Budget 2024 Archives

This is the third in a series of posts on the 2024 Budget. Today: higher education by the University of Melbourne’s Abigail Payne, director of the Melbourne Institute. Last Friday: early childhood care and education by the University of New England’s Marg Rogers, postdoctoral fellow at the Manna Institute Last Thursday: school funding by Curtin University’s Matthew P. Sinclair, a lecturer in education policy.

I approached this year’s budget with excitement and with trepidation.

Why excitement? This budget offered the potential to embrace some of the more positive insights from the Universities Accord Report. Trepidation? Would we see the government fail to address the more challenging aspects of working at a university in Australia.

I had hoped to write about the promise of renewed investment in research, in the financing of universities, and supporting the important role that universities play for progressing innovation and delivering solutions that will support strong economic growth for Australia.

Frankly not much was announced about any important investment that must be made to strengthen and invest in our universities.

A quick search on terms revealed that the term “student” appeared 109 times, higher education 27 times, university 27 times, VET 25 times, TAFE 7 times, science 35 times, and research 65 times. This blog will focus on the budget announcements for addressing enrolment and the servicing of debt.

Importance of Increasing Tertiary Education Attendance

Let me start with the promising information. A goal of creating a highly skilled workforce that includes a tertiary attainment target of 80 percent by 2050. This is both laudable and ambitious. As Figure 1 depicts, Australia is ranked 10^th amongst OECD countries for educational attainment (tertiary or higher) for individuals aged 25 to 34. The current rate for those living in Australia is 49 percent for men and is 63 percent for women.

Is increasing access to universities only about the money?

The budget also recognizes the importance of broadening access to encourage more underrepresented students to attend university. This importance will include a commitment for more needs-based funding. What this means for the budget is vague. And is the solution to achieving both an 80 percent target and broadening access simply about money? Increased financial commitments were announced in the budget: $1.1 billion over five years for expanded access and $350.3 million to expand access to free university courses.

Of course, money matters.

But research has shown, time and time again, the returns to further education are positive. That has not wavered over time. Why are we not observing high demand for university places?

Increasing educational attainment must include considerations: how we encourage students to prepare for pursuing these degrees; how we support our schools to deliver what is needed for success in university; and what we can do to support growth in the tertiary system. All that, while maintaining high standards to ensure graduating students are best prepared for opportunities that will require higher levels of skill and knowhow.

Addressing accumulated debt – will changing indexation solve the problem?

As has been well reported, as tuitions have risen, so has student debt. Figure 2 illustrates the dramatic increase in student debt based on tax data obtained from the Australian Tax Office, computed based on the year of the last observed loan for a student, reported in real ($2022) dollars. When HECS/HELP was introduced, the average accumulated debt at the end of schooling was $10,000 in today’s dollars. Today, the average is nearly $40,000. If we look at remaining debt after five, ten, and fifteen years (ignoring those who have fully repaid their loan), those with debt after ten years are still not making much of a dent in repaying the debt.

Increasing debt, and in more recent years, increasing effective interest on this debt has risen. This means that it is taking longer to repay debt. Figure 3 illustrates this fact. Using tax data and the loan information from the Australian Tax Office, we depict the share of students who have repaid their student loan debt after five, ten, and fifteen years, respectively, based on the year of the last year a loan was received. For example, if a student enrols in university in 2000 and takes out three years of loans between 2000 and 2002, the student is identified as having received her last year of loans in 2002.

What’s changed

When tuition was on the order of $2,000 (nominal) per year (1989 to 1995), approximately 30 percent of the students had repaid their loans within five years and 78 percent had repaid the loan within ten years. Fast forward to more recent periods: only 20 percent of students have repaid their loans within five years. Only 55 percent have repaid their loans within 10 years. As debt has increased so has the time to repay.

The budget has recognized the challenges of loan repayment. They have announced that the effective interest rate for these loans will change. The rate will be the lower of either the Consumer Price Index or the Wage Price Index. This use of different measures to capture “inflation” is welcomed.

