Australia’s higher education system has been bruised by successive cut backs in government funding. It must now face the implications of major changes to the procedures governing the allocation of student financial assistance under the program known as AUSTUDY. In March 1998, the Senate passed the Government’s legislation on the new Youth Allowance, a package which will subsume employment-related benefits and AUSTUDY. The changes will come into effect later this year. Since a conservative government took office in March 1996, students have had to cope with increased Higher Education Contribution Scheme (HECS) payments which, if deferred, must now be repaid according to tighter repayment schedules. The impression given in the public discussion about the Youth Allowance is that students are about to be hit again. Surprisingly, this turns out to be a misleading impression.

The changes associated with the Youth Allowance are not the first to be introduced by the recent governments. The Actual Means Test (AMT), which was designed by the former Labor Government, was introduced in 1996 in order to weed out AUSTUDY applicants whose parents had arranged their financial affairs such that they escaped the taxable income-based means test criteria in force. This was further tightened by the Coalition Government in 1997.

More importantly, the Coalition also changed the rules governing access to AUSTUDY for applicants regarded as being financially independent of their parents. As Independents, applicants are tested according to their personal means but not on their parents’ income or assets. The Labor Government had reduced the age at which students received AUSTUDY as Independents on the basis of age to 22 years. This took effect at the beginning of 1995 and extended a trend of lowering the age at which a student would be regarded as Independent. It had been 25 in 1992, 24 in 1993 and 23 in 1994. From January 1997, however, the age criterion for classification as an Independent student was raised back to 25 by the Coalition Government. From the point of view of AUSTUDY eligibility, young adults were now regarded as being dependent on parents until they reached 25 (with certain exceptions, including those who were married, or those who had been full-time in the workforce, whether employed or unemployed, for at least three out of the past four years). Even students who turned 25 after commencing an undergraduate course were denied access to AUSTUDY under the age-based Independent criteria.

We have previously registered our concern about this age-eligibility measure.¹ By the end of 1996 there were 67,022 higher education students receiving AUSTUDY as independents on the basis of being 22 years or above. The new rule on eligibility for independent status had a ‘grandfather’ clause. This meant that existing AUSTUDY recipients aged 22 or more would not be affected and that its full impact was expected to be phased in over several years. Only students who turned 22 in 1997 would be affected initially, plus those students aged between 22 and 24 who were starting new courses in 1997. Nevertheless, in the long term, as the number of students benefiting from the grandfathering effect of the new rule declined, we expected the new rule to cut the number of AUSTUDY recipients by many thousands. This estimate was based on indicators of the socio-economic origin of students aged 22 or more who were enrolled in 1996. These indicators implied that most would not be eligible when means tested on their parents’ income and assets. The data cited below on AUSTUDY recipients in 1997 confirm these expectations.

There has been far more public discussion about the new HECS arrangements introduced in 1997 than the changes to AUSTUDY which will be brought about by the Youth Allowance legislation. But, as indicated shortly, the immediate provision of living expenses for students is a much more important factor in decisions about post-school education. Students can defer HECS but they cannot defer food and shelter.

This is why the new Youth Allowance arrangements (which are to replace the existing AUSTUDY allowance) are potentially so important. Here the story takes an unexpected twist. The Youth Allowance will actually improve eligibility for student financial assistance (relative to AUSTUDY) significantly. The Youth Allowance does not change the age criteria at which students become eligible to apply as Independents. However, it does liberalise the circumstances under which students will be treated as Independents on grounds other than age. It is an unexpected story because the Government has said very little publicly about its new-found generosity and, to our knowledge, there has been no press discussion of the issue. This is partly because the Government keeps AUSTUDY statistics to itself — so unless outsiders are persistent they are in no position to evaluate the issue. But in addition, opposition politicians have been so anxious to criticise other aspects of the legislation (discussed below) that they overlooked the implications of the new legislation as far as living allowances for students are concerned. Yet, it was the Democrats and the other opposition parties who, by amending the criteria for Independents embodied in the Youth Allowance legislation when it was debated in the Senate in March, helped to make it more generous.

There is a reference within the Centrelink website on the Youth Allowance to the effect that 17,000 students will benefit from the more ‘lenient’ Independent criteria proposed in the initial Youth Allowance legislation presented to the House of Representatives in October 1997. There is a further reference in the 1998-99 Budget Papers which states that, as a result of the Senate amendments just referred to, an additional 5,800 students will become eligible over the next four years. However, no estimates of the financial or social impact of particular amendments are provided. In any case, as is shown below, the number of beneficiaries of the measure is likely to be much higher than these figures indicate.

