In a previous post on the new funding agreements, I looked at the 2024 Commonwealth Grant Scheme funding for higher education courses and designated courses, along with the amended rules for course closures. In this post I look at a novel funding agreement section, which creates a new equity program financed by under-spends on the Commonwealth Grant Scheme. This program has legal and policy flaws. I also examine some paperwork problems with the agreements for non-university higher education providers and private universities.

What usually happens if universities under-enrol?

Due to weak student demand some, quite possibly many, higher education institutions will under-enrol in 2024 – that is, take Commonwealth-supported students valued at less than the maximum funding they can receive for higher education courses according to the funding agreements – this year a $7.24 billion pot of money.

By law, under-enrolment results in CGS grants being reduced – higher education providers are paid the lesser of the value of student places (on an EFTSL * relevant Commonwealth contribution formula) or their higher education courses maximum basic grant amount: section 33-5(2) of the Higher Education Support Act 2003 for Table A institutions and section 33-5(7), using the terminology of ‘total basic grant amount’ for other higher education providers receiving CGS funding.

Under section 164-10(1A) of HESA 2003 any overpayment is recovered by reducing grants paid to the under-enrolled provider or as a debt to the Commonwealth. Clause 4 of the funding agreements reiterates this requirement.

‘Continuity’ money

In the 2020-2023 funding agreement years, under the COVID-era Higher Education Continuity Guarantee, the government gave universities a section 164-10 workaround. This used the ‘other grants’ provision in division 41 of HESA 2003 to compensate universities for money lost due to under-enrolments. The 2021-23 funding agreements mention the continuity guarantee, but note its legal source in the other grants guidelines.

One purpose of the continuity guarantee, according to its legal guidelines, was to ‘ensure that higher education providers are able to keep operating and employing staff in the aftermath of the COVID-19 pandemic, and to assure the ability of these providers to continue to provide quality education services into the future.’

The continuity need is 2022 and beyond

As it turned out, the lockdown phase of COVID had no major net effects on domestic enrolments. Despite some anecdotal and survey evidence of students suspending their studies or reducing their study load for COVID-related reasons, the additional students generated by a temporary downturn in the labour market and limits on gap year travel meant that domestic enrolments increased overall.

The real COVID domestic student problem came as a result of COVID policy responses. Cutting off the supply of migrant workers for nearly two years, along with the (in hindsight) excessive macroeconomic response to a temporary economic downturn, created the strongest labour market demand in 50 years. From 2022 some people who would otherwise have been students worked instead, while others enrolled but took fewer subjects to work longer hours.

In 2022, the number of Commonwealth-supported places fell 6.8% on 2021. Compared to the more normal pre-COVID year of 2019, Commonwealth-supported places in 2022 were 2.8% lower. As far as we know this soft demand has continued to 2024, although there is no reliable national data.

With universities losing revenue from domestic students, some university job cuts were announced last year, and I expect many more this year. (The continuity guarantee only covered the CGS; universities still lost student contribution revenue, which under JRG is a larger proportion than before of total CSP revenue.)

The Accord non-continuity money

The Accord interim report recommended extension of the continuity guarantee. While this was a sensible suggestion in itself, given ongoing issues with domestic enrolments, the Accord implementation proposal was not.

The Accord recommendation, adopted by the government, puts too many policy goals into the one program. It wants to avoid ‘unnecessary disruption to staff’ (i.e. minimise retrenchments due to a temporary enrolment downturn) and direct any funding resulting from this guarantee to support greater equity outcomes. As a result staff in areas other than equity are not protected by this program. It is not a continuity guarantee at all. It is just the Department repurposing money already approved through the government’s budget processes to create a new equity program.

A policy that could increase rather than reduce financial risk

Every institution’s funding agreement requires an ‘equity plan’ if under-enrolment is expected. There are minor wording differences between funding agreements for Table A institutions and other providers, but for all the equity plan ‘may include’:

• itemised information on activities or initiatives to be funded;
• amounts spent on funded activities or initiatives including timing of the spending;
• data on the impact of activities or initiatives, especially for disadvantaged or under-represented students.

One planning difficulty is that universities won’t know the full extent of their under-enrolment until relatively late in the year, after the final census date. It’s hard to plan around uncertain funding amounts.

The staff needed to implement these programs face their hours being shifted up and down based on evolving estimates of under-enrolment. In another case of conflicting Accord objectives, the interim report complains that ‘higher education providers rely too heavily on short term contracts and a highly casualised workforce, in part because their funding security from year to year is unpredictable or at best subject to cyclic volatility’, while recommending new programs that can only operate on short-term contracts.

Students also face uncertainty about whether programs and services will or will not be available.

