Is the graduate labour market recovering?

Last week’s Graduate Outcome Survey, which looks at employment rates about four months after course completion, showed that full-time employment rates continue to improve. However, the proportion of new graduates looking for full-time work at this time is still high by historical standards, as the chart below shows (many of them have part-time jobs; this is not necessarily unemployment).

At the margins, there are things universities can do to make their graduates more employable. They can offer courses in fields likely to be in labour market demand, and they can offer work-integrated learning to improve graduate employability. Both were happening under the demand driven system.

But unless there is overall job growth graduate employment is unlikely to improve. When the labour market is tight the first thing to go is new entry-level positions, and so this disproportionately affects recent graduates. The effects of downturns are visible in the chart on annual growth in professional occupations and the labour market overall.

The good news is that growth in the professional labour market has fully recovered from the post-GFC crash and the second crash that started in mid-2012.

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Over-qualification: hard to measure, harder to avoid

This morning The Australian very much delivered in the government’s attempts to use annual data releases to support its case for not paying universities the full funding rate unless they meet various performance indicators. “More than a quarter of the ­nation’s graduates say their ­degrees are close to useless for their jobs” read the opening line of its page one lead story.

Concern about graduates taking jobs that don’t require degrees is very long-standing. The other day I was reading a report from 1972 – when hardly anybody had a degree compared to now – that mentioned the issue. In the past, using the approximate method of looking at what jobs graduates are doing, I estimated that in 1979 about 20 per cent of graduates were in jobs unlikely to require degrees. The equivalent figure now is about 30 per cent.

But the survey that triggered today’s story shows how complex these judgments can be. As the chart below shows, the supervisors of graduates are more likely than the graduates themselves to think that the graduate’s qualification is important.

The other interesting aspect of the chart is the very imperfect match between ABS classifications of occupational skill levels and the views of graduates and their supervisors. Read more »

Have you ever not finished a university degree?

At the Grattan Institute, we are nearing completion of a report on not completing university degrees, one of the measures that could be used in the new performance funding regime.

We’ve got lots of interesting new data on how much time students spend enrolled before they leave, how much they have spent, and the risk factors that can help predict who will complete and who will drop out.

But the data and literature on how people feel about incomplete qualifications is very sparse, and so we decided to run our own online survey.

It’s obviously not a random sample, but with over 800 responses to date we are able to identify some general themes. With more respondents we could start to see whether reactions to not completing differ across student categories.

The survey is going to close in a few days, so if you have dropped out a degree yourself, please take it. Or if you know someone who has dropped out, please forward the link to them.

Our report is going to focus on people who have left university without any degree, but we are also interested in people with a complete degree as well as a complete one.

How can the government cap funding for Commonwealth-supported student places?

As reported recently, higher education is expected to face cuts in Monday’s MYEFO. My guess – but certainly not my preference – is that the government will use new university funding agreements to freeze the demand driven system, and to reduce postgraduate Commonwealth-supported places.

Under demand driven funding, most public universities are paid a Commonwealth contribution for each domestic bachelor degree student they enrol (section 33-5(5) of the Higher Education Support Act 2003), except in medicine which is ‘designated’ (section 30-12(b)).

However, section 33-5(5) includes a provision for setting a ‘maximum basic grant amount’ for ‘non-designated’ places (ie, all fields except medicine). This power has been used for the University of Melbourne and the University of Western Australia, which traded in undergraduate places for Commonwealth supported postgraduate places. What we now expect is that the maximum basic grant amount will be used for other universities to reduce future spending on student places.

This can be a freeze but not a cut in nominal terms due to section 30-27(3) which says that, where a maximum basic grant amount has not previously been set, it cannot be less than the amount calculated under section 33-5(5) for the previous year, ie 2017 for the 2018 funding agreements. For the University of Melbourne and the University of Western Australia, it cannot be less than the maximum amount set for 2017. The freeze could be maintained by determining that the 2019 maximum basic grant amount was the same as for 2018, which is turn was the same as 2017, and so on.

It is also possible that the maximum basic grant amount will be higher than 2017, but lower than a university would have received after indexation of the Commonwealth contribution rates under division 198 of HESA and payment for any increase in student numbers under section 33-5(5).

In practice, it is likely that most universities would lose the value of Commonwealth contribution indexation and not be paid Commonwealth contributions for any additional students they enrol. Sustained over a number of years, this could do universities significant financial damage, especially if they are already locked into growth (for example, a university that increased its commencing student numbers in 2017 will have to accommodate them while they finish their degrees).

