Category Archives: Higher education finance

What is Whitlam’s higher education legacy?

Gough Whitlam, who died today, is one of the big four of Australian higher education policy: Menzies, Dawkins and Gillard are the other three.

Whitlam is most famous for abolishing tuition fees in Australia’s universities and state-funded colleges from 1974 (here is the original legislation for universities.)

I’ve argued before that free education was a major symbolic success, but in practice not as significant as many people in hindsight believe. Through scholarships, state subsidies and federal subsidies higher education was already free or cheap for most people. A chart I included on university funding sources in the latest edition of Mapping Australian higher education (p. 53) shows that students were only a minor source of university income in the early 1970s.

Nor was Whitlam very successful in lifting higher education attainment rates. While the number of higher education places did grow, the baby boom generation was so large that there was little growth in attainment for them. On this measure, Menzies, Dawkins and Gillard were all much more significant.

What Whitlam did succeed in doing was take over funding responsiblity for higher education from the states, making conditional grants the basis of Commonwealth power over higher education. Technically, the Commonwealth’s power was quite limited. Universities could have refused Commonwealth grants and returned to fee charging if they wanted to. But never stand between a vice-chancellor and money. If there was anything the universities would not do for the Commonwealth’s cash we never found out what that was. As John Dawkins discovered, they were even willing to merge with colleges of advanced education, which were well down the system hierarchy.

Two particular Whitlam-era policies are still in place, although substantially modified. He created a general student income support system, TEAS, to replace various scholarship schemes. This survives through Youth Allowance, Austudy and Abstudy. A needs-based income support system is a more efficient way of funding higher education students than merit-based scholarships, which often go to people from affluent families.

Although completely free higher education lasted less than 15 years, Whitlam’s price control on undergraduate higher education has lasted the full 40 years since 1974. Universities were given back their power to set charges in 2005, but only up to limits determined by the federal government. Christopher Pyne is now trying to abolish these controls, supported for the first time in the post-Whitlam era by a majority of vice-chancellors.

The fact that until recently most vice-chancellors supported undergraduate price control shows Whitlam’s on-going influence. Despite being dissatisfied with their funding rates for all but a handful of those 40 years, many vice-chancellors still maintained the faith that government would give them what they believed they needed. Public funding was the norm when most of them went to university and started their academic careers. Even now, vice-chancellors generally see private funding as a regrettable but necessary departure from this ideal state. Staff and student groups ofen condemn university leaders for this concession. Creating such a powerful default belief about how the world should be shows that Whitlam’s cultural legacy will survive the man’s passing.

How can higher education spending be controlled without Senate approval?

A story in today’s Age raises the possibility of different higher education spending cuts from those announced in May. Instead of cutting subsidies to per student tuition funding and the HELP loan scheme, the government could target research funding.

The article suggests that the government might use this as a bargaining chip in Senate negotiations around the Pyne reform package, knowing that it would trigger the vice-chancellor panic (“doomsday scenario”) reported today. But we should also keep in mind that that there are really three separate components to the package. The first was to contain total higher education funding at around current levels, despite forecast considerable increases in student numbers. That was coming out of the broader Budget strategy, and would have happened regardless of whether there were any structural reforms. The second is the implementation of key recommendations of the demand driven review I did with David Kemp. The third is fee deregulation. Dropping these structural reforms would save money, but the government is likely to still want some savings.

The key to reducing research funding is that about $1.8 billion of it is driven through the ‘other grants’ provision of the Higher Education Support Act 2003 (HESA). The legislation sets out a maximum amount that can be spent. But there is no minimum amount and no specific legislated entitlement, as there is for student funding. The actual spending is determined by the minister through the Other Grants Guidelines. I think this could be used to cut spending (contrary to what the Age article says, only a small amount of research funding is affected by the appropriations bills – most of it comes from HESA).

From 2017, there will be opportunities to control spending through the funding agreements the Commonwealth signs with universities. These could be used to reduce the number of centrally distributed Commonwealth supported places (sub-bachelor, postgraduate, and medicine, though sub-bachelor may be deregulated) and control total spending on places within the demand driven system by institution. Universities can’t be offered less money than they received the year before, but with on-going growth in student numbers expected that could still deliver significant savings (the legal details are in chapter 7 of my Keep the caps off report).

