The National party has started releasing discussion papers, floating ideas that might end up in next year’s election policy.  Or might not, depending on the public’s reaction.  Road testing policy ideas is a smart move.

The traps of opposition

For any opposition party seeking to develop its policies for a coming election, there are two traps.  The first is to promise to reverse nearly everything the government has done, the good as well as the bad. The second is to announce a major flagship policy without the benefit of expert critical advice.

Perhaps the National party looked at how its predecessor in opposition had formed its tertiary education election policy.  The previous opposition fell into both traps.  First, they created a “to undo-list”, a roster of the changes made in the previous nine years that they committed to reverse.  Good politics.  But in one or two cases, it wasn’t good policy.  The most obvious example was the commitment to restore student allowances eligibility for postgraduate qualifications.  Once in government, Labour appears to have recognised that this would have represented very low value expenditure; it would cost but it would make absolutely no difference to enrolment patterns.  So, they have not implemented this policy and have even declined to act on a petition that called on the government to honour this manifesto commitment.  The government’s response to the petition pointed out that postgraduate enrolments had grown by more than10% since the removal of allowances eligibility and that those with postgraduate qualifications can expect high earnings once they leave study.

Second was the fees free commitment.  This initiative, launched with great publicity in early 2016, was intended to be a flagship policy that would help address the problems of skill shortages by reducing barriers to tertiary education.  The party’s manifesto advised institutions that they could expect a 15% increase in domestic enrolments as a result.

This policy was released without road-testing.  Had it been subject to independent expert critique in advance, the party would surely have been told that the evidence is overwhelming – in countries like ours, with open access to income-contingent loans, tertiary education fee levels simply don’t affect demand for tertiary education among young people.  So this was deadweight spending – meaning that participation was entirely unaffected by all that expense.  It was also regressive – in that the data shows that tertiary education is one area of social policy spending that is disproportionately captured by those from wealthier backgrounds.

Interestingly, the most important thing the government has done in tertiary education during this term – the reform of vocational education – wasn’t even hinted at in their manifesto.  That illustrates the problems that opposition parties inevitably face; they often lack the information to assess the seriousness of a problem and they don’t have access to the independent expertise of government agencies.  It’s a problem that is even worse for a party that had to lie in wait for nine years.

The discussion document

So, in opposition, National has approached policy formation by flying kites, putting up possibilities and asking the public to comment.  Its 56-page education policy discussion paper has posed some interesting questions on tertiary education policy.  It’s worth applying a critical lens.

The tertiary education discussion is organised around four main themes …

  • Student fees and student financial support
  • University quality and performance
  • The present government’s vocational education reforms
  • Careers and transitions.

 

This article looks at the first two of those areas.  The second article in this series will discuss the third and the fourth themes.

Student fees and student financial support

In opposition, National has been critical of the government’s fees-free policy.  They have pointed out that it’s been very low-value spending; it has favoured young people from higher income families, rather than those in need and it has rewarded people for doing exactly what they had intended to do all along.

Of course, a small number of individuals did end up changing their minds and enrolling in response to fees-free.  Research on entrants to the University of Canterbury in 2018 found that fees-free was critical in the enrolment decision of around 5.8% of students.  That was based on self-report, so likely overstates the true number.  But if that (likely inflated) figure were applied nationally, it would have meant that taxpayers have had to pay fees for 47,000 people in order to enable 2,700 of them to enrol – not exactly a good return on the spending!

But what should National propose in opposition?  Even if fees-free is poor policy, it was good politics.  Simply canning the policy now might risk a backlash from voters.  So, the discussion paper tests out some options.

Option 1: Make the final year of study fees free: This option can best be described as terrible policy.  It has every one of the weaknesses of the current fees-free policy plus some.  It provides a windfall for students when the “natural” incentives to succeed are at their highest, just at the point they need it least.  It provides its greatest benefit to those who take high fee programmes (like medicine), many of which guarantee the graduate a high income.  It is even more regressive than the current policy and provides even greater deadweight.

It’s hard to believe that National is seriously entertaining this idea.  If implemented, it would open National up to claims of hypocrisy and opportunism. One can assume that this option has been put up purely as an “Aunt Sally” proposition, to be knocked down.

Verdict:  Avoid like the plague.

Option 2: An education savings scheme:  This proposal is to create accounts that would enable a family to save for a young person’s tertiary education, preferably from a young age, and that would attract a government contribution in the same sort of way as KiwiSaver accounts.  There is a good model for this sort of scheme in Canada.

This proposal would also be open to the charge of being regressive – only higher-income families or those with wealth are likely to have the discretionary income to save for their children’s education while also saving for their own retirement through KiwiSaver.  This means that wealthy families or those on higher incomes are likely to gain greater benefit from any government contribution.  The Canadians have included some targeting in the design of their savings schemes to provide additional subsidies to those from low-income families; however, take-up remains higher among high-income families.

