Ms Kristoffersen : We are currently in the process of working through the budget to make decisions in terms of what the consequences will be over the forward estimates of the budget cuts. So I will not be able to give you an exact answer in terms of numbers of staff at this point in time.
Senator RHIANNON: So you are not able to indicate a proportion of the workforce that will need to go to manage the cuts?
Ms Kristoffersen : Not at this point. We are going through a process where we are reconsidering our business processes. We are considering our organisational structure. We are looking at that in the context of the reforms that we have made to our processes and, of course, the budget over the forward estimates, focusing initially on the first year of the budget and the cuts to 2014-15. When we have the full overview we will be making decisions in terms of what needs to be done.
Senator RHIANNON: I understand that the apparent motivation behind the reduction in funding is that with the proposed reforms to TEQSA's operations it will have a lightened workload and thus require less resources. Is that a fair summary of how it is looking?
Ms Kristoffersen : I should probably start by saying that TEQSA is required by its act to regulate taking three regulatory principles into consideration: the principles of risk, necessity and proportionality. Since the middle of last year, 2013, we—because of the review of higher education regulation and the review that was undertaken for the government by PhillipsKPA of data collection and data reporting—have accelerated the process to review our processes and make them more risk reflective than they were originally. The underpinning principle behind the review process, the reform process that we have undertaken, is that we are able, via our risk assessments, to identify providers that are at risk of not complying with threshold standards. We also look into a provider's regulatory history when we look at what we particularly need to look at in terms of compliance with the standards. To come to the core of your question, that means that it will not be necessary necessarily to look in the same way at all providers. We can have a differentiated and tailored way of looking at those providers that are lower risk, that have a positive track record and no regulatory history, and then we can concentrate and focus our resources on those providers where we may have concerns about quality and non-compliance with the threshold standards.
Senator RHIANNON: But it does very much rely on a whole lot of the providers being pushed through quickly, with there being less vigilance applied to that. That really is a summary of what you have just said.
Ms Kristoffersen : I do not think it is possible to say that it is about providers being pushed through quickly. It is a question of using a number of regulatory tools effectively. One of the important tools that we will be making use of is our annual risk assessments. We have revised our risk assessment framework. What allowed us to do that and to do that effectively was the fact that we had a first version of the framework; we undertook a first round of risk assessment; we could see what parts of that framework were particularly effective in identifying real risks. On that basis we undertook a review of our risk assessment framework and identified the core academic risks in the sector. That is what our current risk assessment framework that we released to the sector in February or March this year is focused on. So on an annual basis we will be able to undertake a health check—a look at all providers—on the basis of the potentials for academic risks. So that is a platform—or the pillar, if you like—of our decision in terms of what we will then particularly look at at the time of the regular regulatory processes that any provider has to undergo. That is re-registration and, for those providers without self-accrediting authority, it is also course accreditation for new courses and course re-accreditation. So for a large part of the providers in the sector—131 to be exact—we will have several opportunities to look at these providers over the course of their registration.
Senator RHIANNON: With regard to the current system, is there a current backlog in terms of applications for approvals before TEQSA.
Ms Kristoffersen : I do not know if there is a definition of what a backlog is. But what I can tell you is that we are getting through our regulatory business more quickly—
Ms Kristoffersen : I do not think it would give you a good perspective or view of the timelines if I gave you the average times, because there were processes that a took a long time initially. Some of the average numbers are skewed by, for example, transitional business that we inherited from the state and territory accreditation agencies.
Ms Kristoffersen : I can give you examples of processes now that take three months. We have a number of course accreditation processes that have taken three months to get through. We have in our revised process for re-registration of providers given a commitment that, if a provider is of low risk, has no regulatory history and has otherwise a sound track record, those processes will be undertaken within six months. We have examples of that as well. I can also share with you that the transitional business that was one of the major obstacles and did lead to longer lead times is now complete; we do not have more transitional business. It is also important to keep in mind when you look at time lines that the commission has decided to take an approach where we are by the act required to give providers an opportunity to comment on a recommended action. But if a provider is able to show us evidence that they will within a reasonable amount of time be able to address the issues that we have identified—around issues of either lack of compliance with the threshold standards or future risks of non-compliance—we will give them an opportunity to respond and for us to assess that, rather than taking an adverse decision immediately. Of course such measures do have an impact on time lines as well and need to be taken into consideration when you look at our total time lines.
Senator RHIANNON: To assist our discussions for tomorrow, could you provide more information on this issue with regard to the period of time between a provider lodging an application and the determination being made—some different examples of that? And it would be useful to quantify, so we know if most are taking a long time, if most are in the average or if it is spread across the board. That would be useful.
Ms Kristoffersen : I will certainly do that.
Senator RHIANNON: Thank you. Have you conducted any analysis regarding an increase in the number of private providers applying for approval to offer a wider range of courses as a result of the government's decision to extend Commonwealth funding to non-university providers?
