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.