Possibly the best way of reducing the inherent regressiveness of education savings schemes is to link the savings accounts to the student loan scheme – so that withdrawals from the scheme would be principally available to pay down student loans.  That would ensure that the government contribution to the savings account would effectively “replace” the current 40% government subsidy on student loan borrowing.  In other words, by linking the savings scheme and the loans scheme and by designing the savings account carefully, the government could ensure that the student support system as a whole is no more regressive than it is now.

Verdict: Worth further exploration.

Option 3: Targeting fees-free:  The discussion paper mentions the option of targeting fee write-offs only in passing, but it is a sensible (and obvious) response to the analysis of the weaknesses of the current fees-free policy.  The University of Canterbury study referred to above suggests that fees-free should be applied only to a very small minority of students.

Targeting is also well-linked to the social investment focus promoted by National when it was last in government. But effective targeting isn’t easy to implement.  The targeting in the current student allowances scheme is very loose, based solely on family income.  Yet research shows that family income isn’t a significant factor in the decision to enrol; so any targeting of fees free would need careful design work if it is to be successful.  Hard, but not impossible.

Verdict: Worth further exploration.

Other suggestions:  The discussion paper canvasses other options, without giving any detail:

  • Replacing fees-free with student loan write-offs of higher living cost entitlements: These options carry all the same disadvantages as the current fees-free scheme. They are regressive and deadweight.  The incoming government has already provided a boost to living cost borrowing entitlements to reflect increased rental costs.

 

  • Spending the fees-free money on lifting the student loan repayment threshold: The repayment threshold in the student loan scheme is the income level under which there is no repayment obligation – currently $19,760 a year.

 

This would be an extremely expensive initiative, likely to absorb all the cost of fees-free plus some.   The main problem is that it would reduce the repayment obligation on every loan account, whether the person is still in study or not, whatever the person’s level of income.  Raising the repayment threshold to $21,000 would reduce the annual repayment obligation of every New Zealand-based borrower by close to $150.  That’s less than $3 per week, but, applied over the 600,000 New Zealand-based borrowers, it would reduce annual repayments by around 7% – $90 million. And it would extend repayment times for all, meaning that there would be a very large (one-off) loss of value in the loan scheme – what accountants call an impairment – that would cost the government very dearly.

 

Verdict: A very high cost and very highly regressive. Avoid this one.

 

  • Spending the fees-free money on changing repayment rates: Currently, those with student loans pay 12 cents per dollar of earnings over the $19,760 repayment threshold. An across-the-board reduction in the 12 c/$ repayment obligation would carry the same extreme cost (and regressiveness) as an increase in the repayment threshold.  But it might work if National were to consider a shift to targeted or progressive repayment rates – that is, lower the repayment obligation for those on low incomes and increase it for those on higher incomes.   Previous governments have declined to consider this sort of idea.  It wouldn’t win a government any friends.

 

Verdict: A reasonable idea but a remote possibility.

 

In short, there are two options that National could develop further as an alternative to fees-free:

  • a savings scheme – provided the scheme is designed carefully so as to avoid the regressiveness that we have seen with the current fees-free policy

 

  • targeting of fees-free – provided the targeting is designed in ways that address the actual (rather than the popularly perceived) barriers to tertiary education.

University quality and performance

The discussion document revives the goal, that first surfaced in National’s 2017 election policy, of having at least one New Zealand university ranked in the top 50 in the main university ranking systems.

In this new version, the goal appears more nuanced;  whereas in 2017, earning a top 50 ranking was presented as something worth pursuing for its own sake, the current discussion document appears to present the ranking goal more as an index of quality, one that will have a spin-off for international student recruitment.  The 2017 policy implied selecting one university as the target for extra investment as a means of driving a rise in the rankings.  Here, the focus appears more on an investment in the university network as a whole, rather than in a single university.

To achieve this goal, the paper suggests further investment in postgraduate scholarships (which would lead to an expanded research focus) and recruiting top research leaders (a reprise of the previous National-led government’s 2016 Entrepreneurial Universities initiative, disestablished by the current government earlier this year).

It’s hard to argue against investing in quality.  And it’s clear that a move up the rankings would boost prestige and hence, could attract more international students.  The Achilles’ heel is whether the index that has been chosen as the measure of quality – being in the top 50 in either the QS or the Times Higher Education rankings systems – is, in fact, a valid or reliable measure of actual quality.  Everyone would agree that it would boost prestige, but research suggests that these two ranking systems don’t produce robust measures of quality.

However, a commitment to invest more in the quality of the university system would have benefits – the least of which might be a lift in the rankings.

While a focus on university performance and quality is a great idea, an incoming government would need to weigh up significant investment in university quality against investment in lifting quality elsewhere in the tertiary education system – especially as the shake-up in vocational education beds in.

Verdict: Worth refinement and further exploration.

 

Next time …

The next article in this series looks at the other two themes of the National tertiary education policy discussion – careers and transitions and vocational education.

Roger Smyth as an independent advisor on, and consultant in, tertiary education.  He has more than 30 years’ experience working in tertiary education – initially in senior management in a university and later in the Ministry of Education where he was Group Manager, Tertiary Education Policy.

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