Rethinking student income support
Russell Degnan

In all the pre- and post-Christmas activity, I have as yet been unable to go back to an interesting review into Higher Education released n the middle of December. Numerous other bloggers have commented on the guts of the report, but I wanted to focus on one specific, but vital aspect that has generally been ignored: The student financial support system.

The first and biggest problem with student income support in Australia is the tendency to treat students as a cross between dependent children and the unemployed. They are, in some ways like both, but differ markedly in others. They are almost never entirely dependent on their parents, and rarely want to look so, even when they are; they are generally capable and hard working, with a marked tendency to find jobs, even if low paying; and they have one other important aspect that seems to have been entirely ignored by the report: they are supposed to be spending a significant proportion of their time attending to their studies.

The report has a (quite reasonable) statement of principles for income support that neatly shows this attitude:

Principles underpinning the income support system
The system must:
Allow for a fair allocation of resources and treat recipients fairly.
- Link criteria to improving participation of financially disadvantaged students by:
  - targeting at the most needy students.
  - recognising the special financial needs of Indigenous, low socio-economic status and regional and remote students.
  - providing a satisfactory level of benefits to enable students to support themselves and their dependants with only a small amount of additional income supplementation.
- Assist national productivity by encouraging initial and ongoing participation by a broader group of the Australian community to make the personal investment in higher education study.
- Be easy to understand and to access by:
  - transparently and consistently applying criteria for access to benefits.
  - ensuring that assessment of eligibility criteria and access to benefits are completed in a timely fashion on application

The third point is key. Participation is a worthy goal, but once students are at university, the tendency to make little of it, by avoiding class, readings and school work and doing the bare minimum to pass, diminishes the value of that investment. While it is noted in the report that the average student undertaking 15 hours of work per week considers it detrimental to their studies, little is said about the prominent role the student income support system has in shaping those outcomes.

Perversely, a recommendation is even made to increase the maximum income level before support begins to decrease, encouraging students to work even longer hours, particularly at the tail end of their degrees when they are often highly employable.

Instead, much of the focus related to hand wringing over the perverse outcomes pertaining to point two. It is well known to students, that the best means of getting income support is via the financial independence route, by working considerably harder than preferable to pass the threashold, for most, or getting the parents to "employ" the student for the lucky few. This has created a system of pseudo-independence, with significant sums going to (generally) non-needy students, and not enough to others.

The recommendation to remove the part time working hours and wage tests from the independence assessment, coupled with a reduction in the age of independence shows little foresight into whether some of these students are truly needy, and why. The hope, essentially, is that they will be picked up again by the changes in family income test.

Which is where we come to the real problems with the system: namely, its inability to distinguish between students except via parental income and age, and its refusal to treat all students as partially independent. A more nuanced income support system should really consider:


Aligning the thresholds with the FTB is a good move. But it is a strange situation to have theoretically adult students still supported via their parents through the system. Independence is a strange measure for evaluating need in any case. A student in their late 20s living at home can be less independent that one in their late teens. The subtleties of intra-familial relationships are hardly a sound basis for public policy.

It may seem of little financial import, but symbolically, paying dependent adults the FTB directly allows much more nuanced decision making from the student regarding their living arrangements, and gives them a starting point for true financial independence. The best method may actually be to pay transfers from parent to child, giving each student an allowance as if they were independent, and then taxing the parent the difference from the FTB. The tax can then be allowed to diminish from age 21 to 25, granting gradual independence to the parent from their children.

Rent Assistance

Regardless of age and independence, the fundamental problem for students are almost always living arrangements. For some, forced away from home, they absolutely must receive a sufficient income to cover rent (above and beyond any allowance given to students living at home). For others, there are sound economic reasons why a reduction in travel time to live closer to their place of study, is worth investing in. Rental assistance should therefore be both increased, and made dependent on the "value" of the move.