We digress at this point to discuss the importance of government financial assistance to students when it comes to decisions about enrolling in the higher education system. This issue is central to our argument about the way in which limited income support has contributed to inequitable outcomes in access to higher education and therefore to an understanding of the impact of the new Youth Allowance. Student representatives certainly make it clear that the presence or absence of Government income assistance is crucial. So do the politicians who have taken up the student cause. In the course of the Senate debate about the Youth Allowance, the Democrat spokesperson, Senator Stott-Despoja declared that:

In relation to AUSTUDY, for those young people who do want to access education, the overwhelming disincentive to study is the embarrassingly below poverty line rates of student assistance in this country.²

The final report of the recently completed Review of Higher Education Financing and Policy (the West Committee) found this view to be dominant in the submissions from students or their representatives. The report summarises their attitudes as follows:

it is claimed ... that current AUSTUDY arrangements are a major barrier and disincentive to study, both in the level of support offered and in the eligibility rules which apply — particularly the recent increase in the age of independence to 25 years.³

But the major barrier is simply that only about half the students actually receive AUSTUDY at all, let alone at the full rate. A high proportion of these recipients in 1997 were eligible as Independents on the basis of age alone. By December 1997, 162,295 higher education students had received AUSTUDY during 1997, of whom 54.7 per cent received it at the full-rate. Yet there were 320,275 full-time undergraduate enrolments in Australian universities in 1997 (excluding overseas students). The absence of AUSTUDY is less likely to be an issue for the some 46,000 full-time undergraduates aged 25 plus. But younger students, especially those who have recently left school (and thus have not had time to accumulate savings), have three possible ways of meeting their living expenses. They can rely on their parents, or the Commonwealth via AUSTUDY, or their own part-time work while studying. Almost all of those aged up to 19 who seek AUSTUDY would have to face a means test on their parents’ assets and income, since few would qualify as Independents. In addition, only full-time undergraduate students are eligible. In 1997 there were nearly 159,000 full time undergraduates aged 19 or less enrolled in Australian universities. Indicative of the severity of the means test, just 33 per cent, or 53,099, received AUSTUDY during 1997. Of these, just on half received a part-rate. Many of these students, too, would probably require additional parental assistance.

The reality for most younger students is that they must rely on their parents for financial assistance or take on the very difficult option of self-financing their studies by part-time work. Relatively few do this. Detailed Monash University survey data confirm the point. According to information provided by commencing undergraduates at the Clayton campus in 1996, only 26 per cent were receiving AUSTUDY, another 55 per cent were reliant on their parents and 15 per cent were self-financing via part-time work.⁴ The conclusion is that parents are crucial in determining the likelihood of a younger student or prospective student continuing with, or taking up, university studies.

But, if parents are to provide, they must possess the resources to do so and they must want to do so. This means that they must put a high expenditure priority on investment in their children’s higher education expenses. We are not just talking here about rich parents with the capacity for discretionary expenditure. The crucial point is this: the parental income means test for AUSTUDY currently cuts in at a very low income level. At present, a student with one sibling will only receive AUSTUDY at the full rate if his or her parents’ joint taxable income is $24,024 or less a year. As a result, only students from very low income families, families which in all probability are dependent on other forms of social security, will get AUSTUDY at the full rate. Thus, though students from low socio-economic households are generally eligible, those from lower-middle or working class households where, for example, both parents are production workers or where there is a single breadwinning parent who is a full-time clerk or tradesman, are generally not eligible or will receive a part benefit only.

Prospective students from these less affluent backgrounds, where there may be no tradition of family sacrifice for higher education, may well feel reluctant even to ask parents for sustained financial assistance over a long three to four year period. This reluctance is likely to intensify once they reach their twenties, as it is likely that the parents themselves will feel they are no longer obliged to provide. Yet, as the AUSTUDY regulations stood in 1997, most students had little choice but to rely on their parents. With the new rules on the age of independence introduced in January 1997 this group would have expanded to include most of those aged 22-24 and even those aged 25 if they began their course before reaching age 25. All of these students were required to be means tested on parental assets and income, unless they were classified as Independents according to the restrictive criteria mentioned above.

