by governments heavily influenced by the Populist movement.

Populists were suspicious of universities because they served such an elite section of the population.  They wanted them opened up to the children of farmers, and to make sure that they taught “practical arts” as much as the liberal ones.  These being the days before student aid really existed, the way populists gave effect to this was to order institutions to keep tuition low, a tradition that in most states remains true today.

In fact, one way to predict state tuition levels in the US today is simply to look at vote totals from the 1896 election.  That was the “Cross of Gold” election, which pitted the Democratic/Populist William Jennings Bryan against the Republican William McKinley.  Figure 2, below, plots today’s in-state tuition rates against Bryan’s share of the vote in that election.

Figure 2: Current-Day In-State Tuition Versus William Jennings Bryan’s Vote Share in 1896

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Rather amazingly, there is still a relationship between political patterns of 120 years ago and tuition policy today.  It’s not a perfect fit, of course – South Carolina, in particular, was a Bryan stronghold, and yet now has tuition of nearly $12,000 – but the pattern is clearly there.

America is large, and contains multitudes.  Generalizations about its higher education system need to be treated with much caution.

November 17

Affordability

If I could ban one word from higher education discussions, it’s “affordability”.  It’s a word without precision, and, particularly when used as a synonym for “accessibility”, it’s downright misleading and harmful.

The worst is when someone uses the raw price of a good – in this case tuition – to indicate “affordability”; as in: “tuition went up 5% last year, and that makes it less affordable”.  This is simply asinine.  When the price of milk or gas goes up, we don’t wring our hands about the “affordability” of milk or gas.  We don’t do this for two reasons.  The first is that “affordability”, as a concept, is a ratio and not a point. It’s a function not just of price, but of available resources.  If people were serious when talking about affordability, they would be talking about it in terms of fractions, not prices.

(This of course raises a question – what should we use as a denominator?  When I talk affordability, I tend to use mean or median family income, because nearly all students entering post-secondary education for the first time are drawing on family resources to do so.  The Canadian Centre for Policy Alternatives tends to use much smaller numbers as a denominator, like whatever the minimum wage happens to be.  I get where they’re coming from on this – many students, as they get older, pick up more of the burden of their education costs [though they also tend to earn significantly more than minimum wage].  My number will tend make the fraction fairly small.  Their number will make it look large.  Who’s right?  It depends; to some extent, we both are.)

Which brings us to the second issue: there are people for whom a night out at the movies is affordable, and others for whom it is not.  For some people a Mercedes S-500 is affordable, for others (most of us) it’s not.  Demand curves slope downward, and affordability matters at the margin, not the average.  Most people are simply not affected by an increase in price.  Even in the largest tuition increase in history – the English tuition hike of 2012, where tuition rose by nearly $9,000 – the net effect on applications was only about 5%.  To the extent that affordability affects accessibility, the issue is always about how it affects student at the margin, not how it affects the average student.

That’s why student aid is important.  Student aid helps the students at the margin (or at least it does so everywhere outside Ontario, where “needy” has been re-defined by a vote-grubbing government as anyone with income under $160,000).  Having grants offsetting higher costs is precisely the way affordability concerns should be dealt with – provided you think that affordability is an access issue.

The problem is, for most people the question of affordability is about almost anything other than accessibility.  For most, it’s about making sure that whoever is paying for tuition has more money in their pocket to have a better “quality of life”.   Parents – you deserve that second vacation each year rather than paying tuition!  Students – you should have smaller loan repayments on your way to being the upper-middle class of tomorrow!

Affordability – as a ratio – is thus an important concept in the way we design student aid to help students at the margin.  But the way most people try to explain the concept, and the purposes for which they deploy the concept, are either wrong or disingenuous.  We need to talk a lot more about access and a lot less about affordability.

November 12

An Update from Australia

Back in our spring (their fall), the Government of Australia announced a new university funding policy, which consisted of:

  • Cutting per-student public funding by about 20%; but,
  • Subsequently allowing funding to rise along with enrolments (this is known in Australia as “demand-driven funding”);
  • Simultaneously de-regulating all tuition; and,
  • Allowing the interest rate on student loans to rise from equal to inflation to equal to the government’s 10-year bond rate (i.e. actually placing a real interest rate on the loan).

