The inequity of job-ready graduates for students needs to be addressed quickly. here’s how

Labor’s promise of a ‘deal with universities’ suggests a slow and cautious approach to higher education policy. A new education minister without a strong track record in the portfolio may also want time to address issues.

In general, taking this time to properly define the policy and gain support for it is a good approach. But when the current policy is problematic and lacks strong support, it is necessary to act more quickly. This is the situation with the previous government Ready-to-use graduates student funding policy adopted at the end of 2020.

Job-ready graduates impose AID debts on some students, increases the costs of running the HELP loan program for the government, and distorts university incentives to allocate student places across courses.

Read more: Labor promised university deal could be watershed for higher education in Australia

How are university courses funded?

A mix of Commonwealth and student contributions finance domestic undergraduate students in public universities. Added together, these contributions constitute the overall funding rate by subject.

The government sets Commonwealth contributions, which vary by academic discipline. The government pays universities based on their enrollment up to a capped total grant amount.

Universities set student contributions up to a legal maximum, which also varies by discipline. Universities are paid directly by students or by HECS-HELP Loans. The total income from student contributions is not capped.

Once universities have reached their maximum Commonwealth Contribution grant, they can still increase enrollment, but only on student contribution income. These additional students are called “over-enrolments”. Historically, oversubscriptions have been an important source of flexibility to meet student demand.

In its basic architecture, graduate-ready has similarities to previous funding policies, other than the demand-driven system, which uncapped both Commonwealth and student contributions.

Where Graduate Ready Graduates differ is in Commonwealth and Student Contributions.

Read more: Demand-side funding for universities is frozen. What does this mean and should the policy be restored?

Commonwealth Cup by Student Contribution

Career-ready graduates increase student places by keeping total university grants at about the same level but reducing the average Commonwealth contribution. Universities need to provide more places for students for every million dollars in public funding.

Labor has already promised a small, and possibly temporary, increase in total Commonwealth contribution funding. Since the government overall budgetary situationa significant increase per student may not be achievable.

Read more: Labor offers more university places, but more radical change is needed

For universities, increases in student contributions at least partially offset reductions in Commonwealth contributions for job-ready graduates.

Student dues have changed drastically

The most drastic element of Ready-to-Go Graduates was another change in student contributions. Before this policy came into effect, a combination of assumed private financial benefits and course costs explained student contribution levels by discipline. The price difference between the cheapest and the most expensive discipline was around $4,500 per year.

Job-ready graduates abandoned this system. Instead, it uses student contributions to manipulate student demand.

In nursing and education, the “ready-made” courses that the previous government favored, student contributions have been cut by about $2,700 a year. In disadvantaged courses, they have increased. The largest increases of $7,800 per year were recorded in humanities other than languages.

The spread between the cheapest and the most expensive has more than doubled to $10,550 per year.

Higher or lower Commonwealth contributions partly offset these changes in student contributions, so overall funding rates have changed less than student contribution levels.

Read more: 3 big issues in higher education demand the attention of the new government

Job-Ready Graduates Have Long-Term Impacts

The graduate-ready hypothesis that students would respond to these price signals and alter enrollment trends has never been proven. Course preferences again depends on student interests. For financially motivated students, differences in job and salary prospects are also more important than the amount they pay for their course.

Job-ready grads shuffle hundreds of millions of dollars in HELP debt between students each year. Some students, such as those in nursing or teaching, will owe less than before and will pay off their debt sooner.

Others, like those taking humanities courses, will owe much more and will continue to repay for years longer than before. Some may never fully repay their HELP debt.

Although HELP is designed to allow for slow or incomplete repayment, this should reflect varying individual circumstances. It is neither reasonable nor fair to assign payback periods and risks based on course choices.

Slow or non-existent repayment increases the cost of HELP for the government. This is not prudent when it is already facing large budget deficits.

The system also affects the economics of over-enrollment.

In fields such as the arts, law or business, the student contribution covers more than 90% of the maximum income that a university could obtain per student. These areas are close to a de facto demand-driven system, with only minor financial constraints on increasing enrollment for universities already earning their maximum Commonwealth grant.

In areas such as education and nursing, less than 25% of the maximum income per student comes from the student. Excessive enrollment in these areas is almost certainly at a deficit, preventing them from accepting more students.

How to repair this system?

To fix the system, we need student and commonwealth contributions that vary within a narrower range.

This change can be almost budget neutral. Courses that are too expensive compared to other areas would result in lower student contributions and higher Commonwealth contributions. Tuition that is too cheap would lead to higher student contributions and lower Commonwealth contributions.

Enrollment estimates in 2022 could be used to ensure that increases and decreases in contributions balance each other out, leaving government and universities in the same financial position.

Fast or slow change?

Increases in student dues are normally “fronted”, so that only new students are affected and continuing students are retained on the old rates.

Grandfathering is usually preferable, so that students in the course aren’t suddenly hit with unexpected extra fees to complete it. But job-ready graduates are creating so many problems that they need to be ended as quickly and completely as possible.

Had the new student fee system been introduced for 2023, students facing higher fees would have benefited from up to two years of reduced student contributions. Their total course cost upon graduation would still be lower than other students.

A quick solution to the problems of job-ready graduates does not preclude later changes coming from the agreement process. This is an interim measure to correct errors rather than a long-term policy.

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