It is no wonder that students complain about access to, and the adequacy of, AUSTUDY payments. Nevertheless, the West Committee showed little sympathy for such concerns. It cited academic studies which purport to conclude that parental resources are not decisive in the decisions young people make about proceeding to university. Rather, it is claimed that the key factors are family background, parental encouragement and peer attitudes to education. The Committee relied heavily on an Australian Council for Educational Research (ACER) study by Williams and others in 1993 of the propensity of year 12 school leavers to go on to higher education. The study reported on the outcomes of several samples of students leaving school in 1989 and earlier years. The authors acknowledged that a much larger proportion of these school leavers who came from wealthier families continued on than was the case for those from ‘middle’ or ‘lower’ families. But they specifically rejected family wealth as the cause.⁵ Rather, other factors associated with wealth — like occupation, plus parental encouragement — were the real determinants. On this basis Williams et al. conclude that a more equitable enrolment pattern would not be achieved by providing additional financial support for students.

This conclusion is based on flimsy evidence. Williams and his co-authors did not collect information on the income or accumulated wealth levels of the families they surveyed. Rather they imputed the family’s resources from the information provided by respondents about the size of the family residence ‘together with possession of telephones and dishwashers’.⁶ The authors were therefore in no position to make politically dangerous judgements about the significance of the family’s financial resources in shaping the subsequent higher education enrolment decisions of year 12 school leavers. Now the West Committee has used this study to justify its decision to ignore the concerns about finances which students and their representatives put to them. Despite the Committee’s focus on the creation of a ‘student centred’ university system, the only recommendation concerning student finances is that the Government should ‘provide supplementary grants targeted to members of equity groups’.⁷

The West Committee has missed the point. Most students from low socio-economic status backgrounds already have access to AUSTUDY. In an earlier study we showed that, of the full-time undergraduates coming from the urban areas ranked in the lowest 25 per cent of postcodes on the Australian Bureau of Statistics’ Education and Occupational Index, 80 per cent were in receipt of AUSTUDY.⁸ The majority of overseas-born students from ethnic communities well known to be economically disadvantaged, also receive AUSTUDY.⁹ These students, like most other students, can also defer HECS repayments. Thus, as long as they achieve reasonable results at year 12, students from low-income families are not likely to be precluded from attending university by lack of living expenses. Additional ‘supplementary grants’ to such students would not seem to be justified. The equity problem, at least as regards students who lack financial support to cover university expenses, is probably most acute within groups from moderately paid lower-middle class or blue collar families who are nonetheless precluded from AUSTUDY by the means testing of parental income. Such families often lack the discretionary resources to devote to their child’s university expenses.

Support for this observation comes from evidence of the great disparity between the proportion of year 12 private school students who go on to higher education compared with those from government schools. In 1995, 52 per cent of the former who completed year 12 in 1994 went on to higher education as against just 34 per cent of those from government students.¹⁰ Despite the fact that, by 1997, Australia-wide there were 64 per cent more year 12 students enrolled in government schools than in private schools¹¹ we are getting close to the cross-over point (for all Australian students) where more commencing undergraduates will come from private schools than come from government schools. In Victoria, which has a relatively high private school presence, the cross-over has already occurred. In 1998, there were 11 per cent more commencing undergraduates who came from private schools than those who came from government schools (see Table 1). Yet, in 1997, there were 43 per cent more Year 12 enrollees in Government schools than in private schools in Victoria.¹²

It is not to be denied that parents who place a high valuation on education are likely to find the money to finance university education for their children even if their resources are limited. But the comparison here is between public and private schools where both sets of students have stayed on to year 12. By this time, most of the young people whose parents or peers were antagonistic to education would have left school. Also, having experienced Year 12, most students would have had some acquaintance with the higher education alternative. The situation is that most of the parents who do value education are likely to hold professional and managerial positions and thus are more likely to be able to help their student-aged children. But prospective higher education students from blue or lower middle class backgrounds may find that they have neither the same parental encouragement nor the parental willingness to allocate the required funds to continue with their education. If they cannot access AUSTUDY they are likely to drop the higher education option. These young people are the real casualties of the present student financing system.

The facts are indisputable. Despite the converging retention rates to year 12 of both public and private students, a far higher proportion of the private school students are taking up university places. It is hard to believe that the greater financial resources of private school parents (implied by the parents’ decision to send their children to a private school in the first place) was not one of the factors shaping the different higher education enrolment outcomes.

