Category Archives: Higher education finance

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 Over the last 20 years, governments have actually withdrawn from the funding of education and much of that has been replaced by dependence upon full fee paying students from overseas.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.

Should the HELP debt be sold?

The government is now hosing down yesterday’s speculation that the accumulated student HELP debt will be sold.

There are good financial reasons for not selling, as Matt Cowgill explained yesterday. Investors would only buy the HELP debt if they could get it for less than they thought it was worth, in which case the government should not sell unless it is desperate for cash. But for now at least financial markets are willing to lend to them at low interest rates.

I believe that there are also good political reasons not to sell now. HELP’s costs are very high, mostly at the moment due to a prediction that 19% of new loans will not be repaid (at p.93 of the portfolio budget papers). Due to the low interest rates government is paying at the moment that is not currently a big expense. But with total debt likely to be over $30 billion now, even small increases in government bond rates can translate into major additional outlays.

These costs need to be brought down. But rule changes to benefit investment banks will not be an easy political sell. It’s hard enough to sell public interest rule changes that help bring total government spending back down towards total government income.

Science demand keeps increasing, despite a higher student contribution

Science has been one of the most popular university courses over the last few years, with strong increases in applications year after year since 2009. The demand shift coincided with a slashing of student contributions by about 40%. This had seemed to be a possible exception to the general empirical rule that changes to student contributions don’t affect demand (some of the history is in Graduate Winners, pp 77-79).

As part of a long series of measures to reduce higher education spending, science student contributions were put back up to pre-2009 levels for 2013, an 80% price increase in one year. If the discount was driving demand, we would expect to see higher student charges reduce demand. New statistics released today show that this has not happened.

In fact, as can be seen in the chart below, numbers continued to grow strongly. They were up another 4%, in a market that was up only 0.5% overall. Only agriculture grew by more in percentage terms, and only health grew by more in absolute numbers. Science offers increased by 3.3%, with overall offers up 0.6%

science apps Read more »

My original version of today’s Crikey article (missing parts of the argument restored, non sequitur removed)

My Crikey article today has been cut and edited in ways that leave out important parts of the argument and create a non sequitur (high private returns do not, obviously, justify subsidising private higher education). The original version is under the fold.

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Read more »

Should unis voluntarily cap student numbers?

From my perspective, the demand-driven funding system is Labor’s main higher education achievement (it’s described at pages 56-58 of this report). Over time, I expect it will drive a more efficient allocation of student places and through creating competition improve teaching and student services. Already we can see that a student’s chances of getting an offer in their first-preference field of study has improved in most disciplines:

offer rates
Source: DIISRTE. The figure shows offers in each field of study as a % of all first-preference applications for that field of study.

But uncapping the number of Commonwealth-supported students is costing a lot of money, a factor in recent higher education cuts. An article in yesterday’s AFR reveals that the universities want a de facto re-introduction of caps – not through changing the higher education funding legislation but through universities agreeing to constrain student numbers.

This would be a backwards step. The fear of losing students to competitors is a key driver of responsiveness to students, and a cartel-like restriction on places would be nearly as bad as the old regulated control.

Should higher education courses be tax deductible?

The universities are calling for tuition fees to be exempt from the $2,000 maximum tax deduction for self-education.

The low tax deduction plus the more easily-defensible closing off of the voluntary HELP repayment bonus could have major effects on some students.

For a presentation I was doing at Swinburne today I prepared an example using a Swinburne Graduate Certificate of Engineering, a course marketed as professional development and therefore likely to have sufficient link to the student’s current employment to be deductible.

I assumed that the student was currently earning $75,000 a year, giving them a tax rate of 32.5% plus the 1.5% Medicare levy. I assumed they would take out a FEE-HELP loan and then repay it to claim the 5% bonus for voluntary repayments. As figure 1 shows, the two measures substantially reduce the effective cost of the course to the student.

Figure 1: Effective cost of course under current arrangements
swin 1

As figure 2 shows, with just a $2,000 tax deduction and abolition of the repayment bonus the effective cost of the course to the student increases by more than 50%, from $6,600 to $10,100.

Figure 2: Effective cost of course under proposed arrangements
swin 2

There are interesting conceptual issues here. The tax system is already biased against human capital investment, as students cannot claim a tax deduction for their investment in their future salaried earning power, though they could if they bought a range of physical assets to produce trading profits.

For undergraduates, arguably the public subsidy and the HELP loan scheme removes any bias against human capital investment. Most undergraduates cannot get easy access to other forms of capital. But in the largely full-fee postgraduate market many students would have alternative investments for the available cash.

There are complications in the argument. It is not always easy to distinguish ‘consumption’ and ‘investment’ higher education. It doesn’t seem quite right that with tax deductions the effective cost of course is much higher for someone on a 15% marginal tax rate than someone on a 45% tax rate. In a book I wrote a decade ago, I thought that maybe flat-rate subsidies were less distortionary than tax deductions.

