Student income support and education and training participation in Australia

Youth Allowance provides financial assistance to young Australians who are studying full-time, undertaking a full-time apprenticeship or traineeship, or looking for work. Public commentary on the adequacy of student income support and the incidence of taking a ‘gap’ year to meet Youth Allowance eligibility criteria gave rise to this research report. It set out to examine the role and impact of Youth Allowance on participation in post-school education and training, course completion, ‘gap’ taking and the financial position of a sample of young Australians over the period 1999—2007.

Subsequent to this research, the Australian Government announced changes to the Youth Allowance policy, including changes to the parental income threshold for maximum payment, the taper rate arrangements for dependent students and independence criteria (workforce participation and age).¹

This research uses the Longitudinal Surveys of Australian Youth (LSAY). It employs a range of econometric techniques to address the fact that the targeted nature of Youth Allowance means that those eligible have different characteristics from those who are not (and we do not directly observe
the eligibility status of non-students), and makes particular use of the equivalent national tertiary entrance rank (ENTER)² collected in the survey.

Key messages

• Based on carefully matched student characteristics (other than family income), full-time tertiary enrolment rates following Year 12 are similar regardless of whether or not students are eligible for Youth Allowance.
• Youth Allowance substantially improves course completion rates.
• The eligibility rules in operation at the time of the research did lead to more students undertaking a ‘gap’ year.
• Youth Allowance does not alleviate financial hardship totally — those on Youth Allowance are the least satisfied about their financial situation.

Tom Karmel
Managing Director, NCVER

1 The initial changes commenced on 1 April 2010 and further information on the government’s reforms is available at <www.innovation.gov.au/HigherEducation/StudentSupport/Pages/default.aspx>.
2 Now referred to as Australian tertiary admittance rank (ATAR).

This report uses data from the Longitudinal Surveys of Australian Youth (LSAY) to examine the role and impact of Youth Allowance, as it operated until 2010, on a number of important policy questions. These include whether receipt of Youth Allowance affects participation in post-school education and training and completion of courses, whether the eligibility rules encourage individuals to undertake gap years, and how receipt of Youth Allowance affects the financial position of young Australians. The participation and course completion analyses are conducted separately for both university and for full-time vocational education and training (VET), while the assessment of the financial position of Youth Allowance recipients involves a comparison with all young Australians.

Data from two LSAY cohorts are analysed here: the surveys of cohorts based on Year 9 students from 1995 and 1998, who were surveyed each year until their mid-20s. Students in these LSAY cohorts were asked about their own or their parents’ receipt of Youth Allowance and the amount paid from the time of the third wave, when most were at school in Year 11, until they completed their school and other studies. These data form the basis of the analyses used to assess the role of Youth Allowance on the educational and financial outcomes of young Australians. The LSAY data also contain information on a rich set of demographic characteristics on individuals. This information is used here to provide other control variables that allow the Youth Allowance effects to be isolated in regression analysis of the four main sets of outcome variables: post-school education and training participation; gap year incidence; course completion; and differing dimensions of young people’s financial positions. The analysis is restricted to the post-school experiences of young people, since some of the data (financial stress indicators) and the issues (gap year incidence) relate only to post-school outcomes and because some technical issues could not be overcome for any analysis of school outcomes, such as Year 12 completion. These technical issues reflected two factors: Youth Allowance eligibility was not observed for those who left school early (before the third wave of the data); and data limitations meant it was not possible to estimate the likely eligibility of such early leavers satisfactorily.

Youth allowance and participation in post-school education

As indicated, post-school students were asked in each wave of LSAY in which they reported being a student about their receipt of Youth Allowance and the amount they were paid. For individuals not studying, it was necessary here to estimate their potential eligibility, had they been students. It is possible to use historical information on Youth Allowance receipt for individuals, including while they were at school, to refine this estimation of potential eligibility. The requirement to estimate eligibility for some individuals limits the way the data here can be analysed and some of the conclusions that can be drawn from the analyses undertaken. Hence, estimates of the relationship between Youth Allowance and education participation presented here are not causal estimates. It was not possible to identify participation behaviour among marginal recipients of Youth Allowance to estimate such causal effects.

Rather, the estimates here are of participation among the Youth Allowance population compared with that of the ineligible group who were most like them, but who had family income levels that pushed them above key income eligibility thresholds. Participation in university among those who obtained a Year 12 certificate does not appear to be significantly lower among the Youth Allowance-eligible population than among those most like them in the ineligible population. Participation in full-time VET may be lower, although the operation of the apprenticeship system, which was not incorporated in the analysis here, makes this difficult to judge.

Gap years and receipt of Youth Allowance

Eligibility rates for Youth Allowance are substantially higher among students who undertake gap years than students who proceed to university straight from secondary school. This is not wholly explained by gap year students being from a poorer part of the social background distribution. In fact, gap year students who are eligible for Youth Allowance come from higher in the social background distribution than those who proceed straight from secondary school to university.

The evidence suggests that many of those who undertake a gap year would have been much less likely to be eligible for Youth Allowance had they not done so, or would have received a smaller payment if eligible, given their parents’ characteristics. This evidence supports the concerns expressed in the Bradley Review that the operation of the independence criteria for Youth Allowance encouraged some otherwise ineligible individuals to establish their eligibility by undertaking a gap year.

Youth Allowance and course completion

Receipt of Youth Allowance does appear to be positively associated with course completion among both university and full-time VET students. The estimates are of a substantial magnitude, with students who received Youth Allowance being somewhere between 4 and 10 percentage points more likely to complete their courses than other students. Where the amount of the allowance received was included in regression equations, the parameter was positive, suggesting that those in receipt of higher payments may be more likely to complete their courses. Hours of part-time work are negatively correlated with completion of university courses, but not fulltime VET courses. Again, this may not be a causal estimate, but may merely represent an association between variables.

Youth Allowance and the financial position of young Australians

Respondents in these cohorts of LSAY were asked in each wave a series of questions about their satisfaction with their financial position and their life in general. In addition, they were asked about their experience of a series of financial stress indicators, such as having had to borrow money from family and friends. These data make it possible to see how the responses of the same individuals change as they move through various ‘states’ from year to year; that is, become full-time students, get or lose a job, become eligible for Youth Allowance, move out of home and so on.

These data suggest that full-time students in receipt of Youth Allowance tend to be the least satisfied about their financial position, even among students, and experience more incidents related to financial ‘stress’ than other young people. They are substantially more likely to have Student income support and education and training participation in Australia had to borrow money from family or from others to live on than other individuals. They are less likely to view themselves as managing well financially.

Regression analysis confirms the poorer self-assessed financial position of full-time students in receipt of Youth Allowance. These differences do not, however, seem to translate into their having lower levels of life satisfaction, in the way that these measures of financial stress are associated with lower levels of life satisfaction for young people in receipt of other forms of government income support.