Understandably, students opposed the idea, while high-prestige universities loved it.  Other universities were less keen, but figured student dollars are more reliable than government dollars, and so mostly backed the reforms (albeit without much enthusiasm).  The opposition Labour Party opposed the policy and made some substantive critiques of it here, but offered no counter-proposal other than the status quo, which isn’t great for universities either.

From the start, the potential hitch to this plan has been that, while the Liberal/National coalition has a solid majority in the House, the balance of power in the Senate is held by the Palmer United Party (imagine Ford Nation run by a successful self-made businessman rather than a crack-head with the impulse control of a five-year old), and the Motoring Enthusiast Party (yes, really).  That doesn’t matter so much in terms of implementing spending cuts – Australia sets caps on spending, but the government of the day is free to spend less without parliamentary approval – but it does matter for tuition where policy changes require an Act of Parliament.  And so there has always been the possibility that if the budget legislation stalls, government funding to institutions could be cut without institutions being able to raise fees to compensate.

Many insiders (mainly from within universities themselves) have suggested that if the government ditched the interest rate policy, the hard feelings of recalcitrant VCs and disappointed students would be smoothed over enough to allow the policy through.  However, Clive Palmer has, to date, been adamant that he’s in favour of free fees, and no fiddling around with interest rates is going to change his mind.  And while he’s been known to make deals on other issues (notably climate change), he’s not left himself much room for deal-making.

The government will avoid putting the proposals to a Senate vote if there’s a chance of them being rejected.  With the House soon breaking for Christmas, it’s looking likelier than ever that a vote won’t take place until 2015, leaving institutions in a bit of a tizzy.  The big universities wanted the deal done months ago so they could announce their new fee structure (to date, Western Australia is the only institution brave/crazy enough to do so), and start reaping the rewards of a big fee increase; now, they have virtually no basis on which to do any budgeting because they have literally no idea what their income will look like in 2016.

All of which makes deciphering what the policy will look like in practice an exercise in pure theory.  Without some idea of institutional pricing strategy, there’s no way to model the program’s effects.  With no model to work from, it’s anyone’s guess  as to how this will play out – a state of affairs that sits just fine with the doom-mongers and headline-writers who enjoy talking about $100,000 degrees.

If I were a betting man, I’d probably put my money against deregulation becoming law in 2015.   But Aussies tend to give their governments second terms even if they are a complete shambles (see: Kevin Rudd, Julia Gillard), and a new government might have a better mandate to push this through come 2016.

November 11

An Update from England

In 2012, the UK government allowed tuition in English universities to rise from a little over £3,300 to ($5,500) to about £9,000 ($15,300) in a single year.  Well, technically, they de-regulated tuition up to a maximum of £9,000, but since charging less than the maximum would obviously imply that programs weren’t top-quality, pretty much everyone went to the maximum immediately. Actual average tuition jumped to about £8,600 ($14,620).

So, of course, we’ve all been wondering what the effects of this would be.  I’ve looked at the evidence a few times in the past (see here, here, and here), but now the UK University and College Application Service (UCAS) has issued a summary of the effects of fee increases on student demand.  Why UCAS – the body that processes university applications, but by dint of which is also the body that monitors changes in applications and enrolments by things like age, race, income, etc. – chose to answer these questions on a very short Q+A webpage rather than with a report with corroborating evidence is a bit puzzling; nevertheless, the corroborating evidence can be found in the organization’s own annual analyses of demand, available here.

UCAS’ conclusions were as follows: that the fee increase did cause a small one-time reduction of demand.  But the long-term trend of increasing demand continued, and application rates are now at their highest level ever.  Most importantly, and I quote, “In terms of demand, entry, and type of institution, differences by background have reduced over this period”.

Got that?  Not only did a $9,000 increase in tuition, with only loans and no grants to offset the higher fees, not increase educational disparities by race, income, etc., they actually coincided with a narrowing of educational gaps.

(For clarity here, neither I nor UCAS is implying that the narrowing of the gap is caused by the tuition increase; merely that the trend was unaffected by the increase.)