Ms Kristoffersen : Can I just ask you clarify the start of the question, please?
Senator RHIANNON: Have you conducted any analysis regarding an increase in the number of private providers applying for approval to offer a wider range of courses as a result of the government's decision to extend Commonwealth funding to non-university providers?
Ms Kristoffersen : No, we have not undertaken an analysis to that effect. Given the timing of the announcement to extend the demand-driven system I think it would have been premature for us to do that. At the end of the day it is the provider's decision whether they are going to make use of that opportunity in the future.
Senator RHIANNON: But, considering the changes that you are now having to handle are quite momentous, is part of your work looking at the trends in terms of how the industry is responding to this new policy, particularly considering it will impact on your workload? Are these trends that you analyse?
Ms Kristoffersen : The best measure we have, or tool to ensure that we do understand what our forward workload will be, is the close cooperation that our case managers, the staff within TEQSA that are allocated to liaise with particular providers—the conversations that they are having with providers in terms of their forward plans. That is the best information that we have available to tell us what will be in the pipeline in the future. But, because of the recentness of the announcement of the expansion of the demand-driven system, it is too early for us to collect that information and rely on that information at this point in time—for it to be reliable.
Senator RHIANNON: Do you believe you will have the resources to provide a rigorous examination of all education providers, public and private, as well as the specific courses they will be offering, for institutions that are not self-accrediting? Because when you look at it—I have listened closely to what you say but clearly the workload is enormous now. How are you going to manage it? I just want to understand if the resources are there, because they do not seem to be.
Ms Kristoffersen : As I am sure you are aware, the cuts have not taken effect yet. The cuts to the financial year 2014-15 are lower than the cuts over the forward estimates. That gives us some opportunity to think about how we can effectively manage our workload. But it is important to note the revisions that we have made to our regulatory processes, not only to our risk framework—although that is an important pillar in the way that we regulate the sector. But in terms of looking at courses and re-registration of providers in the future, if you allow me I will go into a bit more detail about that to address your question.
Senator RHIANNON: But the question was if you have got the resources for the rigorous examination. What has happened is that TEQSA has been reduced and the workload has increased, because more private providers will be coming forward with more courses. You are supposed to be assessing that. What it sounded like from your earlier answer is that a lot of that will be ticked off very quickly. While you used very professional language to describe it, at the end of the day the result will be minimal scrutiny of the private providers and the courses that they are providing. That is the only conclusion that one can draw when TEQSA has been so reduced and your workload is being so massively increased. That is the specific that I am after, please.
Ms Kristoffersen : TEQSA has not until now been reduced. At this point in time we still have the staff within our regulation and review group and our regulatory risk and information group. We have not seen the effects yet and seen an expansion of the number of applications that are coming to TEQSA. But the way that we will be able to manage the workload in the future is that we will be able to focus on—for providers that are coming to TEQSA for re-registration, so providers with whom we have a history, where we are aware of their risk profile, where we know that they have a positive track record and no regulatory business with us, or no significant regulatory business in the past, we will be able to focus on a number of standards that go to their ability to show us that they can manage themselves and that they are able to self-regulate and meet the threshold standards. If there is anything in the risk profile or the regulatory track record that is of concern, we can also extend beyond those standards that we have identified that are relevant to look at as a starting point. We will still look at all providers that are coming to us for re-registration and ensure that the core standards are looked at. For course accreditation at this point in time we are looking at all the standards as it is.
Senator RHIANNON: But not at this point in time—in terms of what you now have to do with the expansion of the number of private providers providing a myriad of courses, it would not be possible for you to do it.
Ms Kristoffersen : But a lot of these courses will be offered by providers that are already in the system. So every time we undertake a process with them we are building on that history and that information.
Senator RHIANNON: It sounds like—the way you have answered that question—you are going to be relying on if the institution has been given a tick rather than looking at the course that they are now nominating.
Ms Kristoffersen : That is not correct. The courses will still be accredited and courses will be re-accredited. At this point in time we are looking at all the standards in the course accreditation standards when we look at a course.
Mr Emmanuel : If I may go back to where TEQSA was a year and half ago, we have been subject to a review of higher education regulation where the report found that TEQSA, in relation to ASQA was relatively well funded but still taking a much longer time to process applications and so on. So we have taken on board the findings and we have been looking at reforming our processes at the same time as responding to the ministerial direction. Recently, in April, we commissioned a consultancy with the assistance of the department to look at our business processes to improve the regulatory approaches to reduce time lines and to generate more efficiencies. It was timely because of the reductions in funding. We expect, once the report outcomes are known to us fully, in the next week or so we will be able to look at it more fully to see how much we could improve in terms of time lines and how targeted we can have our approach to regulation. The expectation is that we would be in a position where we could be able to handle more volume with the same level of staff to be able to meet the challenges of the reduction in funding.
Senator RHIANNON: Were you consulted—going back to where that come from—at all in terms of the decision to expand Commonwealth funding to non-university providers and sub-bachelor degrees?
