Pyne adopts the Pitchford-Tourky skin in the game model for the future of HECS

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Education Minister Christopher Pyne is concerned that some universities are educating students who do not repay their HECS debt:

Universities churning out graduates who do not repay their student debts would face financial penalties under a proposal by Education Minister Christopher Pyne aimed at securing Senate support for fee deregulation.

This kind of punishment mechanism for universities taking advantage of the HECS scheme through under educating students makes sense:

The proposed change to HECS made in the recent budget doesn’t seem
to have been well thought out. It is likely that there will be
extensive deliberations, perhaps an enquiry, before major changes
to HECS are implemented. In this post we propose that in any future
HECS type of deferred payment scheme universities (including private
institutions) should share the risk associated with deferred payments
by students. In particular, we propose that universities receive
a share of student repayments when they are made and not before
students pay their HECS debt. So if a student delays a repayment,
full payment to the alma mater is also delayed. In the extreme case
where a student’s lifetime income remains below the repayment
threshold, then the alma mater does not get the full fee for educating
the student.

There are a number of reasons why our ‘skin in the game’ proposal
makes sense. Having `skin in the game’ is likely to make universities
think hard about the courses they offer, about how they educate
students, about what it means to provide good teaching (focusing
on value added rather than the deprecated system of student
evaluations).

Rohan Pitchford who is a Professor of Economics at the ANU comments “I am glad that basic ideas from modern economics have made their way into the policy debate on the future of higher education funding.” Tourky was unavailable for comment as his phone had a busy signal very time I called him.

17 Responses to "Pyne adopts the Pitchford-Tourky skin in the game model for the future of HECS"
  1. Seriously, nice idea. But what do you anticipate the admin costs of some such scheme to be? Also,does that scheme not invite statistical discrimination / attempts to avoid adverse selection? While sympathetic to the basic idea, I see a some unintended consequences raise their ugly heads.

  2. I anticipate that it will be cheap and easy to implement. Basically, it can be done statistically in a retrospective manner (with lags). I anticipate that it can even take into account distributional issues via a value added component to the university score card. Rohan and I are refining the proposal and should be posting here soon.

    • The Bruce Chapman design seems fine with capped fees and a small group of government owned universities. If HECS is broadened to include private educational institutions and uncapped fees, then we should be looking at these kinds of incentive/punishment structures.

  3. I’m with Andreas on that. Unless you can work out how it won’t lead to discrimination against women, low SES groups, etc., I think the proposal will never get through. You also need to work out how universities who mainly deal with those groups (e.g., Western Sydney, the only university for god knows how many people in that area, and VUT, which has a similar status in Victoria), won’t go broke or work out courses so cheap to teach that you can have a high failure rate and still not worry, which is the obvious alternative to getting around these rules.

    The other problem is that to get a decent measure, you need a baseline of performance and then see how much you help, and this is almost impossible (just look at how it is done now if you think it is easy). For example, let’s say I decide Aboriginies have a high drop out rate (of the few that go to university, I believe they do). I suspect that our largely white male right wing business oriented conservative VCs will think of some way to stop them enrolling that won’t quite look racist, despite the graduates being desperately needed in some areas (for example, there are 2 Aboriginal clinical psychologists in all of South Australia). However, if you could say, “well, we got them from a 50% unemployment rate to 25%” this would clearly be a lot better.

    • These are pretty important points regarding distribution of wealth. They can be readily addressed. For instance, a crude measure can be fines on universities for non-HECS repayment that depend on parent’s income. It’s a crude measure of value added. Instead of valuing students from elite schools, universities will put weight on enrolling disadvantaged students, and making sure that they do courses that make them employable. I simply can’t see a way around deregulation (fees and non-university sector) that does not adopt a version of what we are proposing. So I’m pretty confident that something informed by our proposal will eventually come to pass.

  4. This is why education policy should not be left to people in the education system.

    Not sure if srs.

    • Monty,
      It keeps them happy. They like to talk about economic efficiency. That which is practical rarely matters. You will see how sometimes, like on this blog post, they get into binds with statistical discrimination – which is often economically efficient but frequently inequitable.

      They are mostly well trained in economic efficiency and the importance of price signals, but they are politically left-wing. That makes it difficult for them to formulate consistent policy recommendations. The debate is always fun.

      You will remain well loved just so long as you are careful and never suggest sacking poor quality academic staff in order to improve the efficiency of universities. For they do not march to the same drummer as the rest of the economy.

      • Ah, Anon Casey is at it again.

        “They are mostly well trained in economic efficiency and the importance of price signals, but they are politically left-wing. That makes it difficult for them to formulate consistent policy recommendations.”

        I see. So if they were politically right-wing, like, say, Abbott or Hockey or Pyne, then we would see consistent policy recommendations. That makes perfect sense.

        “You will remain well loved just so long as you are careful and never suggest sacking poor quality academic staff in order to improve the efficiency of universities.”

        Hmmmh. I submit that the regular contributors to this blog would have no problem to suggest sacking poor quality academic staff in order to improve the efficiency of universities. Especially if due process would be adhered to. And especially if poor quality admin staff would be sacked to. Oh, wait …

        “For they do not march to the same drummer as the rest of the economy.”

        They being them politically left-wing academics, I trust. Yes, unfortunately. Or maybe fortunately, for the country, All a question of the perspective one takes.

        Yes, the debate is always fun.

    • I honestly don’t understand your view Andrew. It is not simply a question of repaying debt but providing the incentives for universities to provide good education and to avoid snake oil merchants under educating students. Come down to the ANU for a visit, we’re doing some pretty good work on this.

    • Though I do think that you’re perspective that all of this is too complicated, deserves a decisive response. Rohan and I should be doing this soon here on Core Economics.

  5. I don’t think you can look at the problem entirely from an economics standpoint – you have to decide what you want universities for. Is it focused on ‘higher learning’, or is it a place of vocational training – TAFE with a hoity toity name? Regular TAFE is for tradies, ‘fancy TAFE’ is for lawyers, scientists, doctors and engineers who will pay back their certificates of attainment quickly.

    Would “fancy TAFE” drop most science streams to focus on only those streams which have the highest employment rates?

    As a science/engineering qualified person I’m not sure what would be lost if the universities dropped much of the Arts faculties courses, but I think there likely would be a negative effect even if they’re less likely to lead directly to an occupation with an income above the HECS payback threshold.

  6. Bizarre. You punish unis for churning out graduates with insufficient lifetime incomes – fine. Except of course you don’t know their lifetime income for a long, long time so the people you are punishing (theoretically the uni management – though in practice the uni’s current students) are a completely different set of people from those who made the decisions. Never mind equity, this is a recipe for inefficiency.

    That’s on top of the general bizarre nature of the proposal common among education policymakers at all levels – to reward good performance by directing more resources to it, naturally at the expense of poor performance. Except that performance is often a function of resources, so that what you will mostly be doing is worsening the performance of the poor performers.

    Economists need to look at the organisational psychology literature a LOT more before proposing this sort of thing.

    • The proposal is in its nuts and bolts involves estimating repayments from histories. i.e., rewarding Universities that produce job ready students.

      In the end, all of this has to do the present solvency of universities. In the same way that we can calculate the risk of a bank’s portfolio of longterm loans, the proposal requires that we view students as shared investments, shared between Universities, the Government, and the Individual.

      As for organisational psychology, I guess my answer is that incentives (are the only things that) matter. There is a great revolution in psychology involving the sudden unanticipated discovery of revealed-preference-theory I’m looking forward to seeing where that is heading.

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