The architect of the HECS scheme Bruce Chapman, says economists agree, the Job-ready Graduate scheme is bad economics.

It is sometimes said that economists never agree on anything except two things:

• economists agree on nothing; and
• tariffs are very poor policy.

But in Australia we now have third point of agreement, which is that the Jobs-ready Graduate Package, introduced in 2021, is about the furthest distance from good economics as it is possible for policy to be.

The idea behind it is that changes to undergraduate charges by field of study will affect student choices concerning what to study, and what careers to pursue, to improve the functioning of the labour market. Thus, significant alterations were made to HECS-HELP, with for example the prices for studying some STEM courses being decreased by between 40 and 60 per cent, and the price for studying humanities increased by over 100 per cent.

In the 6-12 months after it was announced economists of all sizes, colours, genders and types came up with a plethora of anomalies and telling criticisms, and from a range of disparate perspectives.

For example, it was pointed out by Richard Holden (University of New South Wales) that the new financial incentives for universities is to increase place offerings for those disciplines which the government wants to discourage – the opposite of what the minister intended. Recognising this at the time the ANU Vice-Chancellor Professor Brian Schmidt noted publicly that this would result in an expansion in humanities places at the ANU because it was now more lucrative for universities to have extra humanities students, even though the government sought to have fewer.

With respect to increasing efficiency of the operations of the labour market, Anne Daly and Phil Lewis (University of Canberra) argued convincingly that the JRG would not work to correct “(alleged) occupational imbalances” through their analysis of decades of governments trying to anticipate what future jobs would be needed. This is because for most fields of study there is no clear and stable mapping to an easily defined and unchanging labour market. They concluded that the JRGP was a misguided adventure with its aspirations for improved job matching being bound to fail.

Most of the critical attention on the JRG has, unsurprisingly, gone to the equity basis of the radical changes in relative prices, in which someone studying history, or society and culture, would be charged about 25 per cent per year of study more than someone studying medicine, and nearly double that of a student enrolled in computing or engineering. This means that some of the biggest HECS-HELP debts will be carried by graduates with the lowest expected lifetime incomes, specifically female humanities graduates.

Critically, the JRG changes to prices are unlikely to have little discernible impact on student choices in aggregate, for several reasons. The most obvious is that students enthusiastic and talented in their chosen discipline are unlikely to be very proficient and/or interested in different areas of the labour market. Those interested in being employed in the caring professions, for example, will have quite different abilities and job aspirations compared to students pursuing more technically oriented professions, such as accounting or engineering, and vice-versa.

Consistent with this perspective is that the aggregate enrolment composition data for fields of study reveal that since 2020 there has been little change relative to trend. What then is the road from here?

I feel qualified to provide commentary given my involvement helping to devise and implement the HECS scheme in 1989. This experience led to a University Accord Review invitation in 2022 to provide a paper on HECS-HELP prices, involving critical analyses of the many pricing reforms over the previous 33 years. The surprising conclusion for me is that at no stage in this long policy process were prices set properly, including my original endorsement of course costs as a basis for this exercise.

Economists can’t apply normal economic reasoning for HECS-HELP price setting because the university undergraduate “market” is not close to being normal. Total place numbers, for example, are determined by government outlays, with enrolments by field of study being largely decided by each university depending on history, inertia, teaching availability in subject areas, as well as student applications.

Further, the design of HECS, with deferred, income-contingent repayments, means price signals to students will be ineffectual. This was, after all, a motivation in the design of the HECS system – to protect students with little or no access to capital markets.

If economic efficiency can’t be a guiding principle, what then is the right basis for setting prices? It seems clear that the best way has always been to set undergraduate prices with reference to equity, or social justice. That is, to have the lowest prices in fields likely to lead to careers with low expected lifetime earnings (such as humanities and nursing), and the highest prices for courses likely to lead to the highest lifetime earnings (such as law and medicine). Interestingly, this strategy formed the price in 1997 by Amanda Vanstone as the Minister, setting relative prices still roughly in place until the JRGP 24 years later.

While much of the above takes the form of an Irritation, there is a Pearl to end with. This comes from the rigorous and compelling modelling of the HECS-HELP system undertaken recently by ANU colleagues Associate Professors Tim Higgins and Gaurav Khemka. They show that prices could be reset the prices consistent with the equity rationale – the highest prices being set for field of study likely to have the highest lifetime incomes, and vice-versa – and illustrate with an example that this can be achieved without additional costs to the government’s budget. They don’t endorse any set of prices but provide the conceptual and empirical template to allow the government to set equitable prices consistent with flexibility to address its political goals.

Many are hoping that the JRGP pricing misadventure is addressed soon, noting that the approach promoted above was strongly endorsed by the Universities Accord Review several years ago.