Mr Emmanuel : No.
Ms Kristoffersen : But, if I may, I think it is important to note that it is not only a question about how; it is also a question of what you look at. When you look at the course accreditation standards, a number of the standards apply equally to any course. When TEQSA has looked at some of these provisions—physical facilities and so forth—once in a string of courses that we may be looking at for some of the private providers who do not have the authority to accredit their own courses, we do not necessarily have to look at all these same standards again. So, when you work with providers over a period of time and they bring courses to us for accreditation or for re-accreditation, there are aspects of the assessment that we do which will not necessarily have to be undertaken again and again. Given that TEQSA is still a fairly young organisation that is only coming up to its third anniversary, some of this knowledge and some of this intelligence and understanding of providers is information that we have collected in the initial phases. That enables us to be more effective in our assessment of providers as well.
Ms Kristoffersen : As I have mentioned, we have already revised our processes to allow us to focus more on those providers where we have concerns of non-compliance with the threshold standards and less with those providers that have a low risk profile and a positive track record. We will continue to test these processes. We will continue to refine them. We will continue to improve them. That process will allow us—not until we have more thoroughly tested them will I be able to satisfactorily answer your question. We hope that the revision to the regulatory processes will enable us to still effectively undertake our responsibilities and the assessment of providers.
Senator RHIANNON: Ms Paul, have you conducted any analysis that estimates the change in student tuition costs as a result of the change to the Commonwealth grants scheme and student enrolment numbers in each course area?
Ms Paul : In terms of the prices that universities might charge or in terms of the shift in enrolment or in terms of—
Ms Paul : CGS in this case?
Ms Paul : Commonwealth grants. We know what you mean. Commonwealth grants.
Senator RHIANNON: It makes it interesting.
Ms Paul : Well, the whole nature of the reforms is that we create a deregulated market. Those things cannot be modelled with granularity at all.
Ms Paul : We have done some modelling on the impact on repayments, which I am sure you will go to at some time. But what I have been saying to the committee this afternoon, Senator, is that I would ask the Senate, in considering these very significant reforms—and today is only day one of, no doubt, a very considerable consideration—to consider them as a holistic package of balanced incentives. The reason I say—
Senator RHIANNON: It is hard to be able to make that assessment without some depth to it. Just to continue with my questions, what sort of analysis have you conducted into estimating the number of private providers and the number of courses offered by private providers that will now be eligible for funding under the CGS?
Ms Paul : Well, we know that there are currently about 130 private higher education providers. I am sure that colleagues can fill you in on the number of courses; we may be able to go here. There was some discussion with TEQSA this morning. We noted the fact that what we cannot estimate, of course, is the rate of increase in supply in terms of private higher education providers seeking to enter the market. But we can certainly tell you what the current situation is.
Senator RHIANNON: I am interested to go to that. I want to clarify the numbers, because I heard the minister recently use the number 200 to indicate how many education providers will now be eligible for funding. It was actually last Sunday on Insiders. Is that a figure you are aware of?
Mr Griew : Look, I do not recall that figure so I could not comment. There are currently, I think, the figure is 177 registered higher education providers in Australia. That is pretty close to 200, or of that sort of order. We have estimated 80,000 new students coming through either non-university and private university bachelor courses by 2018 or through the extension of the demand driven system to sub-bachelor places on the basis of our estimate of demand and supply.
Ms Paul : We could break that down, too, if you are interested. There are two major planks of reform that Mr Griew is talking about here. The first one is the extension of Commonwealth funding to private higher education providers that you have just been mentioning. The second one is the extension of Commonwealth funding to higher education diploma, advanced diploma and associated degrees. We have done estimates of our potential increases in enrolments in each, so we can give you those.
Mr Griew : That is 35,000.
Senator RHIANNON: That was my next question.
Mr Griew : It is 35,000 and 48,000 respectively.
Mr Griew : For the bachelor level and 48,000 for the sub-bachelor level.
Senator RHIANNON: I will ask the question and see if the answer you have given fits this. Are the 80,000 students all projected to be enrolled in universities, or are a proportion going to be undertaking their studies in non-university education providers, such as private colleges? I am trying to get the public universities and private provider breakdowns.
Mr Griew : The 48,000 sub-bachelor enrolees, we estimate, in 2018—I hope I said that—
Senator RHIANNON: Yes.
Mr Griew : will be split between public and private universities and non-university higher education providers. The extension of the demand driven system to encompass the bachelor level courses—that growth, the 35,000— would be not in the public universities because they are already covered. There are a couple of non-university providers who also have a particular load. But it is the growth in the public university sector we are talking about there. They are slightly different.
Senator RHIANNON: Do I understand correctly that at least 35,000 of the 80,000 are with private providers?
Mr Griew : Private or non-university providers.
Mr Griew : Only if they are registered as a higher education provider.
Ms Paul : Yes. That is exactly it.
