Why do university lobby groups under-sell their product?

As expected, my Graduate Winners report generated plenty of controversy. Two of the university lobby groups put responses on their websites (Universities Australia here; Innovative Research Universities here). A couple of VCs added hyperbole to the sober complaints of their representative organisations:

Administrators and students alike have hit out, with Central Queensland University vice-chancellor Scott Bowman likening it to a “funding regime of which North Korea would be proud”.

Australian Catholic University vice-chancellor Greg Craven slammed the report’s focus on numbers while failing to recognise the wider community value of higher education. “This seems to be a calculator with a personality disorder,” Professor Craven said.

One common criticism was that Graduate Winners does not count every possible public benefit of higher education (though it has the most detailed empirical analysis of this issue yet published in Australia, it is true that not every public benefit claim was investigated). But you would struggle to realise from just reading the lobby group reaction that Graduate Winners also has generally very positive news about graduate prospects. The vast majority of graduates do well financially out of their degrees, and enjoy other non-financial benefits as well. And there was no criticism for not pursuing this issue further.

In other words, the VCs appear to think that total course cost increases of between $7,000 and $19,000 for most courses would have disastrous effects and must be loudly fought, but lifetime benefit, including financial gains from their services averaging hundreds of thousands of dollars, were not worth mentioning.

I think this one-sided reaction reflects the history of higher education in Australia, and mindsets that have not changed despite the underlying realities having substantially shifted.

Until 2012, successive governments have held the supply of undergraduate university places below demand. A consequence of this is that universities have not generally had to put much effort into selling the very idea of higher education. Particularly in recent years there has been lively competition between them, but it is competition for their share of a pre-existing pool of applicants, or for the highest-quality applicants in that pool. There has not been much need to explain why higher education is better than going straight into the workforce, or better than vocational education. So universities have put little effort into explaining the financial benefits of higher education, or demonstrating its value for money.

From this year, supply caps have been lifted. At least the less prestigious universities will soon have to expand the market to sustain their numbers. But for now even universities in this category like CQU don’t seem much interested in promoting higher education’s private benefits. Indeed, they risk sending out a contrary message – that higher education is a bad deal without subsidies. If CQU’s VC doesn’t think his degrees are value for money without subsidies, then perhaps prospective students should think twice about a CQU degree.

Decades of heavy reliance on public funding have also shaped the thinking of university leaders. From the mid-1970s to the late 1980s they effectively only had one client, the federal government. They still get about 60% of their income for Commonwealth-supported places from the federal government. Consequently, they put much of their effort into thinking up arguments as to why that client should pay more, reflected in the emphasis on claimed public benefits of higher education.

Some VCs realise that the world has changed. The Group of Eight did not join in the criticism of Graduate Winners, presumably because the report’s analysis that students could easily afford to pay more supports their fee deregulation agenda. But others are still locked into the rhetoric of the past. As the market moves on, the mixed messages will be harder to sustain. If universities want to sell higher education, or sell it at a higher price, they will need to tell prospective students about its benefits.

  1. Based on a quick look at your analysis, it seems quite likely that courses at second and third tier universities do not offer positive NPVs, and especially without subsidies. I wouldn’t want to be selling their products!

  2. Andrew Dempster

    May I offer a simpler explanation?

    Quite naturally, reaction to the report focused on those elements which were most novel and therefore most newsworthy.

    Many previous studies both here and abroad have found very substantial lifetime benefits for those who complete university degrees. The Grattan report echoed those findings but did not break altogether new ground here.

    The novelty of report was in recommending a $2.7b cut to Commonwealth expenditure on higher education. This was genuinely new and quite counterintuitive given that Australia already lags the OECD on public investment in higher education.

    Given the above, it is perhaps not surprising that the weight of reaction to the report was as you have described it, focused on the proposed funding cuts and not the individual benefits.

    That said, some of the reaction, including the bizarre reference to North Korea, was over the top. If anyone has the slightest clue how the DPRK finances their higher education system, I would be fascinated to hear.

    I do not agree with the key findings of the report but I congratulate you on a thoughtful contribution to the debate.

  3. Rajat – I think those NPVs are worst-case scenarios; they are due to extrapolating people doing badly at the time of the 2006 census as doing badly over the careers. In reality, people’s labour force participation and incomes vary. In reality, I think that lifetime earnings profiles are more clustered around the middle than our numbers suggest.

    Andrew – Simplicity is good. But there was an interesting difference between university organisations still focused on rent seeking, and those that want to move more into the market.

  4. I honestly do not understand what Bowman means by saying that the proposal is a “funding regime of which North Korea would be proud”. I mean, what is he saying here, apart from “it’s bad”??

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