I’m still not entirely sure how to deal with this issue. But we should watch enrolments in postgraduate courses very carefully.

Uni VCs should take some blame for consequences of latest cuts

Well so much for the Universities Australia campaign for increased public funding of higher education, with another half-page ad in today’s Weekend Australian. The government has announced a new wave of higher education spending cuts.

As usual with these weekend announcements there is not much detail available, and not all the numbers make sense to me on current information. For universities, the main impact will come from ‘efficiency dividends’ of 2% in 2014 and 1.25% in 2015. This will be the first cut to nominal per undergraduate student funding since the Dawkins reforms 20 years ago. [Mookster makes the point below that after indexation there will not be a year-on-year reduction, though I am anticipating that there will be a reduction to Commonwealth contribution amounts in the Act.]

Reducing public funding to higher education is not in itself problematic. But arbitrary changes to the prices universities receive for reasons which have nothing to do with higher education (funding Gonski is the claimed reason in this case) are not easily justifiable. In a more market-based system, we could see whether students would rather put up with cuts or pay more to maintain current services.

This outcomes highlights the political failure of the Universities Australia process that led to their current policy document. By maintaining an exclusive focus on public funding rather than building a political case for more fee deregulation they were always taking a big risk. The idea that a $5 million university advertising campaign could alter the political calculation that there are more votes in schools and health was always pretty fanciful. And so it has again proved to be, even sooner than I thought.

The reality here is that there are vice-chancellors who would rather undermine the services they can provide than concede an ideological point about student charges. They should take some of the blame for the problems these cuts will cause.

Is the University of New England’s MOOC legal?

Update 21 February: UNE VC Jim Barber advises me that UNE Open students will not be enrolling at UNE, and that DIISRTE is ok with UNE Open. I still think that current regulation is poorly designed for innovation in higher education, but it looks like this venture is OK to proceed.

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Original 20 February post:

Today the University of New England announced an innovative new way of delivering higher education. Inspired by the MOOCs, it plans to unbundle its higher education services.

…through a new platform called UNE Open, UNE will [] begin offering a range of postgraduate and undergraduate units through open courseware…..UNE Open will offer a range of fee-for-service products alongside the open courseware, including tutorial support, examinations and, ultimately, students may choose to have their learning recognized for credit into a UNE degree

Vice-Chancellor Jim Barber’s op-ed on his plans is here. I think this is an excellent initiative. But in offering its services this way, UNE is moving into uncertain legal territory.

Problem #1 is that under section 19-85 of the Higher Education Support Act 2003 universities are supposed to charge every student who enrols in a unit of study. They can offer ‘scholarships’ to bring the price back down, but that significantly complicates this ‘freemium’ model.

UNE can argue that the open courseware is not a unit of study, defined as a ‘subject or unit that a person may undertake with a higher education provider as part of a course of study’. Just studying the curriculum materials online could not lead to recognition as a unit in a course of study, but if students have the possibility of examination and academic credit then arguably it is a unit of study.

Perhaps UNE could create a legal workaround in which students don’t actually formally enrol, they just take the unit without enrolling. However, even this is skating on thin legal ice. At a course of study level, enrolled is defined to include ‘undertaking’ the course of study. Again, we hit the problem of the closer the ‘undertaking’ gets to academic credit the more it looks like an enrolment and something to which section 19-85 applies.

Problem #2 is that under section 36-55 of HESA 2003 there is a floor price of the highest student contribution amount for a Commonwealth-supported student unless the student could not have enrolled as an award (ie degree) student. I’m not sure how this provision is intended to be applied. People already enrolled in degrees at UNE for which the unit in question is relevant are covered I think, but it seems to cover a broader group: anyone who might have been admitted. So if your ATAR was very low you can get a discount, but if your ATAR was high you can’t? Sorting out who falls within section 36-55 and who does not would be complex, and undermine a simple open enrolment model.

Problem #3 is that HESA does not support the unbundling of charges into separate components. Section 19-100 reads

A higher education provider must not charge a person a fee for a course of study that exceeds the sum of the person’s tuition fees for all of the units of study undertaken with the provider by the person as part of the course.

I think this makes it difficult to offer cheap, stripped down versions of units and then charge more later for examinations or academic credit.

A literal reading of section 19-90 suggests that UNE could have multiple different fees charged at enrolment depending on level of service. But that wasn’t the intention of the legislation – as I recall it, the purpose of this provision was to allow different cohorts of students to be charged different fees for the same bundle of services (for example, students who enrolled in a course at different times could be charged different amounts). And it undermines a key flexibility of the stated UNE model: that students can decide as they go what level of service they want.

I hope my reading of HESA is wrong, or that UNE can drive its open courses through the loopholes. But Australia’s system of higher education funding and regulation was designed to support an homogenised higher education service. It is poorly equipped to deal with innovative higher education business models. That the system is an obstacle to premium higher education services has long been well understood. But with UNE’s proposal, we are starting to see how it is also an obstacle to discount higher education.


More detail here.