Mr Griew : Do you mean between private providers as opposed to—
Mr Griew : We would have to take that on notice. I am not sure that we have broken it down between private universities and non-university providers.
Ms Borthwick : Is this for the sub-bachelor or the bachelor?
Senator RHIANNON: The 48,000. We had the split. I am interested in the figures between public universities, private universities and non-university higher education. If we could have what that split comes down to, it would be useful. For the 45,000, I understood Mr Griew to say that none of that is public. I am just trying to understand that figure.
Mr Griew : For the extension of the demand driven system for bachelor courses, it is not public. But Mr Warburton may have that breakdown.
Mr Warburton : That is a projection of net addition of bachelor places to the system in 2018. We did start from the number of bachelor students that are not currently within the Commonwealth supported system. We built them in and projected them forward. But we cannot really tell once a market starts operating how that is going to change essentially, because it is a market. So you can have movement into universities that are now in the system. You might have some of that movement out of those universities. Essentially, our modelling is for the purposes of the forward estimates. It is the growth that is significant for those purposes. So we have not really modelled who is going to have what amount of load out to 2018.
CHAIR: It would be the case, would it not, that some of these extra bachelor places would be higher education TAFEs, if they participate—in other words, part of the public system?
Mr Warburton : Correct.
Ms Borthwick : I think what Mr Warburton is saying is it is difficult to predict that.
Senator RHIANNON: But we have other predictions there.
Mr Griew : We have a prediction of the whole. When you get to fine breakdowns of that whole, you are just putting a degree of caution around estimating where that student load will travel within the system.
Mr Griew : We can give you the current situation. As Mr Warburton said, we started with the status quo because there are some funded and some unfunded places, with students doing bachelor courses, and project it forward. So we could give you some information.
Mr Griew : We have done projected growth on that whole population.
Mr Warburton : The system is opening up and students have choice as to where they go. What we have not done is tried to predict where they are going to go. We are predicting the size of the system, but we are giving students choice. It is up to them.
Ms Paul : If it would help, we could certainly give you how many degrees are currently offered in non-public universities and the related numbers to set the current landscape, if you like.
Ms Paul : Yes.
Senator RHIANNON: You can take that on notice. I move on to the new funding clusters for CGS. I understand that the level of Commonwealth contributions is developed by a combination of factors, including cost of delivery as well as projected earnings. Is that correct?
Mr Griew : That is right, yes.
Mr Griew : I will give my answer and Mr Warburton may want to add. I explained in answer to an earlier question that this goes back to the base funding review and a set of tiers based on the findings in that review. It creates funding relativities. So, in broad terms, humanities has a funding relatively of one; engineering science and environmental science, two; and dentistry, medicine, veterinary science and agriculture, three. They are based essentially on the differential costs of teaching those courses. Then we have put into that another set of disciplines at a relative 1.5—that is, between humanities and those heavier science courses, which includes a number of courses like computing, behavioural science, built environment, education, and the visual and performing arts, which are intermediate in that. We have also then discounted one which has very high earnings to a lower tier level. So there is a formula approach and a set of judgements about the private earnings that have led to the discounting of one of those.
Senator RHIANNON: I am interested in understanding whether these new funding clusters will apply equally across the board regardless of the type of institution offering the course and the degree level? Do we have a consistency?
Mr Griew : Yes. Except that the government has announced that there will be a discount on each of those levels, which is yet to be finalised for private and non-university providers.
Mr Griew : No. Again, let us just separate the two. So the bachelor courses provided by non-public universities will be discounted by an amount. The sub-bachelor courses will be discounted by an as yet undecided amount. The levels of those two discounts are going to be designed after consideration by the funding and implementation working group the minister established on budget night chaired by Professor John Dewar.
Mr Griew : I thought it was becoming clearer.
Ms Paul : I think you have crushed Mr Griew. I think the answer was, 'Yes, there was a discount rate, as one might expect.'
Senator RHIANNON: But there are so many unknowns here and then it goes off to a committee. There is a lot that has not been explained.
Mr Griew : This is about consultation. There is a clear decision to discount both non-university provision of bachelor and sub-bachelor as opposed to bachelor, but the government and the minister were particularly keen to hear from the sector the evidence that he should take into account in deciding what that discount should be.
Ms Borthwick : The working group has now commissioned some work from a consultant. The consultant will be working with a range of chief financial officers from universities and providers to come to a view and to provide advice to the working group in July.
Senator McKENZIE: And that is a comprehensive consultation process that is going out to a wide variety of stakeholders?
Ms Borthwick : That is right.
Senator RHIANNON: Does that mean you are working to ensure that the cost of delivery, rather than be vastly different for someone undertaking a diploma of accounting at a TAFE or private provider compared to someone studying a bachelor of accounting at Sydney university, will not be vastly different?
Mr Griew : The aim of the process that Ms Borthwick was just describing is to work out, broadly, what the relative cost of provision of that is. So the teaching and learning experience should be of the same value. But it is accepted that there are different cost structures in different parts of the sector that have to be accounted for.