Equity plan commitments to increase stability for staff and students may commit a university or other provider to expenditure that will not be fully funded by the under-enrolment money, worsening their overall financial position. The repurposed under-enrolment money policy can only control risk if universities can put existing equity programs into their equity plan.

Universities should have the option not to take part in this program. While they all ‘agreed’ via their funding agreements to participate, the identical wording in each agreement suggests that it was presented as a requirement.

Dubious use of funding agreements to implement a non-CGS program

Past readers of my posts on funding agreements will recall my objections to provisions that are, at best, beyond what the Higher Education Funding Act 2003 intends (in one piece of good news, however, the purported penalties for poor ‘performance’ in the 2021-23 agreements are gone from the 2024 agreements).

Implementing this under-enrolment policy through the funding agreements is, unfortunately, another case of their dubious use.

The funding agreements give the impression that they authorise spending the under-enrolment money, when they do not and cannot. The CGS provisions of HESA 2003 only give the minister/Department the authority to spend CGS money on CSP places, medical student loading, transition funding or performance funding: section 33-1 of HESA 2003.

Instead, the government will have to amend the Other Grants guidelines, as they did for the previous continuity guarantee. It’s hard to understand why they have not done this now, as they will have to at some point to stay within the law.

It is bad practice to implement policies via ‘agreements’ with universities rather than through amendment of HESA 2003 or its guidelines. It evades proper parliamentary scrutiny – while guidelines don’t need to be approved by parliament they can be disallowed. In this case the Senate will eventually get a chance to review an amendment to the Other grants guidelines, but potentially after universities have spent or committed to additional equity plan expenditure. While I doubt disallowance would occur, if it does universities will have to return the under-enrolment money, as per section 164-10(1A) of HESA 2003.

Issues in the private university and NUHEP agreements

The funding agreements for private universities and NUHEPs appear to have other HESA 2003 issues, although in this case the problem is a process one only.

Under section 30-10(4)(a) of HESA 2003 non-Table A institutions can only be allocated CSPs in areas of ‘national priority’. This term is used in varying contexts in higher education policy, but here it has a legal meaning. Broad categories of ‘national priority’ are set out in section 30-20 – increasing the number of people taking particular courses, increasing the numbers of particular kinds of students, and increasing the number of students from particular regions.

The detail of priorities is set out in the Commonwealth Grant Scheme Guidelines, at section 10. Nursing and teaching are long-running priorities, with other temporary priorities added from time to time. A temporary priority, for courses commencing in 2023 and 2024 only, is increasing the number of persons from under-represented backgrounds undertaking courses of study in the following areas of study: education, nursing, engineering, computing, commerce, and society and culture.

In the agreements, some of the nine non-Table A providers have only their usual teaching and/or nursing allocations, some have only the temporary equity places, and some have both. The two grant categories have different faults in their funding agreement formulations.

Under section 30-10(4)(a) the funding agreement must specify that the allocation of places is only in respect of national priorities. This has been done for the temporary equity places, in a footnote to a table, but not for the recurrent teaching and nursing funding.

Section 30-10(4)(b) says that the allocation must specify the number of places for each priority and section 30-10(4)(c) requires specification of the number of places in each funding cluster.

For the recurrent places the number of places for each funding cluster is there, but because the national priority is not specified there are no associated places (although the totals will be the same).

For the equity places, the funding agreements appear to be compliant as places are mentioned for clusters and priorities, but the way the numbers of student places are expressed requires background knowledge. The stated number of places for 2024 is only the commencing places that year, not all the places. The number of places for 2023 is also given. Readers who know the Department’s policy of pipelining down the number of places by 25% each year can deduce the total number of places from other information: ((75% of 2023 places) + (100% of 2024 places)) * the relevant Commonwealth contribution = the stated maximum dollar amount for equity places. The total number of places should be clearly stated without providers or readers needing to do their own maths.

Conclusion

The non-Table A funding agreement issues are minor – the allocated places are clearly authorised by HESA 2003 but the paperwork needs tidying up.

The under-enrolment funded equity plans are a major issue, because they are an example of poor-quality policymaking, because the legal authority to spend this money is not yet in place, and because this is an inappropriate use of the funding agreement mechanism.

I oppose ‘agreement’ based policies – whether we call them agreements, accords, compacts or partnerships – because the universities are not willing to stand up to the government, which as a result can do whatever it wants with limited parliamentary authorisation or scrutiny.

Some people are optimistic that a tertiary education commission, rather than the Department, as the university bargaining partner would produce more genuine agreements. Perhaps this system would be slightly better than the current situation. But rule-based programs, where funding is based on criteria set out in HESA 2003 or legislative instruments subject to parliamentary processes, would be superior to any ‘agreement’ system.