A question about HECS without fee caps


Can a kind colleague explain to me why the leading Australian universities will not increase fees for local students (HECS debts)  above fees charged for international students? After all, even if market interest rates are charged on HECS debt, HECS remains a cheaper debt than a regular bank debt (you don’t go broke with an unpaid HECS debt, your credit rating isn’t harmed if you miss a year’s payment). So local students who are willing to pay the upfront international student level fees, will be willing to pay more if they can shift this cost to a HECS debt.

It seems to me that HECS, a great economic idea with regulated fees, is a different beast in a deregulated environment.

10 Responses to "A question about HECS without fee caps"
  1. Unless the universities all (presumably illegally) collude, competition between them should constrain fees (notwithstanding differentiated products).

    • I still don’t see why UNSW and Melbourne will not be increasing local HECS funded fees above international fees.

  2. As a generally kind person, I’ll give it a go.

    First, it is actually difficult to engage in explicit nationality-based price discrimination without a government mandate (which is essentially what has been the case until now). Put simply, you’ll be before the EOC in a flash.

    Second, you are right that it costs Australian students less to attend Australian universities because of the financing that HECS provides. However, there are other considerations at work on the demand-side. (A) Many foreign students come to Australia in order to enhance migration opportunities and (B) Universities will have to care about the mix of students. The distribution at the top of Australians wanting to attend Australian universities is thicker than those of foreigners wanting to attend Australian universities.

    Third, I think you are right and the fees to both foreign and Australian students could rise.

    Fourth, this will decouple fees across degrees even further. You just can’t charge as much for a science student than a commerce, law or medicine student. That will become a wider gap.

    Fifth, Australian fees will have an interesting cap on the basis of an increasing number of Australians wanting to then head overseas to do degrees.

    Sixth, it is going to take a while. Universities don’t know what the elasticity of demand is and I suspect will be risk averse on seeing a dramatic fall in student numbers.

    That said, all this could go away if HECS debt was capped but fees deregulated. HECS could then apply over post-graduate and under-graduate etc. But that would take imagination, right?

    • Thanks for your kindness Joshua,

      I can’t see how all this is going to work without a HECS cap, and essentially the end of the kind of free education that Hockey and the rest of us enjoyed.

      Sure both international and local fees with be affected, but perhaps students will begin protesting when Melbourne puts local fees above international fees.

      (I now have no doubt that at UNSW and Melbourne, local HECS funded fees will be higher than the emerging international fees.)

      • No University in the world charges more for local students. And in the US for example, they have cheaper financing options than foreign students. The empirics don’t bear your concern out.

        • I’m wondering if HECS in a deregulated environment will make Australian universities the first. After all, there was that urban legend in which an engineering dean complained about having to teach HECS (old-style) paying students.

          Regarding cheaper financing for locals outside Australia, well I’m not sure that I know how to compare the value of a loan that can’t bankrupt you (HECS) with a loan that can, even with cheap interest rates.

    • If the fee is capped by overseas student fees, then yes sure all universities will go to the cap and simultanousely set that cap. Bruce Chapman tells me it’s hard-capped in the budget. I can’t see where they are capped. Notice that two arguments are being made, first that ordinaly higher fees will not be allowed, and second is even if they are allowed, they won’t be higher than whatever international fees settle to.

      The second argument can’t be made. Unless there is a cap, HECS will break a deregulated system.

      Turning to the deregulated postgraduate argument by the VC, it doesn’t make sense and of course is not convincing. After all, postgraduate courses competed with the undergraduate HECS funded and capped courses, and how many local professional masters students are there.

  3. I think the logic is correct Rabee. At least fees will approach international levels. The core issue is that entry to an elite degree has both a price and entry score requirement. These measures put more weight on the money and less on the ability variable. For elite institutions this means lower quality intakes while for non-elite institutions slightly higher quality intakes. The latter effect offset by overall reductions in demand because of higher price. It is non-elalitarian policy but that is the type of world Norton-Kemp-Pines probably want.

    • I can’t see an incentive for universities to have HECS lower than upfront international fees (locals will be offered these any way). I’m toying with the idea that this all will benefit music schools, whose students are likely to have low lifetime income but with some probability may make massive income. Alternatively, students doing highly risky degrees. Demand by such students is inelastic to changes in HECS. On the other hand, demand in economics is likely elastic to changes in HECS (demand in safe degrees).

      I wonder what will happen with joint degrees.

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