Mr Griew : Less funding.
Ms Paul : It will be a discount rate in recognition of the research intensity of a public university compared to the non-research responsibilities of—
Mr Griew : That is the policy aim of the process that Ms Borthwick was describing.
Senator RHIANNON: And that is what the consultant is working with you on et cetera? So you are not sure how it is going to be achieved? You are still working on how you are going to achieve it? Is that where we are at?
Ms Paul : That is what the working group is doing. It is not a consultancy to us. It is a consultancy to this working group.
Ms Borthwick : So the policy is clear. The process is clear. The answer is what we are seeking from that process.
Ms Paul : Which body is the locus for the sector's expression of interests in this area is clear. So the minister set up this financing implementation working group on budget night headed up by the vice chancellor of La Trobe University. That is underway. They have commissioned this consultancy. The process is clear. That is what Ms Borthwick is saying. The policy is clear. That is, there will be a discount rate. The only thing that needs to be informed by this consultancy, by a range of consultation and by consideration by this working group and ultimately government is precisely what the discount rate will be.
Senator RHIANNON: There is a whole lot of assumptions that come into this. Are you assuming that a student studying a degree in business at a private college—say, a group of Colleges Australia or any other private college—will receive the same salary as a student studying at the more prestigious University of Sydney?
Ms Paul : We have not had to make assumptions like that. What we are talking about here with you is the level of Commonwealth funding that would be delivered to those relevant organisations. We are saying that the amount of Commonwealth funding that would go to the non-public university provider or for a non-degree course will be discounted. The amount is discount is not known yet.
Senator RHIANNON: Thanks. I will move on. I want to ask about some of the analysis of the proportion of each course within some of the fields of study offered by the private providers compared with the public providers. The example I picked out when I looked on your website was communications. All the communications units in the latest funding tier information available on the department's website are categorised in tier 2 except for audiovisual studies. Why is that in a separate tier?
Ms Borthwick : Are you talking about the current tiers?
Senator RHIANNON: Yes. I am talking about the new system.
Mr Griew : Audiovisual has a different cost to teach than communication studies in general. I think that is the bottom line.
Senator RHIANNON: But they used to be with the rest of communications. In the previous system, all the communications units were together. Now, from what I can see, audiovisual studies has been pulled out and is in tier 2.
Mr Warburton : That is correct. My recollection of this is that it comes out of some of the work that was done in the base funding review. Because of the infrastructure needs in that particular part of the cluster, if you like, it recommended that it receive a higher funding rate. It did not think that that was justified for a large part of other aspects of communications that did not require the level of equipment.
Senator RHIANNON: Have there been representations from some of the private providers, considering the audiovisual studies unit is something that is popular with private providers? Therefore, has it been put in a separate tier with separate funding arrangements?
Mr Griew : These were calculated before the private providers had any sense that they were going to be part of the system. This work was done before the budget.
Ms Paul : They have not been calculated on that basis. As Mr Warburton said, this was first dealt with in the 2011 base funding review by Jane Lomax-Smith. Mr Griew can go into the detail. But the reduction from eight tiers to five tiers and the particular tiers that have been announced in the budget and which you are now referring to were settled based on both a consideration of the cost of delivery and a consideration of rate of earnings. The officers can go into more detail, if you wish. It is not on the basis of representations. By definition, as Mr Griew has just said, we could not have received such representations because the private providers did not know of this until the same time that they knew they might be eligible for Commonwealth funding.
Senator RHIANNON: I will come back to that. I will move to mathematics and statistics. I notice that that has been moved into a funding tier that will see them receive a higher level of Commonwealth support. That is correct, is it not?
Mr Griew : That is right.
Senator RHIANNON: What was the intention behind that? Is that to encourage universities to reduce student contribution levels and increase the number of students enrolled in maths and science courses?
Mr Griew : No. There is a simple aim here, which is that the greatest number of students doing maths units do science courses. I said earlier that one of the ideas here was to make pricing simpler. There are people who have come to us subsequently—my colleagues would have to say whether this was something in mind—saying maths as a subject can benefit from being taught in a richer format. But the simple explanation is we wanted to put it with the science courses.
Senator RHIANNON: You wanted to put it with the science courses?
CHAIR: Please make this your last question for a while, Senator Rhiannon.
Senator RHIANNON: Okay. Thank you, Chair.
CHAIR: I will ask you to pause. I will go back to Senator Carr, thank you.
Senator RHIANNON: This is the last one. Did the minister or his office have any involvement in developing the new Commonwealth grants scheme funding clusters?
Mr Griew : The work was done in the department on the basis of technical work that had been done some years ago. We certainly, of course, discussed it with the minister's office because this went through the cabinet process.
Mr Griew : It is an outcome of the government's set of budget decisions. But it is based on technical work that was done on the basis of the 2011 modelling.
