Greens' Debt Forecast: On The Money Or Unreliable?

An online tool launched by the Greens to help model how deregulation will impact university fees and student debt has had its results described as “plausible” by the man who led the development of the Higher Education Contribution Scheme (HECS), despite drawing criticism for exaggerating the future cost of degrees.

Economist and architect of the HECS loans system Bruce Chapman told New Matilda the debt calculator’s assumptions about the future cost of degrees, which it uses to help students predict how much their debts will increase if deregulation goes ahead, were pessimistic but not impossible.

“I think the fees are a bit high to begin with, but they’re not crazy; they’re plausible,” Chapman said.

The Coalition’s proposed changes to the higher education sector would see caps on the cost of degrees removed, allowing universities to charge higher prices.

The Greens' calculator allows students to fill in details about their degree and then predicts how much their future debt will increase if the Coalition’s moves to uncap fees, tie repayment interest rates to the bond rate, and lower the income threshold at which repayments begin are enacted.

The Greens anticipate the changes will cause undergraduate student debt to rise by an average of $46,204. Their calculations estimate a humanities degree will cost $46,000 compared to the current $18,000 cap, and will take students who do not receive Youth Allowance an additional 15 years to pay off.

The calculator shows medical students will suffer the greatest hike in fees with their degrees skyrocketing by $170,000 and taking more than 50 years to repay.

But Chapman criticised the calculator’s assumption that the cost of domestic fees would rise to the level of international student fees.

“I don’t think [all domestic fees]will go up to the full level of international fees and I would have thought that the right number is something like 70 per cent,” he said.

He noted that estimates of the cost of undergraduate education under a deregulated system are somewhat speculative.

“Nobody really knows what will happen, so it’s all very speculative… It will depend very much on which course they’re doing because the courses cost very different amounts and the changes will be very different for each course,” he said.

Andrew Norton, who co-authored the review calling for the deregulation of the sector, told New Matilda that students should not base study decisions on tools like the debt calculator.

“People should not use them in deciding what course they should do because it is going to give them costs much higher than they need to pay, and correspondingly far more years of repayment than is realistic,” he said.

Norton argued that another key assumptions the Greens had relied upon in their modelling — the future salary growth of graduates — was inaccurate.

“What they’re doing is assuming a constant rate of growth from starting salaries. In fact, that’s not realistic for graduates.”

“[During] the first decade of their career, they normally get quite substantial increases,” said Norton.

The website assumes average annual pay increases of two per cent above inflation, due to the higher salary expectations of university graduates.

Aside from the difficulties associated with anticipating the fees universities will set and the wage growth of graduates, the modelling used by the Greens has drawn praise from the co-creator of a similar fee calculator at the Australian National University.

ANU academic Jarod Alper told New Matilda his team were able to virtually replicate the Greens’ figures.

“They make particular assumptions which of course are debatable but within the realm of possibilities,” he said.

“By plugging in their assumptions into our model, we were able to replicate the figures except for some minor discrepancies,” said Alper.

Norton, whose work at the Grattan institute was used by the designers of the Greens website to build their modelling, expressed some support for the existence of such tools but said they needed to cater for individual university fees rather than averages.

“The idea of a website broadly like this is actually a good idea, but what prospective students would need to do is to insert the fees that are being charged by the universities they’re actually considering, and not just fees on average,” he said.

A spokesperson for Education Minister Christopher Pyne told New Matilda the Greens’ university debt calculator was part of a “scare campaign”.

“It simply doesn’t fit the narrative of the Greens scare campaign that if institutions have to compete for students on choice of course, quality of teaching, and value for money, then students will win from this competition” they said.

Pyne’s modelling shows a typical graduate will pay an additional $3 to $5 per week in repayments.

The calculations assume a higher average starting salary of $67,484 and a salary increase of 10 per cent over three years.

A spokesperson for Greens Senator Lee Rhiannon, whose office created the website, defended the calculator’s methodology and said it had received over 480,000 hits so far.

“We have been open and transparent about our methodology and have acknowledged it is not possible to predict the exact cost of a degree at university.

“Some analysts have argued using international student fees as a basis for calculations isn’t appropriate; however, they have not given any evidence as to why.

“When the Department of Education under the Howard government estimated domestic student fees in a deregulated undergraduate market they calculated fees would only be $500 less than international student fees.”

“We believe these figures are actually a conservative estimate of what a degree could cost under the new system,” they said.

Universities Australia modelling released last week showed engineering graduates working full time could expect to repay up to $119,000 — at four per cent interest — which would take 26 years to pay off.

The Greens’ calculations showed an engineering graduate’s studies would cost $75,486 — at six per cent interest — and take 19 years to repay.

Aside from moving to allow universities and TAFEs to set their own fees from 2016, the Federal Government will also cut its contribution to university courses by an average of 20 per cent, putting further upward pressure on degree costs.