Voucher stoushers: what's the price tag?

You can’t deregulate one side of a market and keep the other side in a straightjacket. That’s the essential argument of the vice-chancellors and academic commentators who say that if a voucher-style funding system is introduced, price caps need to be relaxed.

University of NSW vice-chancellor Fred Hilmer and Macquarie University vice-chancellor Steven Schwartz are among those in the do-both camp. The day the report was released, Hilmer urged the government to address “what, on a quick reading, seems to be a gap,” and advocated a gradual and partial deregulation of student contributions.

“Without some level of fee deregulation, universities would be faced with fluctuations in revenue with no capacity to adjust course prices – in a situation where costs are also largely fixed. This would have the same effect on risk as being highly leveraged with debt. This problem is particularly acute given the weak state of university balance sheets. Few have adequate reserves, a situation exacerbated by the recent financial downturn.”

In a blog posted the same day, Schwartz said vouchers were a step in the right direction – but “not a victory for the free-market champions who have advocated vouchers for years”.

Schwartz fleshed out his argument in an op ed in The Australian. “The review recognises that price competition is a major mechanism for delivering efficiency, but claims it is necessary to cap fees in order to keep ‘established’ institutions from sharply raising prices. The review takes it for granted that higher fees are bad even though it admits many students would be happy to pay them.

“Under a fixed-fee regime, a university that wants to offer a 20-student law tutorial taught by a former High Court judge must charge the same amount as a university offering a 300-student lecture taught by a retired personal injury lawyer. All universities will be pushed towards low-cost provision even if students are happy to pay more for a higher quality experience.”

Simon Marginson, professor of higher education with the University of Melbourne, also said the influence of vouchers would be limited by the fee cap. “It doesn’t create market force pressure because you don’t have price differentiation,” he told CR.

“For institutions that are oversubscribed, it doesn’t really change their relationship with the consumer – they are not able to leverage their market position to gain additional income.”

Last week Hilmer told CR he wasn’t opposed to vouchers. “But I believe the proposal put forward in the Bradley report needs considerably more work,” he said.

“We have an extremely complicated higher education funding model that seeks to balance the need for particular disciplines with student and employer preferences. The Bradley report appears to be proposing a voucher system not linked to enrolment targets and based on a funding-by-discipline model that the report acknowledges might be quite inappropriate.

“Rapid changes in regulation can have unintended consequences. Introduced in isolation, a voucher system using the current funding-by-discipline model could mean an acceleration in business studies, for example, but spell the end of less popular disciplines such as science, teaching and nursing.

“I believe we should build flexibility into the system gradually and more broadly. Any voucher system should be phased in, and linked to the gradual deregulation of student fees.”

Meanwhile, the National Union of Students said it had revised its initial opposition to vouchers. NUS president David Barrow said the NUS had no problems with vouchers if they didn’t reduce the quality and diversity of courses or the sustainability of regional campuses – and if there were safeguards to ensure student demand oriented itself to real labour market needs rather than fads.

“When Ally McBeal and The Practice were on, everybody wanted to be a lawyer. When Grey’s Anatomy is on, everybody wants to be a surgeon. When CSI Miami and NCIS came on TV, forensics tripled.”

But for the NUS, Barrow said, the “clincher” is that place deregulation doesn’t lead to fee deregulation. “We’ve seen over the last 12 years what governments can do. We don’t want to see in five or ten years’ time, when maybe Labor is out of power, suddenly a student who goes to Sydney Uni or UWA has to pay five times what they pay at Macquarie or wherever.”

The National Tertiary Education Union, on the other hand, opposes both price and place deregulation. National president Carolyn Allport said the voucher proposal might seem progressive, but could disadvantage both universities and students.

“For universities, the voucher system produces instability in planning and funding. It creates difficulties in infrastructure developments and greater reliance on contingent or casual employment among university staff. For students, the voucher can undermine high-cost courses – leaving many critical subjects such as maths, science and languages undersubscribed. It may also result in a mismatch between the economy’s labour market needs and student discipline choices.”

The Council of Australian Postgraduate Associations said deregulating enrolments wouldn’t make much difference. “Anybody who’s spent any time on a university finance committee will tell you that universities have to manage their financial affairs over a very long timeframe,” said CAPA president Nigel Palmer.

“Universities are not really geared to be rapidly responsive. If you double students in a particular program, you come up against capacity constraints very quickly. Universities can’t suddenly build another wing of a building to accommodate growth in a particular area. They’re starved for space.

“You can’t get teaching capacity out of thin air, either. If institutions rapidly grew enrolments – in particular, undergraduate programs – the people expected to pick up the slack would be casually employed teachers, many of whom are postgraduates. A lot of them are already stretched and working under very poor conditions.”

Palmer said higher fees could help address some of these problems, but wouldn’t solve them. The main outcome, he said, would be higher student debt. “The coursework postgraduate experience shows us that deregulated fees mean universities charging what they think the market will bear. The fees they charge will have no relation to the cost of providing the course. They’ll gouge wherever they can. We’d see a big increase in fees without a significant improvement in quality.”

Innovative Research Universities Australia director Lenore Cooper said IRUA was still considering Bradley’s report and hadn’t come to firm conclusions. But place and price deregulation have potential consequences that need to be considered, she said.

“A policy with no volume caps and no fee caps – it’s going to be quite difficult to manage that. The logical response would be for the government to set limits on its HECS loans so that students could only borrow up to a certain amount. If institutions chose to increase their fees, this may leave many students with a gap, where the income-contingent loan no longer covers fees.

“This would move us out of the realm where we’ve been able to hold our hands on our hearts and say no student suffers a disadvantage from not being able to pay up front. Students would either have to find that money up front, or they’d have to access private loan facilities.

“And we know that the fees paid by Australian students are already quite high on an international basis. If the government accepts it is in the national interest to raise higher education attainment rates to the extent being proposed, we don’t want to create disincentives. If we want to increase our attainment rate, we really have to make it very easy for people to see higher education as an option.

“Also, I would imagine that once you start setting domestic fees, that will inevitably impact to some degree on international fees. We have our export market to think about too, in terms of international competitiveness.

“These are some of the factors exercising our minds. When you start to delve into the detail of some of this, it gets more complex – the possible permutations of different sets of recommendations.”