How profitable is university teaching?

Last month the government released the latest teaching and scholarship cost data, which is for 2018. The bachelor degree data by field of education is here, and Deloitte Access Economics also provides a detailed report. The Deloitte report looks at costs compared to discipline-level funding rates, but does not aggregate these up to analyse teaching’s contribution to sector finances. This post tries to do that.

As Deloitte’s report notes, teaching cost numbers should be used with some caution. Universities are multi-purpose institutions, carrying out teaching, research, community engagement and other activities. Staff and facilities are often not dedicated exclusively to a single purpose, and so costs need to be attributed to different activities. University accounting systems differ in their design and their ability to allocate costs in a detailed way.

Because of joint production, any ‘profits’ on teaching are not necessarily cash left over that universities can decide how to use. The money may already be spent on the research time of staff employed on a teaching and research basis, or in the capital and running costs of university buildings used for teaching and research.

With these caveats, across the sector Deloitte estimate that 52 per cent of university expenditure is attributable to teaching and scholarship. Based on the university finance report for 2018, that means Table A universities spent about $16.7 billion on teaching in 2018.

I have also used the 2018 university finance report as the main source of teaching-related revenues. The main difference is that I replaced the finance report line item ‘Commonwealth Grant Scheme and other grants’ with just CGS funding calculated from funding determinations. With this adjustment, teaching-related revenues are $22.1 billion. After deducting costs, that leaves a teaching surplus of around $5.4 billion in 2018.

The Deloitte findings can be combined with other sources to estimate teaching profits in more detail. I produced Table A EFSTL numbers by qualification level and funding cluster from this source to calculate CGS revenue. I calculated student contribution and fee revenue by combining HELP lending and up-front payments.

With revenue data from these sources, I took Deloitte’s figures for average cost by postgraduate, bachelor and sub-bachelor and multiplied them by the relevant EFTSL. Overall, domestic students generated an estimated surplus on teaching of about $1.3 billion. This mainly came from bachelor degree students, as seen in the chart below.

Domestic student profits 2018

Domestic bachelor degree expenses using this method are 90 per cent of bachelor degree revenues. The Deloitte report put bachelor degree costs at 89 per cent of funding rates. The difference is likely to be due to the funding freeze that took effect in 2018. As a result, no Commonwealth contributions were paid for some bachelor-degree students. The actual average funding rate was slightly below the nominal funding rate.

If we deduct estimated domestic student teaching costs from total teaching costs we arrive at international student teaching costs of $4.84 billion. Finance 2018 says that international students paid $8.835 billion in fees, leaving a surplus of $3.933 billion. Let’s round that to $4 billion in profits on international students.

If that’s right, universities charge international students 80 per cent more than their teaching costs. That seems high but, based on international student fees collected for  Mapping Australian higher education 2018, in most disciplines even the cheapest university charged more than the Commonwealth supported student funding rate, which on the Deloitte analysis usually delivers a surplus. International enrolments are skewed towards the more expensive universities.

In management and commerce, a popular field with international students, the annual average teaching cost for a bachelor degree student was $15,755. Yet at Group of Eight universities it is not unusual for the fees to be around $40,000. Even if we take the highest bachelor-degree management and commerce cost in the Deloitte sample, $25,079, that still leaves a large profit margin.

An overall 80 per cent mark-up is high, but not I think beyond what is credible. It is consistent with the extreme enthusiasm universities showed for taking ever-greater numbers of international students, and the dire predictions they now make about their finances due to having fewer than expected international students.


A post on profits by field of education is here.

 

 

 

 

 

 

2 thoughts on “How profitable is university teaching?

  1. This data and these conclusions speak well to the domestic political debate over universities and their connection to the international student market. But do the same data have anything to say to the policy debate over funding of research? The ‘cross-subsidy’ from teaching profits to research, and as some vice-chancellors say the policy imperative for ‘full funding of research’, both suggest this latter debate is very important (though likely to receive far less attention in the short term.)

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  2. ABS higher education research data is due out tomorrow. One reason I wrote this post was that I wanted to compare the two surveys, each acting as something of a reality test on the other, but also to see to what extent teaching profits could plausibly finance research.

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