To nobody’s surprise, the federal government has rejected the 2011 base funding review panel’s main recommendations (media release here).
The biggest policy change suggested by the BFR panel was that every student should pay 40% of the Commonwealth-supported funding rate, with taxpayers paying the other 60%. With students currently paying between 28% and 83% of their course’s funding rates (details at p. 52 of Mapping Australian higher education), that would have meant some students paying less (eg law, business) and many others paying more (eg medicine, nursing, engineering, science, education).
Logically and empirically, 40/60 was always dubious. It was based on the idea that government should pay the anticipated future value of higher education’s public benefits. Graduate Winners argued against that idea, proposing a framework in which the public aims to profit from its higher education investment.
The flat 40/60 was based on the idea that public benefits were similar between disciplines. As one of the main public benefits was increased tax revenue, that assumption is clearly false (data also in Graduate Winners, but easily inferred from the BFR background paper on private financial returns). And even if this was true, it logically leads to a flat rate subsidy and not a proportion of total funding rates, which have nothing to do with subsequent benefits.
The government also rejected a call for increases in per student funding. The main reason for this is that higher education spending is blowing out even on current rates, due largely to lifting most enrolment controls on undergraduate Commonwealth-supported students at public universities. To get the full effects of this we need to add tuition subsidy costs, loan scheme costs, and student income support costs, as I have in the figure below.
In the past I have doubted whether the current pricing system for Commonwealth-supported places can work. But so far at least I don’t think those fears are being realised, partly because I was incorrectly assuming that teaching costs are below teaching revenues. One valuable aspect of the BFR final report was analysis showing that this was not correct in most cases. The university funding model problem comes from combining teaching and research.
There are two sources of evidence that the pricing system is not failing. The first is that universities have significantly increased the number of Commonwealth-supported places at the rates they claim are too low (data below). The second is that offer rates are increasing in almost all disciplines, suggesting that generally we are not getting distortions based on discipline (p. 58 of Mapping). Dentistry and veterinary studies are the exceptions.
This is not to say that there might not be some quality/amenity improvements from more spending per student (though some more sceptical research from the US was reported this week). But quality trends seem to be heading in the right direction without additional money.
We do need to re-think the overall higher education price mechanism. But the government was right to reject the BFR panel’s approach.