Are the cuts to debt fair?

The Government has also indicated it will cut $3 billion in student debt, providing relief for those with existing debt. That’s welcome. But is it fair for those who no longer hold debt but paid off their loans in recent years? One should also consider the potential signal it serves regarding opportunities to pay off one’s loan faster than is required. And finally, what about those who have never held a loan but are struggling financially?

Confusions around tuition rates and debt repayment – does it cause a student to pause before enrolling?

Revisiting the question of how to increase participation in tertiary education, we should think about the role increasing debt plays on the decision to pursue a university degree. The income-contingent loan repayment scheme should be applauded for creating a structure to encourage participation while deferring payment for that participation.

What started as a simple concept, however, has become convoluted. It may lead to confusion and a decision not to pursue further education. As Figure 4 illustrates, tuition has not only increased but there are differential tuition rates depending on the program of study. This aspect makes sense if the tuition rate reflects the cost of delivering the given program of study. This simple depiction of three or four rates, however, quickly gets confusing when a student pursues courses in different programs. Once enrolled, depending on course selection, a student can end up facing differential course fees, making it even more challenging to understand the total cost of a degree before enrolling in university.

Source: Parliamentary Library based on Department of Education, https://www.aph.gov.au/About_Parliament/Parliamentary_Departments/Parliamentary_Library/pubs/rp/rp2021/Chronologies/HigherEducation

Potentially even more confusing for a student who wants to be fully informed before university registration is the repayment rates. The basic principle is that repayment is tied to earnings. With the minimum repayment amount equalling a percentage of one’s income.

But the percentage and thresholds vary across incomes and over time. Figure 5 depicts the minimum repayment rates. These have changed both with respect to what is owed as well as the income threshold for computing the amount owed. Given the repayment rates can adjust on a year to year basis, it would be very challenging to figure out at the time of university registration how long it might take to repay a student loan.

Source: Parliamentary Library based on Department of Education, https://www.aph.gov.au/About_Parliament/Parliamentary_Departments/Parliamentary_Library/pubs/rp/rp2021/Chronologies/HigherEducation

Encouraging greater participation and meeting 2050 targets

Encouraging greater participation in tertiary education must be more than making a proclamation. We can do more to invest in our institutions, to identify the factors that contribute to a decision to pursue a degree or diploma beyond secondary school, and to provide transparent mechanisms for capturing tuition and loan repayment. To encourage greater participation in tertiary education, information on costs and expectations for repayment should be clear and easy to understand.

Government has made a move towards reducing the costs associated with loan indexation. It has also provided temporary loan forgiveness, and is investing to promote greater access to university. But it should do more to embrace and address the challenges students AND universities face.

Abigail Payne is the Director & Ronald Henderson Professor at the Melbourne Institute: Applied Economic & Social Research at the University of Melbourne. Her research is wide- ranging and includes the effects of policy on educational outcomes, schooling transitions, gender differences, and student performance; the determinants of poverty and disadvantage and the mechanisms for reducing poverty; and charitable giving and the role played by nonprofits in service provision.

This is the second in a series of posts on the 2024 Budget. Today: early childhood care and education by the University of New England’s Marg Rogers, postdoctoral fellow at the Manna Institute. Yesterday: school funding by Curtin University’s Matthew P. Sinclair, a lecturer in education policy. Monday: higher education by the University of Melbourne’s Abigail Payne, director of the Melbourne Institute.

The 2024 Federal Budget has included new and continuing early childhood initiatives to support educators and relieve the workforce crisis. That said, there are no rainbows or new pots of gold in easy reach for educators. Here’s what is new, and what remains the same.

New: Paid practicum placements (from July 2024)

Educators are eligible for a payment of $319.50 a week for practicum placements outside of their own workplace. Educators have to do many practicums as they work through certificate, diploma and degree qualifications. In this past this has led to educators taking annual leave from their job to do their placement, or worse, unpaid hours creating ‘prac poverty’.