Ironically, Professor McGraw of the ACER has recently reported new findings from a later sample of 19 year-olds (in 1994) which support this interpretation and which contradicts the earlier ACER conclusions. These new findings show that wealth (even within the limits of the measure used) is a significant factor in explaining the strikingly lower level of higher education attendance for the 1994 sample of students coming from poorer families relative to those coming from ‘rich’ families.¹³ The ACER data also show that the impact of ‘wealth’ appears mainly at the point between year 12 and the higher education system. The data show that there has been a significant convergence between government and private school completion rates to year 12 but that, despite this, the proportion of Government students who complete year 12 and who go on to higher education is way below that of private school students. Though McGraw does not say so explicitly, it seems likely that family resources are important in explaining these differential outcomes.

We now turn to the impact of the two major changes to AUSTUDY implemented in 1997. The first was the tightening of the Actual Means Test (AMT) and the second was the raising of the age criterion for Independents from 22 to 25. Data which were compiled by the Department of Employment, Education, Training & Youth Affairs (DEETYA) on the number of higher education students who had received AUSTUDY during 1996 and 1997 indicate that the AMT did not have a significant impact on the total number of recipients. The number of AUSTUDY recipients who gained the award after being means tested on their parents’ income and assets actually increased between 1996 and 1997 (see Table 2). It may be that the number of recipients receiving AUSTUDY as a part rate increased but, at the time of writing, we were not able to verify this point.

The effect of increasing the age at which a student became eligible to apply for AUSTUDY as an Independent, however, did turn out to be significant. The total number of higher education students who had received AUSTUDY as Independents on the basis of age fell from 67,002 in 1996 to 40,062 in 1997 — a decrease of 26,960 recipients. A fall of this scale implies that the great majority of those affected by the new means testing arrangement must have failed the test and thus lost their AUSTUDY entitlement. Moreover, because the measure is grandfathered, we can expect a further fall in 1998 as a new 22 to 24 year old student cohort progressively replaces the remaining recipients protected by the grandfathering clause.

Fortunately, the new Youth Allowance arrangements will ameliorate the situation somewhat. Much of the public discussion of the measure so far has concerned the change in circumstances for young people affected, that is those aged 16-17 and 18-20. The first group is to lose access to unemployment benefits altogether. Instead, they are to be required to undertake some form of schooling or training. Only if they do so will they be eligible for the Youth Allowance on the same terms as other young students seeking the Youth Allowance replacement of AUSTUDY. That is, they will be means tested on their parents income and assets.

The changes affecting the 18-20 year-olds have been the subject of much criticism from young people and their spokespersons. The legislation removes the right of persons in this age group to apply for unemployment benefits as Independents. Henceforth they will be means tested on parents’ income and assets in the same manner as students.

In 1996 there were 109,803 recipients of labour market payments aged 18-20, representing 14.6 per cent of the age group throughout Australia. The legislation does carry a sting, especially for the 30,000 young people the Government estimates will have their award reduced and the 12,800 who will lose it altogether on account of the means test.¹⁴ The measure was strongly criticised by opposition politicians because of the implied assumption that 18-20 year olds can be presumed to be financially dependent on parents. It was only passed in the Senate with the support of Senators Harradine and Colston.¹⁵

It is disappointing to note that the Government has left in place an important anomaly in that, with regard to young people aged 21-24, it is to pay more to those on the dole than to those studying. Persons aged 21-24 who apply for unemployment benefits are all treated as Independents removed from their parents’ financial responsibility. They will continue to receive the benefit at the previous level. In 1998 the unemployment benefit rate for a single person aged 21 or over with no children is $321 per fortnight. For students aged 18+ living at home the payment is $174.80 a fortnight and, for those living away from home or classified as Independents, the rate is $265 per fortnight.

There has been no change to the age qualification basis for students to receive the Youth Allowance as an Independent. It continues to be 25. However, the conditions under which a claimant is treated as an Independent and thus avoid the means test on parents’ income and assets has been eased. The key changes relate to the circumstances in which a student is regarded as ‘self supporting’ and thus eligible to receive AUSTUDY as an Independent. In the original legislation passed by the House of Representatives the criteria were as follows:

a) a person must have worked part-time for at least 20 hours a week for at least two years since leaving school, or

b) a person must have worked full-time (at least 30 hours per week) for at least 18 months within a two year period, or

c) a person must have earned the equivalent of 50 per cent of average ordinary time earnings (around $17,000) over at least an 18 month period since leaving school.

