By Greg Jericho Posted Wed 4 Jun 2014

Photo: Let us not say Christopher Pyne was lying about changes to higher education, merely he spoke the opposite of truth. (AAP: Stefan Postles)

The radical shake-up of higher education funding and HECS/HELP loans represents a fundamental lie by the Government that will hurt poorer students and smaller institutions, writes Greg Jericho.

The Government's changes to higher education is perhaps the best illustration that it lied to the electorate and is completely befuddled by policy.

If you want to have some fun, go searching through the Liberal Party's 62 election policy documents for its higher education policy. I'll give you a hint: there isn't one.

If you want to find mention of higher education policy you need to go to its overall policy document. Here we find the details of what we should have expected for university funding under an Abbott Government.

And despite concerns about space I shall reprint it in full:

We will ensure the continuation of the current arrangements of university funding.

That was it. It's as clear as you would wish from a political party.

And just as clearly the Liberal Party have broken that commitment.

In the budget, the Government not only cut funding but they completely changed the arrangements - shifting to a deregulated system and changing the way HECS/HELP debt is repaid.

The change to funding levels is best seen in the context of the past three budgets.

In the 2009-10 budget a demand-driven university model was introduced in response to the "Bradley Review". That saw an end to capped places and a large increase in funding. But the big increase really started happening in the 2012-13 budget as 2012 was the first year of uncapped places.

In the 2013-14 budget, the ALP, desperate to find savings, ended discounts for upfront payment and voluntary repayments of HECS/HELP, introduced an efficiency dividend, and saved more than $1 billion by converting student start-up scholarships into income contingent loans repayable under the HELP scheme.

The 2014-15 budget produced even greater cuts:

Embed: Commonwealth government higher education expenditure

The magnitude of the cuts become even more clear if we adjust for inflation and use 2013 dollars:

Embed: Commonwealth government higher education expenditure (2013 dollars)

The proposed expenditure in this year's budget will actually see government expenditure decline in real terms.

And we don't spend that much money on higher education as it is. The OECD's 2013 Education at a Glance paper found Australian public funding was among the lowest in the OECD:

Embed: Expenditure on higher education (2010)

We spent about 0.8 per cent of GDP in 2010 on tertiary education compared to the average of 1.1 per cent. But Australian private expenditure on tertiary education was 0.9 per cent of GDP, well above the OECD average of 0.5 per cent.

All together this had higher education spending in Australia equalling 1.6 per cent of GDP, below the OECD average of 1.7 per cent.

On a per student basis, again our public funding is below average and shows us already reliant more on private expenditure:

Embed: Expenditure per student, tertiary education (US$ 2010 PPP)

The changes announced in the budget will see reliance on private funding further increase. It will have us head towards the US model - with a much greater emphasises on private funding, but without the ability to raise money like the US system does through college sports and private endowment. And we won't even have the US's level of public funding.

The big change is the deregulation of fees, which will allow universities to effectively charge what they want. Christopher Pyne on Insiders last Sunday suggested this freeing up of the pricing mechanism would actually lead to lower prices because of market forces. He suggested that:

It is a real market because there will be about 200 competitors competing with each other for students ... there will be a price signal in the market. So, in fact, we will have a proper market operating.

Which is complete bollocks.

There are not 200 universities competing for students. Pyne's 200 competitors figures includes such institutions as the National Institute of Dramatic Arts, the Whitehouse Institute and the Adelaide College of Divinity.

In reality there are only 39 universities, and they are dominated by the "Group of Eight". Perhaps in Pyne's mind there are 200 institutions competing for medical, law, arts and engineering students, but everyone else knows we don't have a free market in higher education, we have an oligopoly.

Because of the cuts to public funding, all universities will have to increase fees to cover costs. And the top universities have been given in effect a license to print HECS/HELP debt.

The price signal initially will be weak, because people will not pay the debt till later. But given the other change to the policy is to have HECS/HELP debt repaid at the long-term bond rate (capped at 6 per cent), that signal becomes much louder.

The impact will mean large universities will be able to trade on their prestige and charge higher fees. The Vice-Chancellor of Adelaide University has suggested "it is starting to look as if the student debt burden for many under the proposed reforms might well be worse than in the US."

The smaller/regional universities will need to entice students with lower fees (relative to the large universities). But given public funding is being cut this will likely see such universities unable to sustain the same number of courses - causing a further reduction in the amount of competition for degrees.

The shift of HECS/HELP loans from interest free to interest baring will hurt those who earn less income after completing their degree because the amount of interest owed will compound. And overwhelmingly the people who earn the least in all professions are women .

To make matters worse it is clear Pyne has next to no clue about his own policy. When asked by Fran Kelly on Sunday if the changed condition to HECS/HELP debt would apply to current student debt, Mr Pyne replied that "anybody who was enrolled before May 14, nothing will change in terms of their arrangements ... they are grandfathered until they finish their courses, which is by 2020 in most cases."

Which is utterly wrong.

Let us not say he was lying; merely he spoke the opposite of truth. Or perhaps we should be kinder and suggest he did not mislead the public, he merely is a policy dunce.

The changes to the indexation of HECS debt, as Pyne's own department tells us, will apply to everyone's debt - whether current or former students - from July 1, 2016 onwards.

But while the impact and the workings of the policy is beyond the ken of the minister, so is the basis for it. Both Pyne and Tony Abbott suggest we need our universities to improve. Pyne often cites world rankings and suggests we should have more universities in the top 25 or top 50.

But why should we?

We are a small country, population wise, and even in terms of GDP we are not in the top 10. University rankings take into account aspects such as "prestige", which no Australian university is ever going to beat a Harvard, Oxford or Cambridge in.

And most of the top universities are in the main private funded, have massive private endowment funds ($32 billion for Harvard) and are actually quite small. Harvard University, for example, has only 7200 undergraduate students; fewer than attend the University of Canberra (where I teach a course in political communications).

But when we compare university student numbers by population, the difference in size becomes quite stark:

Embed: University undergraduate enrolments

Trying to compete with Harvard and Yale and MIT is fine if you think it is viable to have in Australia a university with the funding of Sydney University, but with only about 500 students instead of about 30,000.

Trying to compete one on one with such institutions is a mugs game.

And yet when we instead focus on specialities rather than overall performance, we do quite well. The QS World Rankings has numerous Australian universities filling the top 50 rankings by subject.

We have five universities in the top 50 for medicine, computer science, English literature and earth sciences. We have six in the top 50 for economics, seven in the top 50 for civil engineering, and eight in the field of psychology. When it comes to law we have a pretty astounding five in the top 25. In education we actually have four universities rated in the top 10 worldwide (Melbourne comes second overall).

Embed: Australian universities in QS world university rankings by subject

And overall seven Australian universities are in the top 100, with Adelaide University just missing out coming in at 102nd.

Is that really a poor effort? Is that so dire that we require a major overhaul of funding and a massive increase of debt onto students?

I might think it is if I had any faith the minister in charge had any understanding of his policy or its implications. But given his performance on Sunday, no one could think that.

Greg Jericho writes weekly for The Drum. His blog can be found here. View his full profile here.

Government's low blow on higher education - The Drum (Australian Broadcasting Corporation)