How will the number of student places increase under the Tehan reforms?

Although I don’t support the Tehan plan to steer student demand to ‘national priority’ fields, from day one I have supported increasing the number of student places.

According to the Department’s discussion paper on the reforms, they will ‘support an additional 39,000 university places by 2023 and almost 100,000 places by 2030’. These additional places are needed to meet previously unexpected demand due to the COVID-19 recession and, from the mid-2020s, the ‘Costello baby boom’ cohort (although the former Treasurer perhaps should not get too much credit for them).

This post examines how student places for undergraduates might increase under the Tehan reforms. For general readers, the first section on major sources of additional places includes the key policy changes. Read on after that part if you need to know the detail of higher education policy.

Major potential sources of increased undergraduate student places

Lower average Commonwealth contributions

Under the new Commonwealth contributions, and assuming that the distribution of student places remains the same in 2021 as 2018, the average Commonwealth contribution for fully-funded students would decline 15.5 per cent from $11,954 to $10,106.

On average, $1,000,000 in Commonwealth Grant Scheme funds would deliver 84 places at the average fully-funded Commonwealth contribution under the current system. But in the new system universities would need to deliver 99 places at the average funding rate to earn the same $1,000,000.

For reasons explained below and in a forthcoming post, reduced average Commonwealth contributions will not lead to the 18 per cent increase in places implied by the difference between 84 and 99 places. But making universities do much more for their CGS funding is a central feature of Tehan’s policy.

Expanding national priority fields would leave less money left for increased places

Widening the gaps between Commonwealth contribution amounts, as described in a previous post, makes the average more sensitive than now to enrolment shares between disciplines.

If a university spent $1,000,000 on funding cluster one – the $1,100 Commonwealth contribution for law, business, humanities, communications and social sciences – it would generate 909 places.

But a million dollars spent on funding cluster three – the $16,500 Commonwealth contribution for nursing, languages, engineering and science – would create only 61 places, just 7 per cent of the total for funding cluster one.

Not all national priority fields have increased Commonwealth contributions; science and engineering especially are cut. Universities will have to deliver 61 science and engineering places to get a million CGS dollars, while now they need only need provide 52 places.

Under the current rates an extra $1,000,000 would increase IT places by 91, but under the new rates it would only create 74 places. A million dollars currently buys 87 education places, but it too would fund only 74 places under the new Commonwealth contributions.

The paradox of the Tehan policy is that its enrolment aims will succeed to the extent that its national priority goals fail. Any large movement of enrolments to national priority fields will consume disproportionate amounts of CGS funds, leaving less money to increase total enrolments.

Added scope for over-enrolments in a de facto demand driven system

As I noted in a previous post, the new $14,500 student contributions create the potential for a de facto demand driven system. In management and commerce, law, and non-languages humanities a $14,500 student contribution is more than the current total funding rate.

In other $14,500 fields – communications and social sciences – the student contribution is less than the total funding rate, but still much more attractive than the $6,804 student contribution if the current system stays in place.

De facto demand driven funding could be a big part of the new system. It would contribute to HELP leaping from third largest to the largest source of university revenue, overtaking the CGS and the declining international student market. HELP’s finances would become more central to higher education policy, but that topic is for another time.

Policies with the potential for future significant increases in undergraduate places

The size of the funding envelope

In the short term, cuts to the Commonwealth Grant Scheme will make it a drag on student place creation. Money will be transferred to the new National Priorities and Industry Linkage Fund (NPILF) and Indigenous, Regional and Low SES Attainment Fund (IRLSAF). While these funds may benefit students, they will decrease capacity to provide more places.

To this new lower base the government will add growth funding, partially linked to population growth in the 15-29 age cohort. Universities in low-growth metropolitan areas will get 1 per cent additional funding a year, universities in high-growth metropolitan areas will get 2.5 per cent, and regional campuses will get 3.5 per cent a year.