Funding agreements have to be published, but they don’t need Senate approval and so are a viable way of curbing spending growth.

Both these ways of reducing spending are sub-optimal. But if this article is based on real backgrounding from the government, that is the point. It is designed to pressure the Senate into making more sensible changes.

What legal changes are needed for the Pyne higher ed reform package?

A few people have asked me about what legal changes are required to implement the Pyne higher education reform package. This post summarises what I think the legal situation will be. The relevant legislation is the Higher Education Support Act 2003 (HESA).

Changes to Commonwealth contribution rates

The government plans to introduce new, generally lower, Commonwealth contribution rates. This requires amending section 33-10 of HESA. I’ve heard it said that this will be part of the appropriation bills which by convention are passed by the Senate, but this isn’t right. Those appropriation bills cover only a smallish percentage of government funding, not including the Commonwealth Grant Scheme.

The government has also indicated that it wants to further reduce funding rates for diploma courses and non-university higher education providers. That would require more substantial redrafting, especially if the government intends to expressly fund research through the Commonwealth Grant Scheme. Section 33-10 alludes to the ‘benefits to students’ power in the Constitution. On the basis of the Williams No. 2 case (the school chaplains case), the High Court may well take a dim view of using this provision to fund research. (Update: There are other potential Constitutional foundations that possibly could be used here, such as the corporations power that was used for the TEQSA Act, universities being legal corporations.)

Increasing or abolishing the student contribution cap

This requires amendment of section 93-10 of HESA.

The government has said that international student fees will be the new cap. While not expressed exactly in those terms, this is already legislated through section 36-55 of HESA. What that section says is that student contribution amounts (legally defined as being for students in Commonwealth supported places) can’t be more than tuition fees (legally defined as being for full fee students). As section 36-30 effectively bans domestic full fee undergraduate students in public universities except in very limited circumstances, the tuition fee reference is almost invariably going to be to international students.

There is no requirement to offer courses to international students, and universities can increase their international student fees, so this is not a very strong capping mechanism.

Requiring universities to put 20 per cent of additional student revenue into a Commonwealth scholarship fund

One complexity here is that division 46 of HESA already has Commonwealth scholarships, in this case actually funded by the Commonwealth rather than other students. Apart from that there could be a backdoor way of doing this, via section 30-25(2), which enables the Commonwealth to put almost any requirement on universities not expressly contradicted by the Act as a condition of receiving funding. Given that the Commonwealth once got away with using 30-25(2) to force the University of Melbourne to subsidise the then legally separate Victorian College of the Arts, requiring universities to subsidise their own students would look reasonable in comparison.

That said, legislation or delegated legislation would give the policy a stronger legal basis, so I expect the government will pursue one of those options. Read more »

Higher education reform clarifier #5: Would arts degrees need to cost twice as much?

Stories in the Fairfax papers this morning are talking about the doubling of fees for some arts degrees, to compensate for reduced government subsidies. That is only true of journalism courses, but the reason why these numbers are being arrived at are worth further examination.

The current system is based on funding a ‘unit of study’ (ie a subject) according to its field of education. Each field of education is allocated to one of eight ‘funding clusters’ that determine its ‘Commonwealth contribution’ (ie subsidy) and ‘student contribution’ (often called ‘HECS’). Universities set their own student contributions up to a maximum set by legislation, but in practice all charge the maximum amount.

As is common in the higher education system, various quirks of history rather than clear principles or policies explain these rates. As the figure below shows, this leads to very different overall funding rates for the subjects that someone enrolled in arts might take (I have adjusted 2014 rates up to $2016 for the comparison to come). In my view, only the foreign languages difference could obviously be justified by an inherent need for different teaching methods.

arts now

What the new Commonwealth contribution rates would do is bring the humanities and social science type subjects, except economics and languages, to a consistent level, as seen in the figure below. This means that humanities like history get a small increase in funding, while the others get a substantial cut.

arts changes

From a first principles basis, the new rates look more consistent and rational than the rates they would replace.

