Regional universities are especially disadvantaged by funding based on average costs

Dan Tehan is the most regionally-focused education minister I can remember, and quite probably ever. Multiple new or expanded programs for regional campuses and students are part of his higher education plan.

But a sector-wide central feature of his policy, the closer alignment of discipline-level funding rates with average costs, poses particular problems for regional universities.

As the Deloitte Access Economics analysis of teaching and scholarship costs found, regional universities have higher average costs than city universities. It says that:

Overall, the cost per EFTSL for regional universities was found to be 9.6% higher than metropolitan universities after controlling for differences in the enrolment mix in terms of FOE and differences in the mix of enrolments across different levels of study between the two groups. However, results varied by level of study. Costs per EFTSL at regional universities were found to be 13.6% higher for bachelor degree students but 0.1% lower for postgraduate students when compared to metropolitan universities.

Possible reasons for higher average costs include weak economies of scale in regional centres with small populations and the support needs of the relatively disadvantaged students who attend regional universities.

Due to these higher average costs, under the current funding system regional universities have more fields of education with average (true average) costs above the funding rate than metropolitan universities, as the chart below shows.

Regional universities (and some metropolitan universities with regional campuses) are entitled to a regional loading in the current Commonwealth Grant Scheme. I added an estimate of the average regional loading to the 2018 funding rates, and that improved the results somewhat, mainly by putting a couple of fields in my ‘breakeven’ category (costs within $400 of the funding level, up or down).

Two loss-making fields, dental studies and architecture, are minor in regional universities and probably manageable. Foreign languages, another field with a funding deficit, are a modest proportion of EFTSL nationally and I assume that is also true of regional universities. But the larger loss-making fields of management and commerce, society and culture and creative arts would create more significant difficulties.

Because regional universities typically have above-average costs, it follows that a policy bringing funding rates closer to sector-average costs will disproportionately disadvantage regional institutions.

In the new funding system, a majority of fields would be loss-making at average regional costs, with 2018 costs indexed 6 per cent (see here for a discussion of that assumption). Engineering, maths, environmental studies, psychology and communication and media studies join the loss column. Metropolitan universities are much less affected, with no additional fields moving to the loss column but the total making profits falling by four, and going into the breakeven category.

Losses for regional universities would be, at least in part, offset by other programs in the package. Regional universities will benefit from the revamped HEPPP (to be merged into the IRLSAF program) with regional enrolments given a significant weighting. Money from the NPILF program can probably pay for industry engagement already offered in some courses.

And possibly demand-side initiatives in the Tehan package, and more powerfully additional applicants trying to shelter from the COVID-19 recession, might improve economies of scale.

But overall, even if IRLSAF and NPILF put band-aids on the CGS and student contribution wounds, it’s hard to avoid the conclusion that the minister’s reforms will add another layer of difficulty to the already tough job of managing a regional university.

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