New: Lower indexation rates for HECS-HELP student debts (retrospective adjustment from 2023)

Rather than rely on the rate of inflation to set the indexation amount on student loans, the Government will now rely on lower and more predictable figures. The indexation rate, (similar to interest), will be either the Wage Price Index or the Consumer Price Index, whichever is lower on any given year.

This initiative will bring relief to early childhood educators who are trained, or training to be degree qualified and have a HECS-HELP student loan. Educators are often especially affected as they generally take longer to pay these debts off because:

they have low wages, so the rate of compulsory repayments is lower;
as 92% of the workforce are women, they are often taking career breaks to be the primary carers of children and relatives; and
they often work part time due to their caring responsibilities, meaning there are often years where they pay little to none of the debt.

These debts often fester for years, increasing educators’ levels of poverty, and reducing their ability to apply for a home loan. Thus, HECS-HELP schemes are an outdated and very sexist policy designed in the 1980s, largely by men who had little understanding of the impact it would have on women.

Continuation: Wage increases (when the Fair Work Commission completes its processes)

Probably the most disappointing part of the budget for educators is there is no increase in wages until the Fair Work Commission has completed its Annual Wage Review and Gender Pay Equity Research exercise.

While this is important work, it will not help educators in the middle of a cost of living crisis who are leaving their jobs because they can’t afford to stay. It is important to note here that degree qualified early childhood educators receive about 20% less than school teachers with the same qualifications.

That said, the Government has committed $30 million over 2024-25 to the processes of paying educators more once the decision is finalised.

Continuation: Incentive System payments (2024-25)

Apprentices, trainees and employees benefit from Phase II of the Incentive System for priority skill areas, such as early education. In the second phase, educators on a traineeship could receive between $3000-5000 as a bonus over the two years. Additionally, sign on incentives payments of $4000-5000 are available for early childhood services to attract staff.

This might help to attract some new educators in a time of high employment. This bonus is especially needed in regional, rural and remote regions, and low-income metropolitan suburbs who live in ‘childcare deserts’. This is where three or more families are competing for one space within a service. In some areas, it is 20 or more families, with parents waiting for many years to access early learning for their child.

General initiatives: New supports impacting early childhood educators

As part of the general taxpaying population, educators will benefit from the stage 3 tax reforms. It will improve their take-home pay as they earn less than $146,000. Additionally, because 92% of the workforce in early education are women, some will be eligible for these new measures, depending on their circumstances. These include:

domestic violence payment of $5000 for those fleeing an abusive relationship (continuation of a pre-existing scheme);
improved funding in crisis and transitional accommodation (new funding); and
superannuation added to Commonwealth paid parent leave (from 2025).

The verdict

In some ways, this is a disappointing budget for educators. Their wages have been effectively reduced from low to unsustainable during a time of high inflation and a cost-of-living crisis. This will mean more educators will leave, if they cannot wait for the lengthy Fair Work Commission’s processes.

Many have already left. They are enjoying higher wages in other sectors, such as the Aged Care Sector, whose wages were adjusted previously.

This high level of attrition negatively impacts:

children (who need secure, caring relationships to support their learning, and access to important developmental screening);
parents (especially women, who cannot work when they have no access to early learning);
family wellbeing (reduced family income increases household stress);
communities (who are losing young families when they cannot access early learning, and who cannot attract workers from other sectors to the area), and
the economy (as there are less taxpayers when parents cannot access early education for their children).

Unfortunately, passion for children’s education does not pay the bills and provide a sustainable economic wage. We need real reform in early childhood education so our children, parents, families, communities and country thrive.

Dr Marg Rogers is a senior lecturer in early childhood education at UNE and a postdoctoral fellow at the Manna Institute.

Budget 2024

Budget 2024: The government must support universities, students – and research