If they go ahead (the government has signalled willingness to look at the detail of these cuts) do student contributions need to increase to take total funding per place back to current levels? Arguably, some of these disciplines have long been over-funded and there is scope to not simply maintain the funding status quo by passing on all reductions in Commonwealth contributions to students.

Overall, however, the ‘revenue theory of costs’ is likely to explain university operations more than any strict relationship between what it should reasonably cost to deliver a course and what it actually does cost. It’s Bowen’s law: universities raise all the money they can, and spend all the money they raise. No matter how much money they have, they always feel ‘under-funded’ because they let their costs increase to absorb any previous funding boost. This is why even absurdly rich universities like Harvard feel the need to do major fundraising campaigns.

So while some disciplines look over-funded relative to similar disciplines, it is likely that much of this extra funding has been built into expenditure over time (even if profits in some disciplines have been redistributed to other university activities). While they might not pass on all the Commonwealth contribution reduction to students, the internal trauma involved in reducing costs means that there are likely to be substantial student contribution increases.

One reason I am keen on opening the higher education system up to competition is that I want to bring in new players without these legacy cost structures, who I hope will be able to provide the same or better services than the universities while charging students lower fees.

Higher education reform clarifier #4: Will student fees go down as well as up?

Statements from the government that under their reform package higher education fees will go down as well as up have been met with ridicule in social media and even from a Canadian higher education policy research institute.

Certainly it is unlikely that fees for public university students will go down. Cuts to public subsidies for most disciplines mean that universities will need to increase their charges just to maintain current revenue per student.

But undergraduate students in private universities and colleges, and the TAFEs that now offer degrees, will become eligible for public subsidies under the Pyne reform package, as recommended by the report I wrote with David Kemp. Exactly at what level is yet to be determined. But it will be above the zero level most of their students currently receive (under various ad hoc deals with government, a few of the around 130 potentially affected institutions already have some subsidised places).

While I doubt that the full value of the subsidy will be passed on in lower fees, particularly in the more generously subsidised disciplines we should see fees dropping by thousands of dollars for students outside the public university sector. The Budget papers suggest that 80,000 students could benefit from this change.

Higher education reform clarifier #2: Are students facing $100,000 degrees?

There has been a lot of speculation about students facing $100,000 degrees if fees are deregulated. However, my view is that this is very unlikely outside small areas such as medicine, dentistry or veterinary science.

While we are still planning much more work on pricing issues, international student fees provide a a guide to the outer limits of what is likely to be possible – what universities think that the market will pay. Where there are deregulated markets for both internationals and domestics, in the private sector and at postgraduate level, our research is yet to find any cases in which domestic students are charged more, and many cases in which they are charged less.

Our methodology in collecting fees was to look at university websites and compare similar courses across universities. This was done for all the universities in 2013, although not all teach all the covered courses. We then deducted tuition subsidy amounts, as a guide to how these might bring fees down. The Guardian published the results.

The totals vary considerably, but most full courses would end up costing between $35,000 and $60,000 on a simple average of quoted fees. Students would have to decide whether or not the more expensive courses were value for money.

Higher education reform clarifier #1: Will NIDA students pay more?

The higher education reforms announced on Budget night are causing some confusion. Complex reforms are being added to an already complicated system. I am planning on a series of clarifying blog posts to explain what is happening, of which this is the first.

The SMH is running a story on prospective students concerned about fee hikes at the National Institute of Dramatic Art, NIDA.

NIDA is unusual in being subsidised out of the arts budget rather than the education budget. I can’t see anything in the relevant portfolio budget papers about whether NIDA has taken a hit to its funding.

This means that even though NIDA’s students are subsidised, they are classed as full fee by the HELP scheme and borrow under FEE-HELP rather than HECS-HELP. The higher education legislation does not regulate the tuition fees NIDA charges.

For FEE-HELP undergraduates, there is currently a 25% loan fee (eg, a student who borrows $10,000 will have a $12,500 debt recorded). This will be abolished, reducing the initial cost of attending NIDA assuming no further fee changes. However, students will in future be charged an interest rate based on the 10-year bond rate rather than CPI.

NIDA has typically pitched its fee around the level of undergraduate student contributions in comparable courses. If these increase at universities then it is possible that NIDA will see market space to increase its own fees. But there is nothing in the Budget higher education reforms that will require them to lift their charges.

