Tuesday’s Budget announced two lots of funding for new student places, for short courses and for ‘national priority’ courses. But in the complex Job-ready Graduates funding system it is hard to work out what will really happen. As with other policies that are intended to create new places, it is not clear that there is a financial incentive to increase enrolments.

The difficulties of introducing new money into a transitioning system

Between them, the two new allocations total about $550 million over the next four years, with the short course money lasting for two years.

The question is how this relates to the Job-ready Graduates transition fund. This fund is designed to leave universities with the same Commonwealth student-related funding for the next three years as if JRG had never happened.

The draft Commonwealth Grant Scheme Guidelines released at the end of last month set out how the transition fund will work. The Guidelines have several unclear and seemingly contradictory elements, which I discuss in a footnote.* But this is the basic formula for transition funding:

(Old CGS funding + related old student contributions) – (New system CGS funding + related new student contributions + NPILF + net effect of HEPPP changes**) = Transition funding

On my reading of the draft CGS Guidelines, the $550 million for new student places would be added to ‘new system CGS funding’. The student contributions paid by additional students would be added to ‘related new student contributions’. The seemingly inevitably result would be that a larger JRG payment would be deducted from the old pre-JRG funding, leading to lower transition funding.

Universities would be financially worse off, since they could receive the transition funding for delivering currently planned places, without taking on the costs of additional students.

I don’t think this is the policy intent. The Budget papers include the ‘new’ money and the original transition funding, when transition funding should have largely disappeared if it was to be replaced by the new money for additional places.

But the Budget papers are not legal documents. The CGS Guidelines will determine how much transition funding is paid. They need rewriting to give effect to the new places policy.

Short courses versus other new places

Assuming the CGS Guidelines remain as they are, however, there is a different logic between the short courses and courses for other qualifications.

The other qualifications additional places are ‘$298.5 million over four years from 2020-21 for an additional 12,000 Commonwealth supported places in 2021 in national priority areas to further meet demand for higher education.’

Universities may have a strategic reason for accepting the national priority places, as this is likely to be locked into their future maximum basic grant amount.

However, the short courses money is ‘$251.8 million over two years from 2020-21 for an additional 50,000 subsidised higher education short course places across a range of discipline areas.’

The short courses will take place within the transitional period and so there does not seem, on the current wording of the draft CGS Guidelines, to be much of a financial incentive to pursue them.

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*The unclear transition funding rules

I have tried to extract the core issue for new places in the post above. But I am not completely clear on how either old or new funding will be calculated. The definition of ‘old funding’ is this:

Old funding, which represents (a) the actual amount of funding the provider would have been entitled to receive under the Commonwealth Grant Scheme (excluding loadings) for the relevant year; and (b) related student contribution amounts.

Another provision in the draft CGS Guidelines sets indexation of ‘Commonwealth Grant Scheme funding amounts’ and student contributions for 2022 and 2023 at 2.3 per cent, which is higher than the likely CPI indexation required under HESA 2003.

I am not clear what ‘Commonwealth Grant Scheme funding amounts’ refers to. It is not a term defined in HESA 2003 or the Guidelines. It could refer either to the maximum basic grant amount or the Commonwealth contribution amounts. The latter is most likely from a legal perspective, as the Guidelines subsequently refer to ‘the indexation factor applied to those amounts under Part 5-6 of the Act’. Commonwealth contributions are in Part 5-6, but maximum basic grant amounts are not.

The effect of indexing the old Commonwealth contribution amounts at more than CPI would be to reduce how many places it takes to get to the maximum basic grant amount. Due to over-enrolments this will not matter much at most universities, but what happens to the maximum basic grant amount is significant.

Under the ‘old’ funding arrangements still applying in 2020 no indexation of the basic grant amount is built into any current legal document. It was by policy linked to population growth and university performance for bachelor degree places. However, population growth will now be negligible, and university performance will take a hit due to COVID-19. Perhaps the government could substitute the pre-COVID population estimates. For sub-bachelor and postgraduate coursework places it was indexed when funding was allocated through student places (because the Commonwealth contributions were indexed under HESA 2003.). But under the 2020 funding agreements, it is a flat, unindexed, amount.

Zero or near-zero indexing of maximum basic grant amounts for ‘old’ funding would reduce the amount of transition funding paid by creating a lower base.

For student contributions there is another ambiguity. The Guidelines refer to the ‘related student contribution amounts’. I am reading ‘related’ as referring back to the old student contributions, but another possible reading is that it refers back to the ‘fully funded’ places within the old maximum basic grant amount. This would exclude over-enrolments, and so reduce the base ‘old’ funding from which transition funding is calculated.

However, indexing student contributions at more than actual CPI for the purpose of calculating old funding would have the opposite effect. It would increase the base funding from which the transition loading is calculated.

While still needing clarity on indexation of contributions and maximum grants for ‘old funding’ I think the calculation would be:

(Designated EFTSL multiplied by the relevant old funding cluster amount capped at the old designated maximum grant amount) + (Non-designated EFTSL multiplied by the relevant old funding cluster amount capped at the old non-designated maximum grant amount) + (All EFTSL multiplied by the relevant old student contribution amounts).

New funding is defined in the Guidelines as:

(a) the actual amount of funding the provider is entitled to receive under the Commonwealth Grant Scheme (excluding loadings) in the relevant year under the Job-ready Graduates Package; (b) related student contribution amounts; and (c) the actual amount of funding the provider is entitled to receive under the National Priorities and Industry Linkage Fund for the relevant year. 

The ‘new funding’ also has the odd 2.3 per cent indexation for 2022 and 2023, but this is also contradicted by a mention of the ‘actual amount of funding the provider is entitled to receive under the Commonwealth Grant Scheme’. The actual amount has to be based on CPI as determined by the ABS, as set out in Part 5-6 of HESA 2003.

However, despite the legal reading of the Guidelines as ‘Commonwealth Grant Scheme funding amounts’ referring to the Commonwealth contributions, it would make more policy sense if it referred to maximum basic grant amounts. In that case, the Department can, Humpty Dumpty style, deem CPI to be whatever it says it is.

I can’t fully work out what will happen, but for 2021, which avoids the CPI issues, this is my best guess at how new funding will be calculated.

(‘Higher education courses’ EFTSL multiplied by the relevant new or grandfathered funding cluster amount capped at the maximum basic grant amount for higher education courses) + (‘Designated courses’ EFTSL multiplied by the relevant new or grandfathered funding cluster amount capped at the maximum basic grant amount for designated courses) + (Demand driven, ie regional Indigenous, EFTSL multiplied by the relevant new or grandfathered funding cluster amount) + (Student contribution EFTSL multiplied by the relevant new or grandfathered bands) + NPILF.

In 2022 and 2023 actual CPI indexation, mandated by HESA 2003 under Job-ready Graduates, is likely to be less than 2.3 per cent. This means that the student contribution revenue calculated for the purposes of transition funding will be more than universities actually receive. As a result, universities would not be fully compensated for lost revenue in those years,

**The net effect of HEPPP changes could be negative or positive; generally speaking regional universities will gain and metropolitan universities will lose funding.