There is no equivalent of section 33-5(5) for student contributions or HECS-HELP. Therefore universities can still receive indexed student contributions for every Commonwealth supported student they enrol.

All postgraduate, associate degree and diploma courses are designated and distributed to universities through funding agreements (section 30-10 of HESA in conjunction with 30-25(3)). These places have to be allocated to funding clusters (section 30-10(2)).

The government was already planning to cut 3,000 postgraduate Commonwealth supported places, so that is likely to go ahead. They will also have to choose which discipline clusters to cut. As with bachelor-degree places, universities could still receive student contributions directly or via HECS-HELP.

Existing postgraduate students who are enrolled on in a Commonwealth supported place are entitled to keep it (section 36-25 of HESA). Effectively, that is an entitlement to a place with a price-controlled student contribution but not necessarily a Commonwealth contribution. Universities would still be allowed to ‘over-enrol’ (ie take more students than their funding agreement states) but would only get the student contributions. For new postgraduate students, universities can offer full-fee places to replace lost Commonwealth supported places.

The government may also cut Commonwealth supported places in associate degree and diploma courses. Universities could still receive student contributions if they ‘over-enrol’ in these courses. However, they are prohibited from offering full-fee places in all undergraduate courses (section 36-30 of HESA).

The funding agreements are not legislative instruments, and therefore are not sent to Parliament and not subject to disallowance by the House of Representatives or the Senate. Is that, rather than any higher education policy rationale, which makes capping likely. It is one of the few options left for a government determined to make Budget savings without a Senate majority.

A high HELP repayment threshold increases pressure to restrict or deny access to HELP

The Department of Education and Training’s 2016-17 annual report announced the first public use of a project to link up the ATO’s HELP repayment data with the Department’s enrolment data:

In 2016–17 the department worked with both the Australian Taxation Office and the Australian Government Actuary to create a database that links education courses with
income and occupation information. In 2018, the QILT website will publish graduate income data sourced from this database, which will inform students of the earning potential in their study area.

This will, of course, be very interesting, and could include income by university attended, as well as by study area. This has been done in the UK, although their QILT equivalent does not use it at this point.

But this data linking work is being done to better understand HELP debt and which factors affect repayment. It has potential uses well beyond student advice, uses that would fit a pattern of the government trying to reduce its risk of bad HELP debt.

The most obvious of these is to restrict access to courses with high rates of non-repayment. This was a feature of the VET Student Loans reform so that

loans are only being provided for courses that are closely aligned to the skills employers need in their workplace, thereby enhancing the opportunities for graduates to work, and to repay the money lent to them by taxpayers. [emphasis added]

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The VETification of higher education is a precedent that should not be set

In The Australian this morning an article points out that publicly-funded language diplomas may be not be available to new students from next year. In my view, that is a correct implication of both general policy statements on funding diplomas and associate degrees made by the government, and the specific consultation paper on sub-bachelor courses.

Unfortunately, this is a case in which the government, in attempting to fix one problem, would create several new problems.

The original problem here is that diplomas and associate degrees were, at the last minute in 2011, excluded from the demand driven system. That means that the total number of government-funded sub-bachelor places remains set by the government, the allocation of places between universities reflects largely historical decisions, and new places (when available) are distributed according to regularly changing criteria. The distribution of places does not strongly align with the preferences of students, the strategies of universities, or the needs of employers. In the review of the demand driven system I did with David Kemp, we recommended putting sub-bachelor places into the demand driven system.

On the surface, the government’s proposal looks like it is responding positively to this recommendation. Constraints on the number of funded sub-bachelor places will be lifted in two ways. First, sub-bachelor courses approved by the minister will enter the demand driven system. Second, sub-bachelor courses not approved by the minister will be given an exception on the general ban on undergraduate full-fee places at public universities.

Language courses are in trouble because they typically fail to meet both the announced criteria for sub-bachelor demand driven funding – that they articulate into a related bachelor degree program, and that they have been developed with a focus on industry needs. Read more »

Should permanent residents lose their higher education tuition subsidies?

Under current law, access to the HELP loan scheme is a rare government financial benefit linked to citizenship rather than permanent residence. It may be the only benefit in this category.

Under the government’s proposed higher education reforms, permanent residents would become entitled to HELP.* But access to tuition subsidies under the Commonwealth Grant Scheme would instead be restricted to citizens, and permanent residents put in full-fee places. For undergraduates especially, this could cost them tens of thousands of dollars.