The English fee policy is still ludicrous, of course.  Charging a huge fee when you know that students can’t pay it back is just idiotic (current estimates suggest that 50% of all fee loans will go unpaid, and that 80% of students will receive some loan forgiveness).  But nevertheless, it is very striking evidence about how resilient demand is in the face of tuition increases.  You’d think that governments around the world would take a look at this and say, “hey, most everything people claim about the negative effects of tuition fees on access didn’t happen here.  Why is that, and should our government re-consider our policies in light of it?”  You might also think that governments that don’t do this might be guilty of deliberately ignoring evidence in order to preserve policies which harm the long-term health of universities, in service of crass short-term political objectives.

You might think that – of course, I couldn’t possibly comment.

November 04

Yet More Reasons Free Tuition is a Bad Idea

The easy case to be made against free tuition is that it benefits students from richer backgrounds.  That’s because they are more numerous in higher education than students from poorer backgrounds and so, on aggregate, would receive more aid.  But that misses a more important point: because of the interaction between student aid and tuition, students from wealthier backgrounds would also receive a bigger benefit on an individual level.

Let’s take a really simple example from Ontario.  Take two students, Adele and Diana.  Both live with their parents and attend university in the same Arts program, but Adele’s family’s income is $40,000, while Diana’s is $160,000.  Currently, both pay $6,957 in tuition.  Both also receive $2,163 in tax credits.  But Adele receives $5,000 in grant money, meaning her all-inclusive net tuition is -$206, while Diana’s is $4,794.

Now imagine the province gets rid of tuition entirely.  Diana, the rich kid, sees her sticker price go to zero, and her all-inclusive sticker price fall to -$768 (that’s the value of the monthly “education amount” tax credits, which would presumably still remain even if the tuition fee tax credit disappeared).  In this scenario, Adele’s sticker price falls to zero; she would also retain the education amount tax credit, and would keep her $2,000 Canada Student Grant.  But she would lose all her provincial grant funding, which is based on tuition.  Her net tuition would thus fall to -$2,768.

Think about that: adopting free tuition means that the kid from the poor family would benefit by about $2,500, while the kid from the richer family would be better off by $5,562.  And, of course, as we noted earlier, higher education enrolments tilt towards the better-off (this is true both in free-tuition and positive tuition countries) – meaning free tuition is a double give-away to the rich.  There’s more of them, and they get more back from a free tuition policy.

Remind me why this is a good idea, again?

Poor students from colleges receive even less of a benefit.  Students there have tuition of $4,032.  But if tuition were eliminated, that $4,032 savings would be offset by a loss of $2,016 in tuition-related grants, and a little over $800 in tax credits.  Net gain: less than $1,200.  While the kid from the $160,000 per year family in university gets an extra $5,562.

But where it gets really gets crazy is with respect to single parents.  Take Joe, a college student with one child, living on student aid.  In the current system, Joe would receive a little over $7,000 in pure loans, and about $10,000 in remissible loans (i.e. loans that are forgiven each year).  If tuition were eliminated, however, he’d lose the remissible loan (i.e. a delayed grant) almost dollar-for-dollar.  Plus, on top of that, he’d lose $825 in tuition tax credits (the lower tax credits for college are because of lower tuition, in case you’re wondering).  So Joe would actually pay more, in net terms, after a reduction in tuition.  While the kid from the $160,000 per year family in university would get an extra $5,562.

How is this fair?  How is it progressive?  How is it in any way a good use of money?

If you substitute in different students or different provinces you’ll get slightly different results, but the basic point remains: net tuition is already free (or close to it) for many people in this country – particularly, poor dependent students and single parents.  Reducing nominal tuition does little or nothing to help these people, and in some cases can actually hurt them.  Our student aid debate would be much better if more people understood this.

October 29

Cost of Attendance

You may recall that we recently put out a paper looking at “net prices” in Canadian higher education, which concluded that, in many cases, these prices were substantially lower than is commonly believed, and that too many of our subsidies in higher education were effectively hidden from those who benefit from them.  The reaction for the most part was amusingly incoherent – mostly variations on “they must be lying, because I’ve never heard of these hidden subsidies”.

But there was one line of criticism that is very much worth discussing.  Several people said “look, expressing subsidies as a function of tuition is all well and good, but the cost of education doesn’t just consist of tuition and fees, it’s living expenses, too – so why didn’t you also include that?”