Students of generally well to do inner city parents choosing to live independently put a strain on the rental market without any gain in efficiency. Take two examples:

A student who reduces their daily commute by an hour has effectively gained an hour, at the expense of increased expenditure on accommodation. Technically, the benefits of the move are already captured by the student however, so supposing the commute was 4 days per week, valued at $20 an hour, and rent $100 a week, then the actual "benefit" was -$20, and should therefore be taken from their rental assistance (thus partially discouraging the move).

Conversely, a student who reduces their daily commute by 90 minutes, 5 times per week benefits by $50 once rent is paid, and thus incurs no reduction in assistance by moving.

Coursework Payments

Finally, there needs to be a rethink surrounding time in a course. At the moment the only distinction made is between full-time and part-time student, when the biggest difference lies in the workloads between courses.

For a student doing a standard arts degree, working 15 hours a week to supplement their income is no great problem. Contact hours are normally 12 hours per week, with perhaps a theoretical 18 required outside hours. It may be sub-optimal working a lot for a little more income, but school hours are not onerous, are highly flexible, and the income allows a high level of independence.

But for a student in engineering and science - courses supposedly in great demand - the contact hours can be upward of 30 hours per week, generally interspersed with breaks that make part-time work during the week difficult, coupled with another 12 hours or more outside class. For these students, a report into student incomes that effectively recommends increasing the student's capacity to earn income, without acknowledging their time constraints is a joke.

University is, effectively, a student's job, and it should be recognised as such. Approved courses should report a workload (periodically audited) that determines payments above the basic allowance given via the FTB. Something like $5 per contact hour and $2.50 per outside hour may seem parsimonious, but when allied with the FTB (targeting low SES families) and adjusted rent assistance (targeting regional students), the key principles above are covered, and quite decent incomes are attained for those with time constraints. Those others, able to supplement their income can, and quite effectively. as we already know.

Intriguingly, it would also be in the students interest to make a course harder - more money. A vast improvement on the treatment of university work under the current arrangements, when students regularly complain that they lack the time because of work. The key point however is this: if a system is designed that provides income support supplemented by paid employment, then a student's capacity to undertake paid employment should be a central consideration.

Sterner Matters 14th January, 2009 03:30:27   [#] 


Rethinking student income support
A simple solution. Give all currently enrolled tertiary students the Newstart allowance, with no work test. The decreased deadweight cost of administration would offset the expense of giving money to those who might not 'need' it. I always thought it was strange that students got less than the unemployed.
nick  18th January, 2009 10:34:15  

Rethinking student income support
Normally I'd agree with you Nick, the bureaucracy governing students is pernicious, and the added costs of giving everyone an allowance are easily offset by higher taxes (which is effectively high earning parents). However, the rental market is so tight right now, the more students who stay at home the better. This goes for what I wrote above as well, because there is an incentive to claim total independence from the parents, saving them the higher tax rate.

Best to probably calculate rental subsidies based on the electoral roll, and give every family the FTB. I don't really mind that student receive less than the unemployed, I just mind that there is an expectation that all students will work 15 odd hours a week, regardless of whether they are doing 12 hours at uni, or 30. The latter are being very poorly served by the current system.
Russ  20th January, 2009 10:20:07  

Rethinking student income support
I would be against higher taxes, and rental subsidies. Why not let the universities provide accommodation for the students - in 'halls' or similar? If you are doing 30 hours a week (contact hours) and 30 hours study (non-contact hours), surely you would be better served by either parental support or living on campus? The solutions you suggest above just look like churn to me...
nick  25th January, 2009 16:41:04  

Rethinking student income support
Nick, rental subsidies already exist, and are heavily exploited by so-called "independent" students who could be at home. Reducing churn and reducing bureaucracy are conflicting goals sometimes.

The rental problem is university funding (which is itself mostly a tax issue, at least the way universities are structured). There has been a huge increase in overseas students to pay for shortfalls in funding, which requires more accommodation near universities. Universities generally don't have the money or land for halls of residence, and they are generally expensive regardless. Ultimately the problem I am talking about, is that minority of students with long hours and poor parents who can't send them to university. The rest tend to get by, even if they have the loudest voices.
Russ  28th January, 2009 13:32:03