No universally applied rules govern who is entitled to what in Australia. But there are patterns of eligibility that suggest some broad principles. Generally speaking, longer and stronger connections to Australia lead to wider eligibility for government-financed benefits. Underlying this is the idea of a reciprocal welfare state; paying tax and receiving benefits are linked over a lifetime. People who aren’t committed to Australia, and who probably won’t finance as well as receive government benefits, have restricted entitlements.

The clearest example of this idea in practice is the distinction between temporary and permanent migrants. Temporaries are eligible for few benefits, while permanents get almost all. It would be unreasonable to require people to make long-term taxation contributions to Australia without making them eligible for the benefits those taxes finance. But people present in Australia for only short periods should not receive benefits they haven’t financed. The temporary/permanent distinction is not as robust as it once was because of the rise of long-term but legally temporary migrants. But that is a problem with the visa categories more than the underlying principle.

The Australian welfare state also makes sharp distinctions between residents and non-residents. Regardless of citizenship status, Australians living overseas generally aren’t entitled to social security benefits (or any higher education benefits; Australian citizens studying at the overseas campuses of Australian universities generally don’t get subsidies or loans). The main exception is the aged pension, but that is linked to past residence. Again, full legal membership of the Australian community through citizenship isn’t counting for much; being within reach of the Australian taxation system matters more.

Why are citizenship and higher education benefits linked in an unusual way? Read more »

Has the demand driven system largely achieved its objectives?

At the AFR higher education conference this week the demand driven system was criticised from the speaker’s platform and elsewhere.

Some Group of Eight universities are arguing for something they call ‘cap and trade’. The core idea is that, in exchange for accepting capped funding or student places, universities could trade in bachelor degree places and replace them with sub-bachelor or postgraduate places. Under the current system, sub-bachelor places are capped in public universities. Universities can enrol unlimited numbers of postgraduates on a full-fee basis, but in some courses they want to offer cheaper Commonwealth supported places, which are currently capped.

From the government’s perspective, cap and trade implemented across the entire system would give them more certainty about future higher education expenditure.

University of Melbourne VC Glyn Davis gave the argument a new feature at the AFR conference. He put as central to the demand driven system the goal of 40 per cent higher education attainment in the 25-34 age group. Noting that this had been achieved in some metropolitan areas, he suggested capping inner city universities while allowing outer metropolitan universities to continue growing.

The 40 per cent attainment goal was certainly part of the original Bradley report recommendations for the demand driven system and the subsequent government policy announcement. But how important is it to the overall logic of demand driven funding? Read more »

Some students could lose FEE-HELP by accident or no fault of their own

In supporting the government’s Education Legislation Amendment (Provider Integrity and Other Measures) Bill 2017 in the House of Representatives yesterday, shadow universities assistant minister Terri Butler said ‘Labor supports greater protection for students, particularly those accessing the FEE-HELP system’.

The provider integrity bill would put some extra constraints on the marketing activities of non-university higher education providers (NUHEPs), whose domestic students typically use FEE-HELP (because they are denied access to the Commonwealth supported places that would let them use HECS-HELP).

But the provider integrity bill also exposes NUHEP students to new risks, and greater risks than students in the university system.

If a student in a public university fails most of their first year subjects, they will probably be sent to their institution’s unsatisfactory progress committee. But whether they continue with their studies will be an academic decision that can take a holistic view of the student’s circumstances.

Under the provider integrity bill, a NUHEP student using FEE-HELP – there were 46,000 of them in 2015, although students enrolled before 1 January 2018 will be grandfathered – will lose FEE-HELP eligibility if they fail too many subjects, and have to pay upfront fees unless they can demonstrate that there were special circumstances that were beyond their control, did not have their full impact until after the census date at which they incurred their HELP debt, and made it impractical to complete the unit. Read more »

Graduate early career earnings are trending down

The latest HILDA Statistical Report has some interesting cohort data on graduate earnings in the early years after graduation.

It shows that later cohorts of graduates are, on average, earning less at the same point in their careers than earlier cohorts. Five years after completing a bachelor degree, people who graduated between 2001 and 2005 earned on average $140 more than people who graduated between 2006 and 2009. In turn, the 2006-2009 graduates earned more five years after completion than 2010-11 graduates, by $75 per week.*

In the HILDA data presented, at least two trends contribute to these results. In all years except the year immediately after graduation, the 2006-2009 and 2010-2011 cohorts are more likely to be studying full-time than the 2001-2005 cohort, which means that their employment income is lower and they will have less work experience five years out.

Second, the younger cohorts are more likely to be working part-time even if they are not studying full-time.
Read more »