The SMH article quotes 23-year old Oliver Wicks, soon to complete an arts degree, as reconsidering pursuing an education at NIDA due to potential increased cost. However, any increased fees are the least of his worries. As Grattan’s recent HELP doubtful debt report found, a high proportion of performing arts graduates don’t earn enough to start repaying.

Higher education spending in the 1970s compared to now

According to former PM Malcolm Fraser,

Education is the best and most important investment that this country can make. I am not sure that our governments understand this message adequately. Over the last 20 years, governments have actually withdrawn from the funding of education and much of that has been replaced by dependence upon full fee paying students from overseas.

That might have been true for a while in the 1990s and the first half of the least decade. But not in more recent years, as the slide below shows. Some expansion under the previous planned higher education system, and then a surge from the demand driven system, has seen public funding expand very significantly.

subsidies last 10 years

And what happened when Mr Fraser was Prime Minister, from 1975 to 1983? Spending did go up for a while, but was then reduced. It was a period of stagnation in higher education attainment. Fraser faced significant budgetary constraints, as have most of his successors as PM. Read more »

The case for including for-profit higher education providers in the demand driven system

Reaction to the report of the demand driven review, which I co-authored with David Kemp, has been pretty positive overall. But our proposal to extend Commonwealth supported places to non-university higher education providers, especially those operated on a for-profit basis, is attracting some negative comment.

Professor Greg Craven, vice-chancellor of Australian Catholic University, said:

There is a basic psychological difference between a statutory body (university) ploughing money back into the enterprise and a private college whose modus operandi is to make a profit.”

Whether or not that is true, a higher education system needs to be robust to the weaknesses and variability of human motivations. Indeed, the public universities themselves are a case study in the limitations of a ‘just trust us’ model in higher education.

As the report discusses (pages 9-10 especially) the universities were for a long time, and still are to a lesser extent, able to get away with poor practices in teaching. This showed in the abysmal results of the first national student surveys conducted in the mid-1990s. Things have improved since through a combination of public information, government programs and incentives, market competition, and more recently regulation.

The report recommends that all these measures apply to the non-university providers as well. Indeed, they have another layer of scrutiny that the universities lack, which is that their courses need to be individually approved by the Tertiary Education Quality and Standards Agency. It also recommends extending the University Experience Survey to the non-university providers, and publishing the results on a replacement for the MyUniversity website to make it easier for potential students to compare courses. Read more »

New book on the Dawkins higher education revolution

Last night The Dawkins Revolution 25 Years On, which I co-edited with Simon Marginson, Julie Wells and Gwil Croucher, was launched by the Chief Scientist, Ian Chubb, with a right of reply by John Dawkins himself.

In my chapter on the Coalition, I described Dawkins as the most important education minister yet to hold office. Gillard’s combined tenures as education minister and then prime minister might yet see her take that title, but for now it is both the scale and durability of what Dawkins did that puts him in the top position.

These include:

* The mergers of many institutions and the transformations of former colleges of advanced education and institutes of technology into universities (discussed in chapters by Simon Marginson and Ian Marshman and Gavin Moodie).

* The introduction of HECS (discussed in a chapter by Bruce Chapman and Jane Nicholls).

* The introduction of a system of setting funding rates by discipline that is still the basis of today’s rates (discussed in a chapter by Ross Williams).

* A substantial expansion in student numbers (discussed in a chapter by Richard James, Tom Karmel and Emmaline Bexley).

* Increased the role of competitive grants in funding research (discussed in a chapter by Gwil Croucher and Frank Larkins).

* Contributed substantially to the opening up of Australian higher education to international students, including a prior period as trade minister (discussed in a chapter by Margaret Gardner).

* Started deregulation of postgraduate coursework markets.

Most reforms since then have built on the foundations of Dawkins. As I argue in my chapter, the 1999 Kemp reform proposals (which I worked on as his higher education adviser) were the only major attempt to over-turn Dawkins in favour of a more market-driven system.

Those reforms were destroyed after the Cabinet submission was leaked to Labor. Ironically, it was Labor ten years later that introduced a version of the ‘voucher’ system proposed in 1999.