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Responses to some comments on my critique on youth allowance

The following is my responses to two comments that raised some questions about my proposal of replacing the current free youth allowance with a loan program similar to HECS. See http://www.eastasiaforum.org/2009/06/05/australia-youth-allowance-gets-a-fair-go/ for Anthony's and Heather's comments.

With respect, I think you appear to have misunderstood my points in my comments. I did not say higher education should not be subsidised, that is the first part you misunderstood me. We have HECS like program (I can’t call the current program name, sorry), that has two aspects.

One is that it is below the costs of higher ed, so it reflects a government subsidy to most non-full fee students. I did not argue against or oppose that. That means I implicitly accepted what you said the externality of higher ed. Two, the provision of HECS like program means a way to assist those students who may or may not have the financial capacity to borrow from the government to finance their study and repay it latter on when they earn enough income. This is available to every student who wishes to use it. That is what I call fair.

I don’t have problem with finance available to students who don’t have the financial capacity to live independently while pursuing higher ed. My point is how equal access, your central concern, should be defined and implemented. You seem to suggest the only way to create equal access is to give them free money. On that point I beg to disagree.

As I argued in my earlier comments, and also mentioned here, HECS program has gone some way in that direction in terms tuition fees, without creating new inequality. Why can’t a similar approach to living expenses be adopted? Why there should be a difference between HECS and youth allowance? That puzzles me and your new elaboration has not provided any new insight, I am afraid.

I acknowledge that a subsidised loan or below market interest rate loan as you put it, has an element of free money. but that does not mean it is free money as the current youth allowance. The difference is significant. If it is not, you would at least implicitly agree that my proposal is equivalent to youth allowance and can be implemented. The reason you insist on free youth allowance is that difference. I think that difference is important and reflects why the current youth allowance is unfair and my proposal is fairer that youth allowance. That is my point.

Besides, you mentioned only the externality side of education, but did not mention about the fact that people with higher degrees tend to have higher pay and a better life style latter on when they work. The higher earning latter on is an important issue when considering how students’ living should be assisted by government through taxpayers money.

Also, you said that those young people who have not gone to university and are working chose to not go. I beg to differ on this point as well. Yes, some of them did that by choice, I don’t dispute that for a moment. But there are many young people who did not go to university not because of their own choice not to go, but because of the limited positions available from universities. So saying those who are working chose not to go is false at best and misleading at worst. That is why you couldn’t see the unfairness of youth allowance. If that has been your deeply held belief when you provided advices to policy makers, it reflects at least an innocent error, or maybe biases based on own family background.

So we need to approach this issue objectively. That means we might need to get out of our comfort zone.

Sorry that I mistook Anthony as Bruce. So I withdraw any parts in my second comments referring to Bruce, and direct my argument to Anthony.

I’d like to respond your comments on my point in my first comments. To be frank, I am afraid you missed the point altogether. You say a loan approach is discriminatory. That is not, unless you think people have different assets or earn different income are discriminatory, that would be a communism approach to a social system of distribution, or wouldn’t it?

I can sense that you are concerned with students away from home from rural areas. If that is a problem (although I don’t think it is, I am afraid to say), a program to subsidise those students as opposed to the current youth allowance may be designed. We need the first best approach when it is possible rather than a second best approach. Don’t you think that would be better?

A loan approach should resolve the access dilemma, but is fairer than the youth allowance approach. It is fairer to more people, although not so “fair” to those who could get the current free youth allowance. I acknowledge that. There is no system that is universally fair to everyone, because there is always “wants”, as opposed to needs. Not all wants can be satisfied, I am afraid.

You say that the loan approach would deter some people because of the burden of $100000 or more debts. There is some truth to your argument. But I don’t think that should be the deciding factor.

First, the burden needs to be considered in conjunction with the higher future earnings.

Second, it needs to be compared with the option of foregoing university study for no such a burden and earn less in the future.

Third, the interest can be used to reduce the burden, if that is really a problem.

Fourth, this component of debt from higher education can be allowed to kick in at a higher income level, so one only needs to pay it when income is sufficiently high.

Fifth, the loan is optional to all, so the requirement to pay it latter on with income earnings would deter free riding by some that has made the youth system even more unfair.

Further, there can still be a free allowance to those really and really in need to supplement the loan program. But that should be strictly limited to a tiny number of students, with well specified, verifiable and audited criteria.

To sum up, a loan approach to living expenses of university students is better and fairer to more people. It also has a built in deterrence for free riding of taxpayers’ money.

PS, I’d like to apologise to Bruce Chapman for my earlier mistaking the identity of Anthony’s comments as Bruce’s. I am sorry for that.

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