In two recent posts, I argued that although higher education demand increased during the early 1990s recession, this may not happen on the same scale during the COVID-19 recession. We start this time from a much higher base of educational participation and attainment. The pool of people interested in higher education, but who have not yet enrolled or acquired a degree, is smaller than it was 30 years ago.

However, to predict that total applications may not increase very much is not the same as saying that total short-term demand will not increase substantially. Applications will be a weaker proxy than usual for how many people will want to be enrolled.

Universities need to manage what they inelegantly call ‘student load’, the number of full-time equivalent students. This number has implications for the institution’s physical capacity, staffing and revenue. Managing student load has become more important since demand driven funding ended. Instead of being paid for every bachelor degree student they take, as they were under the demand driven system, universities receive student contributions only once they hit their maximum Commonwealth contribution payment.

To manage student load, universities make offers of student places to applicants based on estimates of what proportion of them will end up enrolled. At the aggregate level, these are fairly stable in recent years as the chart below shows. Typically just over 80 per cent of applicants get offers and about three-quarters of offers are accepted for study in that academic year.

However, there is some volatility. Acceptance rates tend to go down when offer rates go up. Higher offer rates signal that offers are going deeper into the pool of marginal applicants who are less committed to higher education. For example, acceptance rates decline by ATAR.

 

However in the early 1990s recession, as described in a history of the Dawkins era, universities were caught by changing applicant behaviour. With jobs hard to find, more marginal applicants than usual accepted their offers. Universities ended up with many thousands of students they had not expected.

One immediate effect was over-crowding on campus, but there were consequences for later-year applicants as well. Because universities received no additional funding for ‘over-enrolments’ they cut back on commencing student numbers in subsequent years to bring total student load back towards the funded level. The government was sufficiently concerned that it later set a specific target for new school-leaver students.

I don’t have a time series on deferrals that I trust, but in 2018 applicants who deferred would have added 10 per cent to acceptances for that year. School leavers are much more likely to defer than mature-age students. They take gap years to travel or work. If travel is still restricted in early 2021, which is quite likely, and jobs are hard to find, which is certain, then there is little reason to wait. More 2021 applicants will want to study that year rather than in a later year.

Current students as well as university applicants are likely to put more student load demands on 2021. We can expect many students who enrolled for 2020, whether first or later-year students, to drop subjects or defer during semester, because campus closures and the move to online makes study impractical or unsatisfactory for them. They will want to return to study in 2021.

In addition, attrition is likely to decrease, for the same reason that application acceptances are likely to go up – if employment alternatives are hard to find then study looks better. The Dawkins-era history says this happened then, and attrition dipping during the global financial crisis is unlikely to be coincidence. More of 2020’s students will return for another year than would have happened without the COVID-19 recession.

All these factors point to actual demand for student places in 2021 being much higher than previously forecast, even if applications don’t increase by very much (and I could easily be wrong in thinking that application growth might be limited).

Universities will have spare capacity for extra domestic students because of lower international student numbers. But due to current public funding caps universities may have to reduce offer rates to avoid taking students they cannot afford to teach.

2021 will present the kind of unexpected situation that demand driven funding could handle but our current system cannot.