The government will introduce amended legislation for higher education reform into the Senate next year for further debate. But how do we keep higher education sustainable if the package is torpedoed again? Here are three practical measures that would fix past mistakes and make Australian higher education funding sustainable.

Cap funded university places

The Rudd-Gillard government’s removal of the cap on funded university places has made Australian higher education funding unsustainable. It resulted in a 20% increase in student numbers between 2008 and 2013.

From 2009, universities were aggressively enrolling students in partially funded places to ensure they had numbers “in the pipeline” by 2012 when the policy change took effect. Universities were suspected of lowering entry standards in pursuit of market share.

Meeting the cost of this rapid and unexpected expansion compromised the Gillard government’s capacity to fund other policy priorities. In 2013, the government had to impose an efficiency dividend on universities to help pay for the Gonski school reforms.

Financing uncapped higher education places is a continuing burden on the federal budget. The additional cost of financing these places from 2012-13 to 2016-17 is forecast to be A$6.5 billion.

Replacing the cap on funded places would restore certainty to the higher education budget. The government could continue to support an expansion of the university sector through a steady low rate of annual growth. Capping places would also free up resources for other policy priorities, such as addressing skills shortages or increasing educational participation in regional areas.

Substantial savings would be generated by capping annual growth in funded undergraduate places.

Maintain course funding at 2014 levels

Education Minister Christopher Pyne’s fee deregulation proposal will lead to students paying more for their degrees. In 2005, when the Howard government allowed universities to vary student fees by up to 25%, every university charged the top rate within two years. A similar measure in England and Wales in 2012 led to student fee increases of 300%.

While a sudden increase in course fees is unfair to students, it is Australian taxpayers who will bear the brunt of the cost because the government pays the full cost of every place to the provider when a student enrols. The student contribution is recouped later, via HECS repayments, when graduates reach an income threshold.

Inviting universities – and other education providers – to specify what they want to charge, knowing that they will be paid this amount from the public purse, is tantamount to writing a blank cheque. The one restriction proposed by Pyne that Australian students’ fees must not exceed international students’ fees is open to manipulation and is unlikely to prevent fee inflation.

An income-contingent loan scheme such as HECS is designed to remove upfront financial barriers to students. So, under fee deregulation, once a university decides what it will charge, the government will pay the (higher) total cost of the course up front.

When the inevitable blow-out in government expenditure occurs, questions will be asked about the value of our income-contingent loan scheme – when fee deregulation is to blame.

The government’s 2014 Funding Table specifies the current annual cost of an Australian university place. No credible argument has been made that the funding levels in this table are woefully inadequate. While the Base Funding Review suggested some university disciplines were underfunded, this can be addressed through raising the government subsidy or increasing the student contribution. Changes in costs can be accommodated through indexation. There is no need to deregulate student fees. Millions of dollars in public money would be saved by maintaining federal funding for university courses at 2014 levels.

Equalise government subsidy rates

Undergraduate university places are funded by a government subsidy plus a student contribution. In total, government subsidies for student places cost around $5 billion per year, but the value of the subsidy to each student varies by type of course. As shown in the 2014 Funding Table, the government subsidy covers only 16% of the cost of a course in law, accounting, commerce, economics or administration compared to 71% of the cost of a course in agriculture.

Therefore, students studying law, accounting, commerce, economics or administration pay or incur a HECS liability for 84% of their total course cost while agriculture students are charged only 29% of the cost of their degrees. The government subsidises 69% of the cost of nursing degrees but only 58% of course costs for allied health professionals. Students who become engineers, doctors and vets contribute only 32% to the cost of their degree because the government subsidy covers 68%.

The amount students are charged for their course is determined by the level of government subsidy for their funding cluster. The student contribution is the difference between what the government provides as a subsidy and the total cost of the course. The wide variation in subsidy levels from 16% to 71% of total course costs is the product of incremental political decisions made by previous governments. Pyne’s proposal to cut government subsidies by 20% across the board does not address these anomalies.

It would be fairer if all government subsidies met the same percentage of course costs, regardless of discipline, even though this would cause an increase in some students’ HECS liability. For example, if government subsidies were fixed at the lowest rate of 16%, students who were not studying law, accounting, commerce, economics or administration, would be charged for a higher proportion of course costs than they are now.

The National Commission of Audit recommended that the government subsidy should be 45% and the student contribution 55% of total course costs. Depending on what rate is chosen, pegging government subsidies to a uniform percentage rate in all courses could deliver substantial budget savings.

With Pyne’s deregulation package dismissed by Senate crossbenchers as “bad to the core” we need policies to make higher education funding sustainable. It is feasible to generate savings for the budget while strengthening the foundations of Australia’s university system.

Louise Watson works at the University of Canberra. She has received external funding from state and territory governments for education policy research. She was a member of the Higher Education Base Funding Review.