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As President Joe Biden moves to forgive a portion of the 1.75 trillion in student loans, skeptics and supporters alike point to a broken economic model for higher education. Increasingly reliant on either family wealth or a pay-as-you-go system of labor and loans, students work punishing hours alongside their studies. They often drop in and out to cash up and keep going, and many—no matter how hard they have worked—graduate with crushing debt that stalls their lives and careers for years. 

In 2018, The New York Times assembled a team of eleven international experts to assess the ways four different countries—Sweden, the UK, Australia, U.S.—design their respective tertiary student payment schemes. They trawled through the pros and cons of each approach, and Australia—where I was educated and am now in a university leadership role —came out on top. Why? Basically, because their economic scheme for higher education is neither a barrier to entry nor does it saddle Australian graduates with unsupportable debt, though that becomes less true over time. 

According to the poll, Sweden beat the U.S. system 11–0. Australia beat the UK 8–3 and then went on to beat Sweden in the “final” 11–0. That puts the U.S. system a long way back in this four-country round-robin. Of course, the Australian approach is far from perfect. To quote the Times article:

In unanimously choosing Australia, panellists agreed that automatic collection of income-based payments is a critical ingredient of a well-functioning loan system. “When borrowers have the choice to repay through their employer, this cuts out much of the red tape and the distorted incentives of middlemen,” said Rohit Chopra, a senior fellow at Consumer Federation of America. But that doesn’t make the Australian system perfect. “The inability to borrow for any living expenses might lead to higher-cost credit card debt,” Mr. Chopra added.

Australia’s higher education financing has undergone three main shifts prior to 1989: from public fee-paying institutions prior to WWII, to needs-based scholarships to support study after the war, to being free for all students in 1974. Thus, as an undergraduate in Australia, I was fortunate enough to attend art school in the 1980s for free and supported myself on a government stipend that was equivalent to unemployment benefits.

Free higher education ended in 1989, however, when a flat-fee contribution for all students (approximately AUD$1,800) was introduced. By the mid-90s, the government established a tiered system, assigning lower fees for fields that had low starting salaries and higher fees for fields of study that had higher average starting salaries: for example, nursing school was in the lowest bracket and medical school in the highest. 

When the Australian government introduced the tuition contribution scheme for higher education and then the tiered system, I joined many others in the streets to protest, even though the fees were relatively modest, and laughably so compared to tuition in the United States. But it was clear that, once that threshold of free education had been crossed, the government could easily pass on an ever-greater amount of the cost of tuition to students. 

As it turned out, we were right about that. At the same time, we were, for the most part, not thinking about the way the scheme was implemented, and after seventeen years working at a private university in the United States, it has also become clear to me that what I saw as an inequitable scheme now looks comparatively fair-minded, as it does not overly impede access and progress to graduation. 

So, I now find myself writing with conditional support for the scheme I protested. I still strongly favor free undergraduate university education. But if that is not an option, new questions emerge: What is the best way to organize the payment and repayment of tuition such that higher education becomes (or is restored as) a means for social and economic mobility? And how can we simultaneously make education available for the pursuit of broader intellectual and creative interests? 

Most importantly, how can education be funded to ensure access without resulting in crippling debt and/or the need to take on levels of paid work that negatively impact successful completion? After all, the worst outcome for anyone is to have amassed student debt without completing a degree, and as of 2019, an estimated 3.9 million Americans were in this position.

One critical difference is that Americans have little trouble being accepted to a college, while the Australian government has always restricted the number of places available in universities, except for a brief period in the middle of the last decade when the government agreed to fund all qualified students who were admitted. While universities cannot charge full fees to domestic undergraduate students, they are able to admit more students and receive the student’s contribution minus the government’s contribution. 

Under this system, different fields are more or less desirable for universities to “over-enroll,” as the student contribution is on a sliding scale, depending on the earning potential of the program. The conservative government (known as  the “Liberals”), which recently lost power to the center-left Labour party, changed the system once again during its tenure, this time shifting the level of tuition support from one based on average graduate earnings to one based on the government’s preference for particular areas of study.

Not surprisingly, the recalibration of variable government support favored the STEM fields and disincentivized study in the arts and humanities. We are waiting to hear about the new government’s anticipated reforms of this system. Notably, student living costs, which cause many students in the U.S. to work too many hours or take out more loans to fill the gap, are not included in the contribution scheme: they are still covered by a plan based on unemployment benefits. Students receive up to the same amount as unemployment benefits for full-time study. There is a family means test up until the age of 21, but none thereafter.

While tuition fees in Australia remain modest in comparison to the United States, the design of the repayment scheme is also worth consideration. This scheme is available to students attending both government, and the growing number of accredited private institutions. Unlike the U.S., where private lenders and servicers play an important role, the educational funding structure posits the government as the lender, with fees repaid through the tax system. 

Australia also does not see student loans as a profit-making enterprise. While student loans are interest-free, the amount owed is reset after a year in accordance with the annual Consumer Price Index. And students who earn more pay more. Once earnings after graduation surpass a prescribed minimum, a percentage is added to the former student’s tax on a sliding scale, pegged to earnings. Currently, a salary of $45,000 attracts a 1 percent increase in taxation, rising to a maximum of 10 percent for salaries above around $141,000. This tax applies until the debt is repaid. 

There is also a history of universities giving a discount if the tuition is paid upfront, although the percentage varied over time. I confess that I was appalled by this arrangement when it was first introduced, as it ostensibly favored the wealthy over the poor, and of course, to some extent it does. 

However, it also functioned as an incentive. At the time the discount was introduced, I worked at Western Sydney University, which had the highest percentage of students from low socio-economic backgrounds of any of the 36 government universities. But it also had the highest rate of upfront payments because, as it turns out, obviously perhaps, this discount was more valuable to families of more limited means, and they saved to benefit from it.

If the United States is preparing to truly rethink the economics of higher education, policymakers might come up with different schemes. But the three main objectives should be: maximum equity of access, the avoidance of crippling debt levels, and making the system of financing education as simple as possible. The attempts at salary-based repayment schemes in the United States, for example, are so complicated that some of the experts polled by the New York Times could not figure out how to fill in the forms.

On these basic measures, Australia’s far-from-perfect system is also worth reviewing and improving. The danger at present is that the government can attempt to instrumentally manipulate the attractiveness of different fields of study, and simultaneously disincentivize students to pursue other fields. However, the recent student debt forgiveness by the Biden administration, while welcome, is both fraught and lacklustre in its impact, a sure sign that the underlying structure of student debt and the design of its repayment is thoroughly broken for all but the intermediaries who profit from this debt. 

The casualty of these broken policies is the higher education sector’s ability to return to its purported role of socio-economic mobility. It is increasingly entrenching class, not liberating people from it. There are many aspects of working in the U.S. higher education sector I miss: the way students have to fund their studies is not one of them.

Tim Marshall is the former Provost of the New School and currently Vice President and Deputy Vice-Chancellor, Design and Social Context at Royal Melbourne Institute of Technology, Australia.