The Australian Greens have long argued tertiary students shouldn’t pay tuition charges. This means they want to see HECS – now called HELP – abolished.
But following the Albanese government’s recent plans to wipe 20% off student loans, on Monday, the Greens announced they want to the cancel all student debt. This would cost the federal budget around A$75 billion.
Mehreen Faruqi, the Greens’ higher education spokesperson, argued, “student debt can’t be fixed because student debt shouldn’t exist”.
Are these reforms sensible and equitable, and is this a proper budgetary reform? The answer to all questions is a resounding “no”. It also most disadvantages relatively poor taxpayers.
Why is this a bad idea?
Let’s start by asking, what is “free” higher education?
For economists like myself, this is a distracting question. There is no such thing as “free” higher education or, indeed, free anything. This is because someone, somewhere has to pay for it. Higher education services – like healthcare, food and roads – do not magically drop out of the sky. It costs money to run university campuses and infrastructure and to pay for teaching and research.
What “free” really means is a zero charge for students and graduates. And since our universities are public sector institutions, if students don’t pay fees, they need to be financed entirely by taxpayers.
Read more: Albanese flags radical changes to student debt – with a 20% overall cut and drop in payment rates
Who benefits from uni?
A better question would be, is it equitable to have universities financed entirely by all taxpayers? To answer this, we also need to ask, who benefits from university education?
Here, there are two possibilities: society generally and individual graduates. We all agree there are social benefits in having people trained and educated at universities – this includes health professionals, teachers, engineers and lawyers.
This justifies the government subsidy, which has always been part of the HECS/HELP system. This means students cover part of the costs of their university education (once they are earning a certain amount) and the taxpayer covers the rest.
But if 100% of the costs are covered by taxpayers, it begs the question: do graduates also get private benefits from their education – such as higher salaries – which justifies them paying extra?
This is easy to answer: we know higher education delivers healthy returns to most graduates, both in terms of the amount of money you can make and the job opportunities you have.
This is obvious when we think about many professional incomes – such as, for example, those of lawyers, accountants and dentists, and compare these with non-graduate incomes – such as, for example, those of retail workers, factory workers, unskilled labourers and most hospitality workers.
Who is picking up the bill?
If there is no charge for a university degree, this means all taxpayers (including those without a university education) are fully subsidising graduates, who get lifetime advantages from their education.
In other words, calling for “free” universities is equivalent to supporting financial assistance going from the poor to the privileged.
Just about all political parties in Australia – and most governments around the world – agree this is not a not a wise idea.
By the same token, if we cancel all current HECS debt, we are asking all taxpayers to pick up the bill on behalf of uni graduates. According to the government, the average debt is $27,600.
This is also inequitable because it is equivalent to giving $27,600 to those with a HELP debt. The vast majority of these people will experience relatively high lifetime incomes, certainly far in excess of the incomes of the average taxpayer.
Bruce Chapman helped create the Higher Education Contribution Scheme (HECS) in 1989 and has been the advisor to the governments of many countries on student loan reform since.
This article was originally published on The Conversation. Read the original article.
