Ultimate Science Team Because fuck you, that's why.

Why Universities Should be Full Fee

(or "Justin's 1500 word libertarian wankfest on his pet issue")

This was posted on my facebook blog a few weeks ago.

Yes, it is almost universally agreed outside, and probably even within, Liberal circles that implementing an upfront full fee system for all university students is a bad idea. But that's why I thought it would be an interesting topic to write something about and see how it goes. I've made a number of assertions in this article from which I build my arguments, and anyone who is skeptical of the free market will probably pick up on these and reject them offhand, but for anyone else I'd ask that it be read with an open mind, and that the links between these assertions and my final conclusions be considered closely.

Who should pay?
I'll start by saying that it is a student's responsibility to fund their education, because they are the ones who gain financial benefit from holding a degree. Many arguments have been made about an overall benefit to society, but these don't hold up when we consider that society will be paying for these extra benefits already, through the higher wages of the graduate. The net social benefit can be assessed by profitability because if a service is useful to a lot of people, or very useful to a handful of people, it will generate a lot of money. Even things such as medical technology which primarily benefits the poor can be covered by this principle, so long as the government is providing subsidies to those who genuinely cannot afford medical care.

Further it is argued that some degrees are more about the pursuit of knowledge for its own sake than earning a higher salary at the end of them. I'd counter by saying that if the expected salary of someone is not enhanced by the degree at least to the extent where it covers the intial cost of the degree, then the general public is experiencing an inefficiency of resource allocation. Ergo, if I want to study the migration patterns of caterpillars, and there is limited, or no, applications of this knowledge that somebody would be willing to pay for, then there is no social benefit in me doing so, and so society shouldn't pay. This is not to say that studying such fields is not a valid pursuit, just that the benefit is to the individual who enjoys the act of acquiring the knowledge.

The current HECS system, while better than having the government foot the entire bill, still has students only paying for part of their degree, and on top of that many HECS bills remain unpaid due to death, emigration or graduates choosing not to work. This, on top of the fact that providing interest free loans costs money because the government has to borrow from somewhere, means that higher education is a net tax burden. Ergo, taxpayers are paying money so that others can earn more than them, or pursue knowledge with no social benefit. This is why I recommend upfront full fees as the only fair solution.

The Proposal
Of course I do not think that every student has $20 000/year sitting in their back pocket to fund their education. This is why I recommend a system whereby private investors can purchase equity in prospective university students, in much the same way as a new company can sell a share of its future profits to investors in order to raise the capital it requires to begin operations. Because one student is a fairly risky investment, it would seem logical to propose that instead of x% equity in one student, the investor purchases (x/100)% equity in a cohort of 100 students, or something similar.

This, I believe, enables students from any financial background to gain entry to university, providing they have the skills to suceed in the future, and so would appear to be a good investment.

Further, I would recommend that university places be deregulated for reasons outlined below.

The Economic Argument
First, I'll take for granted that the free market is much better at predicting the future than any government that has ever existed. I don't believe this to be too controversial, and the record of the government picking winners with regards to new industries has shown this to be the case time and time again.

Given this, we can postulate that private investors will do a far better job at anticipating the demand for graduates than the federal government which currently sets the number of HECS places according to where it thinks skills are needed. This, in combination with the principles of supply and demand, tells us that if an industry is likely to have a skills shortage in 3-5 years, then that profession will have its wages increase in the same time frame, and this will generally be anticipated by private investors who will ask for a relatively smaller percentage of a student's future income should they choose to study in that field. If this causes an oversupply of students applying for that degree, the market will correct itself again by increasing the cut that the investor gets.

Arguments against this, such as the fact that teachers and nurses are in high demand, but have relatively lower incomes, can be countered by the fact that in such a situation those professions' incomes would need to be increased to attract students to study their respective degrees. Further we run into problems with these salaries also coming (for the most part) from taxpayers' pockets, but we can look at it as slightly “underpaying” the rest of society (through higher taxes) to compensate for the current gross underpayment of these areas of the public sector.

We would see the skills shortage diminish in sectors where it currently exists, oversupply being corrected also, as well as a stream of graduates into new industries which look promising.

Quality of Graduates
As it stands, entry to unversity is determined by choosing those applicants with the highest UAI's to fill the available positions. This is fine, if we accept that UAI is the best measure of whether someone will be successful in their chosen field. If we however look at other aspects, such as interpersonal relations, previous work experience, etc, we can see that these can also be used to give an indication of the future successfulness of any particular applicant.

The equity system would, by nature, consider all relevant factors and weight them according to importance, because this is the best way to get a good return on an investment. We would, therefore, see students better matched to their ideal professions through investors offering better deals to those who chose degrees which best suited them. For example, as it stands a student who is highly successful in extension mathematics and science subjects in the HSC, but performs just above average in English, would likely get a place in a law degree over someone who performed to an exemplary standard in English and humanities, but did poorly in mathematics. This is obviously not an ideal situation.

We would see students better matched to their ideal degree, and better graduates as the result.

More Competition between Universities
As it stands HECS fees are relatively uniform across all universities in Australia, and so there is little incentive for individual universities to experiment with new ideas which may bring the cost of providing a degree down, because the risk outweighs the benefits. This mirrors the situation of those in charge of certain industries in the Soviet Union, they found themselves in a position where the profitability of the industry did not directly influence their salary, but having the industry lose money through a poor decision almost certainly meant they'd be sacked, if not worse. In essence a point is reached where an idea that had a 90% chance of cutting the cost of production in half would be rejected based on the fact that the 10% chance that it would be an expensive blunder was the only relevant fact to their individual situations. This leads to a stagnation of innovation in an industry, and fixing HECS does the same thing to education.

An example of where competition has been incredibly successful is Vanderbilt university, which takes only 9% of its revenue from student sources (http://www.vanderbilt.edu/divadm/06FR.pdf), instead sourcing its income from things such as selling health care (63.6%).

A shift towards profit based university management, while probably initially leading to higher prices for the student, would over time force a price decrease so we see degrees even cheaper than they are now.

Motivation for Students
A student will have more incentive to perform in their subjects under an equity system because:

1. They will be paying the full cost of any failed subject, as opposed to part of it under HECS.
2. Good results across the student's study programme will lead investors to believe that they will be successful as a graduate, and thus the competition to fund their future semesters will be greater, leading to a better deal for the student.

This will help to correct the often lax attitude of many students studying at university.

I think I'll stop the rant here for now, because it's nearly 6am and the lack of sleep is making me incomprehensible, and nobody's going to read this anyway.

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