Mr Griew : Those who hold current liabilities under the HELP system. We may have that number or we may have to take it on notice.
Senator RHIANNON: Can you check if you have the number?
Mr Griew : Just to be clear, of those who hold a liability under the HELP system on 1 June 2016, one or two might decide to pay in the meantime.
Ms Paul : Yes. It says that the implementation date of—
Mr Griew : No. There is a current number, which we can take on notice. There will be some somewhere less the number who finish paying plus the number who have—
Ms Paul : In other words, what we are saying is it is as of 1 June 2016. So of the number now, many will have finished paying but there will be new payers.
Ms Paul : So it is a bit hard to estimate. But, nonetheless, we can give it our best shot.
Mr Griew : No. Because we have to give it our best shot. We have to do the estimation.
Mr Griew : We know the number in the system. We have not picked a number for 1 June 2016.
Ms Paul : Would you like to know the number in the system now?
Senator RHIANNON: Yes.
Mr Warburton : The latest published statistics by the ATO for 2010-11 have 1.57 million debtors.
Senator RHIANNON: Thank you. I am also interested in how many graduates will be impacted when the new repayment threshold of $50,638 is implemented. I thought you would have all these figures because the costs have been estimated. I thought you would have had figures to have worked out the costs.
Ms Paul : We may have some of them, so we will keep going. If not, we can get them on notice for you.
Mr Griew : Do we have an estimate of the number who will be in that band between the $50,000?
Mr Warburton : No. For the budget figuring, I think we need to take it on notice.
Mr Griew : I think we do need to take it on notice.
Senator RHIANNON: But you would have a number, though, would you not? You must have to have worked out the costs.
Ms Paul : We will take it on notice.
Mr Warburton : Not necessarily.
Mr Warburton : We ultimately have to work out the dollars. In our modelling, it is not always the case that we produce a number to match the dollars.
Ms Paul : That is right.
Mr Warburton : I would need to take it on notice.
Ms Paul : In other words, we may not have needed the number to have made the estimate because we had dollars. But nonetheless we have taken it on notice and we will give you what we can.
Mr Griew : There is a point of explanation here. We work with the Australian Government Actuary on everything to do with the HELP estimates. So they will use actuarial methodology. As Mr Warburton says, it may not be as transparently based on a set of numbers.
Ms Paul : Sure. We will take that on notice.
Senator RHIANNON: Thank you. Can I confirm that the new interest rate will apply to students whilst they are studying? I will give you an example of what I am trying to understand. If the student has accrued a $10,000 HELP debt in their first year of study, it will accrue at the new interest rate while they are studying in their second year and so on?
Mr Griew : That is right. Once they have a debt for 11 months, at 1 June 2016 or otherwise, that debt will be indexed at the bond rate, not at the CPI rate. So if they have a debt that they have held for 11 months in 2016, it would start to apply.
Senator RHIANNON: Again, it is interesting how you arrived at this. I understand that in the United States, their federal government administered student loans fluctuate annually depending on the bond rate. However, the student's interest rate is fixed for the lifetime of their loan. Was this approach considered by the department when you were working on this?
Ms Paul : We are not going to talk about what sort of considerations have been in the budget context. I am not familiar with the US approach, though. If you want us to give some analysis of differences, we can do that, unless some of my colleagues know it well. If we do not know the US system well, we are quite happy to take on notice an analysis for you of what those differences might be.
Senator RHIANNON: Can you take it on notice if consideration was given to working with an interest rate that is fixed for the life of the loan?
Ms Paul : No. I will not take that on notice because that would be going to the nature of advice given in a budget context and I do not think we would be able to give it. It would have been a consideration by cabinet in a budget process, so I cannot go to content. What I can do is take on notice to offer you an analysis of the similarities and differences between what is proposed and what is done in the US.
Senator RHIANNON: Thank you. If you can take that on notice.
Ms Paul : Sure.
Senator RHIANNON: The current rate for the federal government administered students loan is 3.86 fixed for the lifetime of the student's loan. Given that the long-term average of the Australian government bond rate is over five per cent, do you concede that graduates could pay an interest rate higher than 3.86 at some stage?
Ms Paul : It depends on where the bond rate is, as you say. I understand that on 1 June every year, the interest rate is indexed currently by CPI. The CPI changes every year. So every year potentially there is a change, even now. Students would already be used to that. On 1 June 2016, the interest rate will change to be the 10-year bond rate, which is the rate at which the government borrows money.
Ms Paul : That is true.
Senator Ryan: In fact, the liability for that loan exists no matter what job you are doing. That is a key and substantial difference I put to you about Australia's system. It is an income contingent loan with the threshold you mentioned earlier.