However, the July 2020 Budget update shows that after an increase in higher education spending in the next two financial years, which will be used to partly offset university student contribution losses during a transition period to the new system, total expenditure will be cut on the previous forward estimates in 2022-23 and 2023-24. This is just as the system needs to start expanding for the ‘Costello baby boom’ cohort.

Responding to a major demographic shift with budget cuts is not, in my view, politically tenable. The reference in the Department’s discussion paper to 100,000 additional places by 2030 suggests that they envisage the CGS growing again outside the forward estimates period. But in the next few years CGS funding policy is a negative for student place creation.

Specific allocations of new funding

The Tehan reforms include ‘national priority’ funding for specific purposes.

The initial beneficiaries are the Charles Sturt University medical school (5 commencing places) and the University of Notre Dame. The FAQs state that Notre Dame will be paid $5.7 million in 2019 for approximately 485 places. I am unsure whether the 2019 date is a mistake or the policy is retrospective.

The stated reason for Notre Dame’s allocation is that it missed out on demand driven growth (for historical reasons it was not included). It’s not clear that this compensating funding will generate any additional student places. In 2018 Notre Dame had 200 CSP over-enrolments and 2,242 full-fee undergraduates. It could count those towards its new cap.

On top of these places (I think; maybe Charles Sturt is counted) there will be 300 commencing places allocated in 2021, rising to 900 in 2024.

I can imagine that this number will grow as ministers decide to use allocations of places as ‘announceables’, but for now the total is small.

Another aspect of this policy is that ‘university colleges’ will be eligible to apply. At the moment that means Avondale, which already has CSPs. However, in future ‘university college’ will stop meaning ‘apprentice university’ and transition to meaning ‘high performing non-university higher education provider’. Some NUHEPs have had CSPs for a long time, but this seems to create a more formal process for partially bringing some of them, rebadged as university colleges, into the public funding system.

Minor policy reasons why undergraduate places could increase

A small official demand driven system

There will be an official demand driven system for Indigenous students from regional and remote communities. For an unexplained reason this will only apply to bachelor-degree places. This is odd because the educational disadvantages often experienced by Indigenous students mean that pathway diploma courses could improve their chances of completion. In 2018, 2 per cent of undergraduate full-time equivalent Commonwealth supported places were sub-bachelor, but 6 per cent of Indigenous undergraduate enrolments were in sub-bachelor courses.

It is doubly odd because, as explained in more detail below, the Tehan reforms generally remove regulatory barriers between bachelor and sub-bachelor courses. The main original reason for restricting sub-bachelor places was to protect TAFE from competition, so possibly that is a factor again.

The estimated student numbers are also hard to understand. The 2018 equity data reported 6,727 Indigenous students from regional and remote areas. But the FAQs for the Indigenous demand driven funding policy say that it will benefit 160 students in 2021 and ‘over 1,700’ by 2024. Even with sub-bachelor enrolments not included and existing students grandfathered out of the program, that seems low. Possibly the policy only applies to ‘outer regional’ students, although the regional equity student count includes both outer and ‘inner’ regional areas.

Despite these confusing estimates that seemingly predict a fall rather than increase in students, I will count this an increase, albeit a small one if restricted to outer regional and remote areas.

More effective use of the funding envelope

The current legislation divides Commonwealth Grant Scheme funding into ‘designated’ (allocated places) and non-designated (what was supposed to be demand driven) grants. The designated grants have been further sub-divided into medical, sub-bachelor, and postgraduate. Total CGS funding for designated places has always been capped. Since 1 January 2018, non-designated (bachelor degree except medicine) course funding has also been capped.

A problem with overly-detailed allocation of student funding is that some of it can end up not being used, while student demand goes unmet in other areas. A 2018 government discussion paper reported that every year between 2014 and 2017 some postgraduate Commonwealth-supported places went unused. Funding determinations show that this remains an issue. In 2019, nine universities lost designated funding for enrolling too few students.

