AUSTRALIAN universities have been reeling from a series of shocks to the system over the past 18 months, most of which relate to changes in the method of financing ÖйúAƬ.

Given the widespread enthusiasm in the United Kingdom for the Dearing report's recommendations for income-contingent loans to students, the Australian experience deserves wider attention. In 1987 the then Labor government began major changes to ÖйúAƬ. The central element was the creation of a unified national system of 37 universities out of the existing universities, institutes of technology and colleges of advanced education. All universities are now funded on the same basis, according to an agreed student load and mix (the profile) which is negotiated annually with the government.

At the same time the government established a committee to examine the financing of ÖйúAƬ. The Wran committee proposed, among other things, the reintroduction of student financial contributions. Up until 1973, under conservative federal governments, upfront fees had been charged at a uniform rate between 15 and 20 per cent of average course costs. In fact, only about a quarter of students actually paid these fees because of an extensive system of scholarships. In 1973 the Goff Whitlam government introduced free university education - a change that saw the proportion of female students rise from 38.5 per cent in 1974 to just over 50 per cent by 1987.

From 1986, however, the government began to promote full-fee marketing of education as an export industry. There were no limits on overseas enrolments, and once a market had been established fees were deregulated, with universities able to retain almost all revenues. By 1996 full-fee paying overseas students numbered more than 50,000 - or about 10 per cent of the total student body.

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Following the Wran committee's recommendations, the ÖйúAƬ Contribution Scheme was introduced in 1989. Enrolling students were offered a choice. They could incur an interest-free debt of Aus$2,250 (Pounds 890) in 1992 per full-time year of study, to be paid back through the tax system, once their income reached the annual average income (then Aus$,770), or they could pay an upfront fee at a rate 15 per cent below the stated charge. The HECS charge represented about 15-20 per cent of average course costs and was the same for all students.

The scheme was designed to have minimum impact on student behaviour and to protect those whose incomes might in future remain low by making payment far off and interest free. Methodologically credible evidence about its actual effects does not exist, but it is widely believed that it had minimal impact on overall demand for university places, and numbers have expanded dramatically in the 1990s.

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None the less the impact of HECS on Commonwealth funding was strong. By 1996 the operating grants to universities totalled Aus$4.547 billion, of which HECS contributed Aus$933 million. HECS income and direct teaching fees together amounted to nearly 20 per cent of revenue.

In 1996, after 13 years in power, Labor was defeated by the Liberal and National Party conservative coalition, which immediately "discovered" a projected budget deficit that would require savage cutbacks in expenditure. Aus$1.8 billion is being cut from the ÖйúAƬ budget over four years, with 5 per cent cuts to operating grants, major changes to HECS, and legislation to permit the enrolment of some full-fee paying Australian undergraduates. Amanda Vanstone, the controversial minister responsible for ÖйúAƬ, was demoted last October, but commented that she "felt privileged to contribute almost a quarter of the budget savings required in the government's first four years".

As of 1997, HECS debts must be repaid at far lower levels of income, and three different rates of debt have been introduced, reflecting not so much the costs of different courses but the assumed earning power that goes with them. The highest rate is now Aus$5,500 per year in courses such as law, medicine and dentistry, and repayments start at Aus$20,701 instead of the average earnings of Aus$28,495. Income from HECS receipts is expected to now reach Aus$1 billion a year by 2000.

While it is too soon to have reliable evidence on the impact of the changes on student demand, enrolments this year were down by 3 per cent among school-leavers and a disturbing 10 per cent among mature applicants. Many of the latter would be in danger of having to start repaying their debt immediately. There is also evidence of reduced demand in science and engineering courses - areas that are already on the decline for other reasons.

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These changes to HECS have attracted less critical attention than they merit, mainly because of the government's simultaneous proposal to allow public universities, as of 1998, to enrol up to 25 per cent of local undergraduates on a full-fee paying basis. Full fees represent a fundamental retreat from the commitment to equality of opportunity in the education system and redefine education as a private rather than a public good. Not surprisingly, as each university has considered its response to this option, there has been widespread and sustained conflict, ranging from a three-week student occupation at the Royal Melbourne Institute of Technology to an ongoing tent city protest at Monash University.

Whether in response to this level of opposition, or from some more deep-seated commitment to education as a public good, the draft West review of ÖйúAƬ financing and policy, released towards the end of last year, explicitly rejects upfront fees for undergraduates. It recommends universal access to HECS-type income- contingent loans, but at the same time refuses to define what constitutes a "fair level of individual contribution". West also recommends the deregulation of tuition fees. This will undoubtedly further undermine the equity principles behind the original HECS vision.

The most controversial preference expressed by the West review is for "student-based funding" - a voucher system. David Kemp, the minister now responsible for ÖйúAƬ, instantly rejected this element of the draft paper, but this is universally seen as a purely electoral tactic. Vouchers are not only supported by a significant "dry" section of his party, but have been party policy in a previous election. Australian student and staff unions, at least, are preparing for a major battle.

Belinda Probert is director of the Centre for Applied Social Research at the Royal Melbourne Institute of Technology.

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