When the measure was debated in the Senate during March 1998 it was passed, but with a number of amendments. These led to the following modifications:

a) the part-time hours per week criterion was reduced to 15,

b) no change,

c) the amount earned over the 18 months period has been reduced to ‘at least the equivalent of 75 per cent of the maximum Commonwealth Training Award payments for the calendar year in which the 18 months started’.¹⁶ This works out at about $13,800.

These criteria are far less restrictive than the previous requirement. An applicant had to have been in the workforce full time (defined as at least 35 hours per week) for three of the past four years. However, periods of receipt of unemployment benefits were counted in this three year period.¹⁷

Another important modification to the rules governing receipt of the Youth Allowance as an independent was that affecting persons in de facto marriages. Previously a young person was deemed to be married if he or she was in a formal marriage. Under the original Youth Allowance legislation this was expanded to include de facto relationships of two or more years’ duration. During the Senate debate this provision was softened further to include de facto relationships of one year’s duration.

Other more liberal features of the Youth Allowance are that it allows students who started an undergraduate course before turning 25 to receive the Allowance when they turn 25 provided they could meet the personal income and assets means tests. Previously this was not permitted. Students living away from home also become eligible for rental assistance. In addition, the Government has removed the minimum $1,000 payment in effect under AUSTUDY, which the Government estimates will benefit some 41,200 recipients.

According to the two pieces of publicly available information cited earlier about the impact of the new criteria governing Independent status, some 17,000 extra students were expected to benefit under the initial legislative proposals, and another 5,800 under the revised legislation passed in the Senate, or 22,800 in all.

In order to calculate the impact of the Youth Allowance legislation on students, we have to ask what would have happened to the number of AUSTUDY recipients if the legislation had not passed. The Government does not seem to have taken this aspect of the situation into account in its budgetary assessment. As a result, it has significantly underestimated the budget implications. We noted that, in 1997, the first year of operation during which a student had to be 25 before becoming eligible as an Independent, the measure appears to have removed some 26,960 higher education AUSTUDY recipients. Another 20,000 or so will be removed as the full effects of the grandfathering provisions are played out. The analysis above indicated that most of these 46,960 students would not be eligible for AUSTUDY when means tested against parental income and assets.

The next question is how many of these ‘disenfranchised’ students will be eligible under the Youth Allowance rules just described. We think most will be, because there would be very few undergraduates aged 22-24 (most of whom probably delayed entering university after leaving school) who would not have earned at least $13,800 over an 18 month period since leaving school. Some of the few who do not meet these criteria may qualify under the one year de facto marriage rule. It is likely on this count alone that the new Youth Allowance arrangements will benefit more than the 22,800 students the Government has identified.

That is, most of the estimated 46,960 students who would have ceased to receive AUSTUDY because of the raising of the age at which students become eligible to apply as an Independent to 25 will be eligible under the new Youth Allowance income and work criteria as Independents after 1 July 1998.

In addition, several thousand other tertiary students at TAFE and other tertiary levels will benefit too. More importantly, the new Youth Allowance criteria for persons to gain the payment as Independents will also affect many younger students, not just the 22-24 year-olds just discussed. As noted above, only about 33 per cent of eligible full-time undergraduates aged 16-19 appear to pass the means test for AUSTUDY. Similar figures apply to those aged 20 and 21. Under the Youth Allowance, many of these younger students will be able to qualify as Independents on account of having worked for 18 months or two years under the criteria outlined above. By contrast, the previous AUSTUDY rules largely precluded them from applying on ‘self-support’ grounds because of the requirement of at least three years full-time in the labour force since leaving school.

However, the most significant impact is likely to be felt with future students, especially young persons tempted to delay commencement of university studies. Such persons would surely organise their immediate post-school working life so as to meet one of the new Independent criteria. All that is required to meet the first criterion listed above is that they work part time for 15 hours a week for two years, no matter what the hourly rate. Alternatively if they wish to qualify more rapidly they only have to work for 18 months, if they can earn $13,800 or more in that time.

Whether the Coalition Government intended to or not, it is about to preside over a fundamental liberalisation of the existing AUSTUDY arrangements. We make this judgement on the basis of our assessment of the importance students place on immediate financial support and the current harshness of the means test governing access to AUSTUDY. As a consequence, it is likely that tertiary education students will be highly motivated to take advantage of the new rules, even if it means delaying their higher education enrolment.

If our theory that some of the most important inequities in access to higher education can be removed by a less restrictive provision of public financial assistance to students is correct, then the Coalition is about to make an impact on a problem it has hitherto not shown much interest in.