Fair question.  We did it for two reasons. The first is practical: fees are set and living costs are not.  Some students move to another city to study (either by choice or out of necessity) – that raises their costs by several thousand dollars.  Some students don’t move cities, but rather choose to move out of their parents house anyway – again significantly raising costs.  Students can and do choose various levels of accommodations, with different financial consequences.  Many students also either own or rent cars.  I could go on, but you get the idea: student living costs vary enormously either by choice or circumstance, and more to the point, these costs will be to some degree dependent on the resources government makes available, which brings an endogeneity problem.  It’s a methodological nightmare: hence, we decided to leave it alone.

But there’s another reason to leave living costs out: quite simply, they aren’t a cost of education.  Whether or not a young person goes to school, they need to live.  Those costs (or some of them, anyway) would be incurred regardless.

Pointing this out usually drives people mental.  “But they have to live!” people say, “and they can’t earn the money to do that while they’re studying!”  Well, indeed.  This is why the real cost of attendance is not what students spend, but rather what they fail to earn – their opportunity cost.  We confuse this point all the time, because through our student aid program we try to compensate direct costs rather than reward missed earnings.  But the fact of the matter is the actual “cost” is lost wages.

Could we have included lost wages in our “net cost” calculations?  Possibly – though of course we’d have to make a fair number of assumptions about employment rates, hours worked, and hourly wages, all of which would have been open to challenge.  So on the whole, it seemed safer to leave them out.

What about the policy aspect though?  Why do we compensate living costs rather than lost wages?  Two reasons, really.   First is that it’s a hell of a lot of easier to explain to students and the public.  And second, there are reasonable policy rationales for – at the very least – covering the cost of moving away from home, either for reasons of access (for students from rural areas who need to move to attend education) or program choice (for all students).

Basically, it’s one of those cases where what makes sense for policy analysis and what makes sense for actual policy aren’t one and the same.

October 15

Free Tuition in Chile

Last fall, Michelle Bachelet was once again elected as President of Chile, on a considerably more radical platform than that which propelled her to the same position eight years earlier.  One of her many campaign promises was to make higher education completely free.  This is a Big Deal.  It’s not like Germany, where tuition was only ever a derisory sum; in Chile, tuition payments are equal to 2% of GDP, a larger percentage than anywhere else in the world, outside Korea.

So, ten months on from re-election, how are they getting on with things?  The quick answer is: slowly.  But not for want of trying.

The heart of the problem is a constitutional provision, dating from the Pinochet era, which guarantees Chileans the freedom to make a living however they want.  Effectively, this prevents the government from compulsory nationalization.  In higher education, where the vast majority of institutions are private (though some of them receive public funds), this makes effectuating the Bachelet promise difficult.  So the government has gone down the route of trying to buy private institutions’ obedience by paying student fees on students’ behalf.

Now, the government isn’t stupid; it’s aware that private universities are likely to respond by raising fees.  That’s why they intend to rely on something called a “reference tuition fee”.  This is an invention of the Chilean student aid system, which is the only one in the world that takes the Bennett Hypothesis (i.e. that student aid encourages cost inflation in higher education) seriously.  Basically, Chilean loans programs don’t provide 100% of tuition – they only cover a “reference” fee, which ranges from about 80% to 100% of the actual fee.  The problem is that reference fees vary significantly: the fee for a law program at one institution may be vastly different than at another.  So the first task to make this work is to create a “standard” reference fee – but this is causing enormous problems.  Set it too high and you risk getting fleeced by the institutions; set it too low, and institutions will opt out of the system.  It’s not clear that the government will be able to find such a not-too-hot-not-to-cold fee.

Although the government claims to be able to fund the one-time cost of transferring 2% of GDP from the private to the public sector via new taxes, some independent observers question whether it will, in fact, be able to fully replace the tuition income institutions will lose.  Even if this money can be replaced, it’s not exactly clear where money will come from to fund future system growth or system quality improvement.

More generally, there’s a question about value-for-money in this policy.  Even the proponents of free fees don’t dwell on the promise that the system will become more equitable.  Access to higher education and stratification in Chile are already reasonably good: indeed, their access outcomes look a lot like Canada’s, despite significant fees in both the public and private sector, and the fact that Chile’s (mostly private) system of secondary education creates enormous inequities in outcomes, meaning room for improvement is not great.