Senator Ryan: As I understand the US student loan system—I am happy to be corrected if I am incorrect—it is not open-ended the way the HELP system is. Every student in Australia can now access it. At least the national system run by the federal government in the US is not open to the sorts of programs that this government is trying to open the HELP scheme to with respect to sub-bachelor's degrees, courses and diplomas et cetera, as mentioned earlier. The huge difference and the unique aspect of HECS when it was conceived by Bruce Chapman and implemented in 1988 or 1989 is the income contingent nature of it. That is very different from the US. I think it substantially makes the comparison you are trying to make a profoundly unfair one.
Senator RHIANNON: I want to stay with this international comparison. The minister has stated that the new HELP loan system is the most generous in the world. Is this based on advice from the department?
Senator Ryan: I will take that on notice on behalf of the government. It is a question for the minister. I am representing him. I cannot answer on his behalf.
Mr Griew : I am not sure we have done a comparison—
Senator RHIANNON: I am asking for it to be taken on notice.
Senator Ryan: I will take it on notice on behalf of the government. I can do that, Senator Rhiannon.
Senator RHIANNON: Interesting. The minister was reported in an article in the Australian yesterday, 4 June, discussing modelling around the impacts of these HELP debt changes. Did the department provide the minister with that model?
Mr Griew : Yes, we did. I answered a series of questions on it this morning. Let me be clear if we are going to go there again. That modelling went to the impact of the change in the interest rate applied at a given level of debt and substantially makes the point that the parliamentary secretary was just making—that the essential nature of the HECS system, which rates the payment that students make to their income, is preserved in the system. That is the fundamentally protective nature of the HELP system in Australia, which many of the international loan systems do not provide.
CHAIR: You might care to consult the Hansard on that.
Senator RHIANNON: Thank you, Chair. On page 74 of your departmental portfolio budget papers, you estimate that the average graduate starting salary in 2017-18 will be 74.3 per cent of average male weekly earnings.
Mr Griew : Which page?
Senator RHIANNON: Page 74 of the Department of Education's portfolio budget papers.
Ms Paul : No.
Senator RHIANNON: Page 73?
Ms Paul : Yes.
Mr Griew : I should explain again that the $67,000 figure in the modelling I referred to before is average starting salary indexed to 2020, the year in this model we assume the student would start to pay. One of the things that is questionable about a lot of the analysis and models that are out there at the moment is that they take an estimated level of debt, which we would not endorse, in 2020 and assume the graduate is paying it with an average wage from 2016. With respect, that is a misleading way to make that calculation. So we have taken the estimate—and it is only an estimate—of graduate starting salaries on average in 2020, which is comparing apples with apples.
Senator RHIANNON: If you are comparing apples with apples, how did you come to decide the apple was worth $67,000 for 2020?
Mr Griew : By escalating the average graduate salary starting in there with the latest collections we—
Mr Warburton : It is $52,000 in 2012.
Mr Griew : And escalating that forward to 2020 using a predicted escalator based on average weekly earnings.
Mr Warburton : Three per cent.
Ms Paul : Yes. A number of the models that have been coming to us have the same problem in them, which is that they assume a starting salary which is just not going to be the case by the time a student who has been fully under the new system from 2016 is likely to start repaying the loan.
Mr Griew : With respect, I was on your model website last night and it is something that might be worth examining.
Mr Griew : In many of these models, and I think the senator's website does it too—
Mr Griew : It uses the latest estimate of graduate earnings and then it compares it to an estimation of debt in 2019-20, when a student could first finish under the new system.
Senator McKENZIE: You are not comparing apples with apples?
Senator RHIANNON: We are comparing apples with apples as well as the department is comparing apples with apples, considering it is six years away.
CHAIR: The pink ladies and granny smiths.
Ms Paul : We respectfully suggest that you might look at how you have escalated it out. We are happy to talk to your people, whoever did it. It is how you escalated out that starting salary, because we think it might just need a review, and we are happy to help with that.
Senator RHIANNON: Thank you for that. On page 76 of the same budget papers, you estimate by 2017-18 that 23 per cent of new debt will not be repaid. I want to clarify: do you mean that of all the debt that is accrued in the year 2017-18, 23 per cent of that will not be paid back?
Mr Warburton : For new loans in 2017 or 2018—we are a little uncertain—the assumption is that 23 per cent of the new loans will not be repaid.
Senator RHIANNON: I am just tying to assumptions that you have made. We all make assumptions when we have to make these predictions. Have you factored fee deregulation and the new interest rates into your calculations?
Mr Griew : It is 23 per cent of the value of the loans, not 23 per cent of the loans.
Mr Warburton : Correct.
Mr Warburton : It is for the arrangements that will apply at that point in time, Senator.
Mr Warburton : It is for the arrangements that will apply at that point in time.
Ms Borthwick : So it factors in the changes?
Mr Warburton : Yes.
Senator RHIANNON: I will ask that again. Is it covering the new interest rates? You left me wondering if this figure could be in fact higher.
Mr Griew : This is the actuary's figure. It does not make sense to ask whether it covers the new interest rates, with respect.