In the proposed system, there will be a Commonwealth Grant Scheme ‘funding envelope’ that will be flexible between sub-bachelor, bachelor and postgraduate coursework places, other than in medicine in all cases. With a single funding envelope, universities can shift money allocated to postgraduate coursework places to undergraduates, so increasing their numbers.

Due to recent weak demand for postgraduate coursework places, especially in the education courses that receive significant postgraduate funding, this policy could benefit undergraduate places in the short term.

But funding could also flow from undergraduate to postgraduate places. From the late 2000s the University of Melbourne and UWA, and other universities on a lesser scale, moved initial professional entry courses from undergraduate to postgraduate, effectively requiring students to take two courses to reach their occupational destination. This policy green lights further such moves.

With first-course arts or commerce degrees costing $43,500 under the new student contributions, universities like Melbourne or UWA will need to offer Commonwealth supported postgraduate places to keep students under their HELP borrowing cap.

In the demand driven era course reclassifications did not affect participation rates, because there was no zero-sum trade off between undergraduate and postgraduate places. But in a capped system, postgraduates double dipping on Commonwealth supported places deny others a first qualification. By the time the Costello baby boomers arrive this funding envelope flexibility could be a negative for undergraduate opportunities.

Universities leasing places

A weakness of block grant systems is their lack of mechanisms for moving student places between universities. If one university cannot use its funding allocation that money goes unused, even if other universities have more demand than their block grant can meet. Under demand driven systems, the money follows the students wherever they go.

The expected spikes in demand in 2021, and then again in the mid-2020s, might mean that all universities can use their full CGS entitlement. But any policy that involves the government second-guessing demand runs the risk of resource under-utilisation.

The government’s decision to provide more CGS growth funding (or, to be more precise, to require reduced cuts) for regional campuses falls into this category. The goal is to increase higher education participation in regional areas, but current lower-than-metro participation rates are primarily due to weak demand for student places, not their insufficient supply. Some regional universities already offer places to more than 95 per cent of applicants.

The Tehan package also includes a new payment to help regional school leavers escape to city universities. That will help regional students, but possibly at the expense of regional universities.

But the Tehan package has two responses to this problem. First, it will lower growth for universities that are not using all their CGS funding. Second, it will continue with a policy allowing universities to trade funding entitlements. Effectively, they could sell or lease their Commonwealth Grant Scheme entitlement for cash or in-kind access to facilities. I am aware of one such trade having happened.

A transferable CGS funding property right seems a little odd, but probably better than available resources not being used.

The government’s estimates

I cannot verify or disprove the governments estimates of an ‘additional 39,000 university places by 2023 and almost 100,000 places by 2030’.

An overarching conceptual change in the proposed Commonwealth Grant Scheme block grant is a move in the unit of distribution from student places to dollars.

From 2005 to 2011 universities were allocated specific numbers of places in each funding cluster (groups of disciplines with the same Commonwealth contribution). Officially this is still the system for sub-bachelor and postgraduate Commonwealth supported places. The total block grant amount was derived from these allocations – the number of places multiplied by the relevant Commonwealth contribution.

Because places were the unit of funding distribution in previous block grants, we knew roughly how many places the allocated money would deliver. Due to over-enrolments, it was almost always some number moderately above the funded number.

In the proposed block grant system, the unit of distribution is dollars rather than places. These dollars, as I argued above, can translate into widely varying numbers of places.

In the demand driven system for bachelor degrees universities were funded for student places according to their funding cluster, but with no fixed cap on dollars or places. In the early years, the government consistently under-estimated growth. Another surge in places under the de facto demand driven $14,500 student contributions is possible, although likely to be moderated by some price shock from potential applicants (whether or not the supply of student places is demand driven, it is always demand constrained).

Because student places will not be the unit of distribution in the Commonwealth Grant Scheme, and because the Commonwealth Grant Scheme will not be a major source of funding for several big disciplines, the government’s new places estimates are based on unstated assumptions about university behaviour.

As outlined above, there are multiple grounds for believing that growth will occur. But how universities will respond to a very complex, often contradictory, set of reforms can, at this point, only be speculation.

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