Mostly, what proponents of free fees in the Chilean system believe is that “the market should not decide” in higher education.  Which, you know, fair enough.  Only two problems: i) historically, the state tends not to be so hot as a master, either; and ii) in a country that has as many challenges as Chile, is such a goal worth 2% of GDP?  Honestly?

October 14

Free Tuition in Germany

A few years ago, Germany’s Supreme court declared that tuition fees were constitutional, thus paving the way for some states to experiment with fees.  Seven of them (containing over half of all students) did so: Baden-Wurttemburg, Bavaria, Hamburg, Hesse, Lower Saxony, North Rhine-Westphalia, and Saarland.  The fees varied a bit from place to place, but most settled on a modest €500 (Hesse was €1000) – though in some places waiver systems meant that as many as a third of students paid nothing at all.

Gradually, the Länder have reversed their decisions, and this fall the final Länder (Lower Saxony) got rid of fees.  Hence a raft of stories in the last couple of weeks about Germany “going tuition-free”, and questions from some quarters, asking: “could Canada do the same”?  To which the answer is: of course we could.

It would be trivially easy for us to eliminate tuition.  Heck, we already pay net zero tuition, in that what we charge domestic students is more or less equal to what we spend on various forms of non-repayable aid.  If we got rid of all our student aid and scholarship programs we could have free tuition.  It would be a bit rough on low-income students, students with dependents, and college students (who for the most part would lose money on the deal); it also would be a windfall for wealthier kids who go to university, but I’ve yet to meet anyone in the free-tuition camp who seems to care about that.  Of course, that too would make us more like Germany, where direct funding for living costs is pretty meagre: only about 20% of students there qualify for student aid, and it tends to be for far less than what our students get.

At another level, of course, it would be even more trivially easy for us to “do a Germany”.  All we need to do is stop spending so much public money on higher education.  Their expenditure on higher education is about half of what ours is: per-student funding to institutions in Germany is about $10,000 (€7,000); in Canada, it’s about $15,000.  And that has impacts as well: professors there, on average, only get paid about 60% of what ours do.  When education costs are so low, it’s not difficult to keep tuition down.

German participation rates in higher education are also lower than ours, in part because they have no money to accommodate more students.  They could have kept tuition fees and directed institutions to use that money to expand access, but they preferred not to do that.  And so, as a result, the German student body is much more socio-economically selective than ours is – indeed, it is one of the most selective anywhere in Europe, and was so before fees were introduced.

So ask not if we could become like Germany, ask why we’d want to be more like Germany.  Why would we want to spend less public money on higher education?  Why, when the private returns to education are so high, would we want to exempt the beneficiaries from paying for the privileges they receive?  Why would we want to give a windfall benefit to children from wealthier families who quite clearly have the capacity and desire to pay?  Why would we spend all that money when the benefits to the poor – whose net tuition is already close to zero – would benefit barely at all?

Warum, indeed.

September 10

How StatsCan Measures Changes in Tuition

Every September, Statistics Canada publishes data on “average tuition fees”. It’s a standard date on the back-to-school media calendar, where everyone gets to freak out about the cost of education.  And we all take it for granted that the data StatsCan publishes is “true”.  But there are some… subtleties… to the data that are worth pointing out.

Statistics Canada collects data on tuition from individual institutions through a survey called the Tuition and Living Accommodation Survey (TLAC).  For each field of study at each institution, TLAC asks for “lower” and “upper” fees separately for Canadian and foreign students, for both graduate and undergraduate students.  Now, in provinces where the “upper” and “lower” figure are the same (eg. Newfoundland), it’s pretty simple to translate lower/upper to “average”.  In Quebec and Nova Scotia, where “upper” and “lower” are functionally equivalent to “in-province” and “out-of-province”, averages can be worked out simply by cross-referencing to PSIS enrolment data, and weighting the numbers according to place of student origin.  Everywhere else, it’s a total mess.  In Ontario, significant variation between “upper” and “lower” numbers are the norm, even inside the institution (for instance, with different tuition levels for different years of study).  Somehow, StatsCan uses some kind of enrolment weighting to produce an average, but how the weights are derived is a mystery.  Finally, in a couple of provinces where there are differences between the “lower” and “upper” figures, StatsCan chooses to use the “lower” figure as an average.  (No, I have absolutely no idea why).