Mr Warburton : If you look at new loans and what we are putting as cash out the door to pay people's fees, what we are saying is 23 per cent of that will not be recovered. It follows from that that we do not know which individuals own the debt that will not be recovered and which individuals own the debt that will be recovered. But when we go to calculate the value of the asset, we take all the debt that will not be recovered. That includes the interest on the debt that will not be recovered, whatever it is.
Mr Warburton : The value of the asset, so the amount that will be recovered, are the fees and the interest on that good debt, if you like. That is used to generate the value of the asset on the Commonwealth's books.
Senator RHIANNON: Senator Ryan, do you have a comment?
Senator RHIANNON: Looking at page 75, I am interested in the expenses associated with the HELP program. The figure of approximately $1.38 billion in 2014-15 rises to $2.3 billion in 2017-18. What exactly is within that figure? Is that debt that will not be repaid?
Mr Warburton : There have traditionally been three elements of expense. One was the debt not expected to be repaid. So, by 2017-18, that is what you see in the figures. The other expense was the concessional loan discount amount, which was essentially the difference between CPI and the bond rate. So at the end of the forward estimates, that is down to zero. The government is still intending to remove an upfront discount that is currently in place. That was the third element of expense. That is not in the estimates either. That is effectively zero in the last financial year.
Mr Warburton : It is a cost and it is $2.3 billion, as it states in the table. This is the cost.
Mr Warburton : In that last year, that is the only element of the cost. In earlier years, there are other things, but they are being removed, so to speak.
Senator RHIANNON: Explain to me how it is different in earlier years, please.
Mr Warburton : In 2014-15, students are only CPI. Essentially the difference between the bond rate and CPI is the cost in that year. Currently there is a discount for upfront payment. There is an expense associated with that. There is a bonus on voluntary repayments and there is an expense related to that. There is currently legislation in front of the parliament to remove those two elements.
Mr Griew : Just to be complete, there is revenue from the VET system for the underwriting of the costs of running VET fee help, which the states are asked to partially pay. That will go as well because of the changes applying also to the VET fee help system.
Senator RHIANNON: Mr Warburton, my next question was to try to understand why that figure decreases by approximately $900 million between 2013-14 and 2014-15 before rising each year after that over the forward estimates.
Senator McKENZIE: Senator Rhiannon, where are we at?
CHAIR: The bottom of page 75. The explanation comes because gradually that differential of what the students pay in the CPI as opposed to what they will pay with the 10-year bond rate actually diminishes to zero. That differential will diminish along with a few other incidentals. So that is why it changes from 1.47 to 1.38 to 1.54 and gets up to 2.334, which is exclusively what will be outstanding on that annual basis as a result of there then being no CPI linked HECS debts. It will all be 10-year bond rate HECS debt.
Mr Warburton : If you are talking about the drop between 2013 and 2014 and 2014 and 2015, I think movements in the bond rate are affecting that.
CHAIR: That is right. It has changed quite substantially in the last 12 months, yes.
Mr Warburton : Are not counted as an expense?
Mr Warburton : They are counted as an expense, Senator. The expense is in the table. But it is not the cash provided to universities. It is the cost of running the scheme to the taxpayer.
Senator RHIANNON: If HELP loans are considered as an expense, can you please point out to me where in the budget papers that expense is? I think this is where my confusion is arising.
Mr Warburton : The expense associated with the loans is on the bottom of page 75 in our PBS, which is right here.
Senator RHIANNON: I have some questions to follow up on things we talked about earlier. This is about Commonwealth supported places for medicine. Can you confirm that Commonwealth supported places for medicine are capped at a level set by the government at each university?
Mr Griew : At each university that has a medical school, yes.
Senator RHIANNON: Considering that is the case, can you explain how the principle of competition can apply in this field of study where student numbers are capped?
Mr Griew : It is a course that has a very high academic entry score. This is an issue that a couple of vice chancellors have raised. It may well be considered in the Dewar committee as an issue about whether there is any additional refinement of the fee policy there. But prima facie we are not convinced that there is a problem here, notwithstanding that theoretical point.
Senator RHIANNON: Considering how much of the direction that higher education is taking is based on this principle of competition and given demand for medicine is so high, where is the impetus for universities to keep their fees low?
Mr Griew : The demand for medicine is high. The challenge of entry to medicine is very high as well. As I said, we are not convinced prima facie there is a problem here. But it is an issue that has been raised and, therefore, it will be considered.
CHAIR: Senator Rhiannon, could you make this your last question.
Senator RHIANNON: Yes. Who has raised it? It sounds like you may be reassessing. Could you flesh that out, please?
Mr Griew : It is not that we are. The process is with the finance, funding and legislation implementation committee. It is the one that John Dewar chairs, which is a working group advising the minister that he set up on budget night. I am aware of two vice chancellors who have raised it. Ms Borthwick and I have passed that issue on to Professor Dewar. It will be discussed in due course in the work of his committee. They will advise if they choose to put that as a priority issue that they need to give advice on, and the minister will consider their advice.