But the tuition data is squeaky clean compared to the mess that is StatsCan’s data on ancillary fees.  Institutions fill in the ancillary fee part of the questionnaire every year, but usually without much reference to what was reported the year before.   Since StatsCan doesn’t have the staff to thoroughly check the information, institutional figures swing pretty wildly up and down from one year to the next, even though everyone knows perfectly well ancillary fees only ever go in one direction.

Another complication is that “average” is a central tendency – it is affected not just by posted prices, but also by year-to-year shifts in enrolments.  As students switch from cheaper to more expensive programs (e.g. out of humanities and into professional programs), average tuition rises.  As student populations grow more quickly in the more expensive provinces (e.g. Ontario) than in cheaper ones (e.g. Quebec, Newfoundland), then again average tuitions rise – even if all fees stayed exactly the same.  Both of these things are in fact happening, and are small but noticeable contributors to the “higher tuition” phenomenon.

A final complicating factor: the data on tuition and the data on enrolment by which it’s weighted come from completely different years.  Tuition is up-to-the-minute: the 2014-15 data will be from the summer of 2014; the enrolment data by which it is weighted will be 2012-3.  And, to make things even weirder, when StatsCan presents the ’14-15 data next year as a baseline against which to measure the ’15-16 data, it will be on the basis of revised figures weighted by an entirely different year’s enrolment data (2013-4).

In short, using SatsCan tuition data is a lot like eating sausages: they’re easier to digest if you don’t know how they’re made.

August 29

Predicting the Effects of Australian Fee De-regulation

If the Australian government’s plan on fee-deregulation comes to pass, what follows will be one of the greatest experiments ever in higher education.  Institutions will have the right to set fees exactly as they want, which begs two questions: what will they do with that power, and what will the effects be?

Let’s start with the first question.  When institutions in England were given the freedom to set tuition fees up to a maximum of £9,000, nearly all of them immediately jumped to that maximum from their previous level of about £3,300.   Contrary to the government’s hopes, no one tried to compete on price.  Thus, the ceiling quickly became the mode.

De-regulation proponents in Australia say that won’t happen this time.  The problem in England, they say, was the existence of a ceiling – it gave everyone a point of reference around which to cluster.  Take away the ceiling and genuine competition will occur as universities figure out how to deliver different combinations of price and value.  Opponents say this is wishful thinking – the first set of fees to be announced by a prestige institution (read: Group of 8 member) will become a de facto cap, and hence the standard to which everyone else will gravitate.

There’s a story doing the rounds in Australia that supports this idea.  A few years ago, the government allowed institutions to raise fees by up to 25%, which pretty much all institutions did, apart from Curtin University in Western Australia.  Instantly, Curtin went from being second preference for local applications (behind the University of Western Australia) to third (behind Murdoch University).  Through market research, they found out that because students and their families can’t judge institutional quality, they judge it based on inputs – so when Curtin chose a cheaper price, the signal families received was that Curtin was of inferior quality.

There are contrary examples, of course.  In England, institutions have power to set fees both for international students and taught (i.e. professional) Master’s programs, and there is lots of variation in pricing.  So what’s the difference?  In a word, guaranteed income-contingent student loans with significant forgiveness provisions.  Domestic undergraduates have them, international and taught Master’s students don’t.  All undergraduates can get a loan to cover their fees up-front, and are not on the hook for the whole amount if their post-graduation incomes aren’t high enough.

So let’s apply that lesson to Australia, which also has an income-contingent Higher Education Contribution Scheme, albeit one with less generous repayment subsidies than England’s.  HECS will still insulate students from the main financial consequences of the new fees, and so, as in Britain, they will likely absorb the higher fees with very little effect on enrolment. As a result, institutions will push the fee levels quite high because they can do so without fear of losing students (the exception will be students who learn at a distance – which is a more significant chunk of the student body in Australia than it is in most other OECD countries).  The likelihood is that they will get quite close to the international student level – and they will do so at nearly all institutions.

The real question is: what will institutions do with that money?  The likelihood is that every penny of the extra $5,000 – $10,000 per year students will be asked to pay will be ploughed back into research for prestige reasons.  It won’t be the access disaster some are predicting, but it’s a bad deal for students nonetheless.

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