Based on the Universities Accord interim report I was concerned that its proposed tertiary education commission would be highly interventionist, controlling university enrolments to meet the government’s equity, attainment and skills targets. I called it Job-ready Graduates 2.0.

The Australian Tertiary Education Commission proposed in the Universities Accord final report is – I think, a lot of detail remains to be seen – considerably better than the version of my policy nightmares last year.

The overall funding system would have more central steering than now, but on my reading ATEC probably will not routinely micromanage – that university A must offer B places in C course and fill them with students meeting criteria D, E or F. That was the approach of recent ad hoc student place allocations, such as the 20,000 new places for skills shortages and equity groups. The Accord final report admits that these places won’t be used. Even without recent soft demand, every condition added to a student place reduced the chance that a student could be found to fill it.

System analysis

ATEC would provide much more detailed analysis of Australian higher education than the Department does now. No more just releasing a spreadsheet snapshot of enrolments two years previously! Instead, the Accord recommendation is for an annual state of the tertiary education system report and a rolling triennial planning report.

A key issue for this objective is whether the TCSI data system can, as was originally intended, provide up-to-date data on enrolment patterns – how many students are there, what are they studying, what are the projections on graduates in courses leading to occupations of interest. If TCSI can’t do this ATEC will have trouble steering the system and might lock in allocations of places that don’t reflect demand trends.

The report encourages greater use, including in the school system, of the unique student identifier (USI). This would give ATEC and the higher education sector a better understanding of the future school leaver pipeline.

Accord targets are still a problem

School data, especially when its time series is long enough to trace the educational histories of people in their 20s and 30s, will provide a reality check on the Accord final report’s weakest recommendations, the enrolment and attainment targets, both overall and for equity groups in particular.

Although the report talks about “putting students at the centre” that is not a principle it always applies. The overall 2050 attainment target of 55% of the population aged 25 to 34 years with a degree or higher is based on a consultant’s report on future labour market needs. Aside from the inherent difficulties in predicting the labour market, including over much shorter time horizons than a quarter of a century, this is an employer’s perspective. While of course most people want jobs, their own interests and abilities may not align with what employers think are their highest priority skill needs.

The equity targets, similarly, reflect a top-down view of what society should look like rather than careful consideration of whether enrolling in a degree is the best option for the people whose life trajectories would need to change to achieve the target. As I have said many times before, a HELP debt without a degree is not equity! That said, the final report has sensible recommendations on increasing the chance that equity students can achieve higher education goals: easier access to preparatory programs, needs based funding for teaching, and improved student income support.

If the USI was used widely in schools it could give us a clearer picture of which students have prior academic achievement that makes university worth considering, and a check on whether they are already taking another good post-school pathway, such as VET (which like higher education already has USIs recorded). As it stands, universities could be given fantasy equity targets that require them to recruit people who do not exist or who see no reason to abandon their current career.

Course eligibility for funding

Figure 38 in the final report gives ATEC the role of deciding which courses are eligible for funding. This is one area to be careful of single point of failure problems, where ATEC organisational issues could mean decisions are not made in time.

The report’s substantive discussion of course eligibility covers postgraduate CSPs. General postgraduate CSP eligibility would apply to courses in national priority skills areas and required for professional pathways. ATEC permission would have to be sought to offer postgraduate CSPs in other areas (exceptions for the U of M and UWA are foreshadowed).

In the Howard era the national priority place approach was used for CSP postgraduate coursework, but towards the end of that period and in later years ad hoc exceptions multiplied. This led to inconsistent arrangements, where a university could offer CSPs in a postgraduate course but its competitors offering essentially the same course could not.

Since 2021 universities have had full freedom to move non-medical CSPs between undergraduate and postgraduate, so the proposed change could involve a messy unwinding of current practice.

Past tertiary education commissions approved funding for new undergraduate courses. I interpret the postgraduate discussion as implying that this differs from undergraduate CSP flexibility. For postgraduates no CSPs does not mean no places – full-fee places supported by FEE-HELP would be available. But public universities cannot, in most circumstances, offer full-fee courses to domestic undergraduates.

The final report also includes encouraging statements like (emphasis added) “ensuring students are funded to undertake the qualification of their choice” and “providers should have freedom to make choices regarding their enrolments and finances within a framework set out by the funding principles and monitored by the Commission”, although the first part of that sentence is more reassuring than the second part.

Growth targets

It is clear, however, that universities will not have the choice to remain at their current size or decrease their enrolments. In the previous demand driven system the attention was on removing the previous funding caps, but it also gave universities the choice to not grow or shrink. This is the biggest loss of strategic autonomy that would come from implementing the Accord model.

Consistent with the Accord’s participation and attainment targets universities will be given ‘”stretch targets” for enrolments.

Unlike non-medical student funding in the current system, targets will be expressed in full-time equivalent students (EFTSL) rather than a monetary amount. This makes it easier for ATEC to work out how many headcount students might result from the allocated funding, which is necessary for its participation and attainment projections.

Because Job-ready Graduates created extreme differences in Commonwealth contributions the same amount of money could lead to radically different numbers of EFTSL. In 2023 $1,000,000 of Commonwealth Grant Scheme money would support 872 business students but only 59 engineering students.

An EFTSL-based system would avoid universities facing such trade-offs, which make it hard to move enrolments towards high Commonwealth contribution fields due to the cost in overall enrolments. In turn, that will make it easier than now to shift EFTSL to courses in demand. This would be a clear improvement on the status quo.

For the government’s bean counters, however, EFTSL funding makes the total cost more difficult to predict. Changes to Commonwealth contributions flowing from reform to student contributions should, however, narrow the Commonwealth contribution dollar range.

For ATEC setting feasible growth targets will be a complex task. When universities want to expand they know about their physical infrastructure and its capacity, their staffing profile, and how easy or difficult it would be to change these. This kind of detail is not currently collected on a national basis. Universities will call for infrastructure funding where they claim that current facilities are inadequate, claims that ATEC will have to assess for their credibility.

Target range

The target number of places will also have a “tolerance band”, with upper and lower ranges. Generally the current funding formula of CGS payment = relevant Commonwealth contribution * EFTSL will apply, within the EFTSL range. But within the tolerance band universities will get a funding floor amount even if actual EFTSL fall below the target. The report gives a figure of 5% below the target still being funded even if the relevant EFTSL are not delivered.

This would institutionalise the higher education continuity guarantee, giving universities some capacity to ride out the ups and downs of demand without slashing staff numbers. With the move to EFTSL funding, rather than dollar funding, working out how much to pay due to under-enrolment is not as clear as under the original HECG. Some average Commonwealth contribution of the students who did enrol might be the way to calculate the number.

The new system would also have a maximum EFTSL with a harder cap than now. The current soft cap is no Commonwealth contribution funding above a university’s maximum basic grant amount, but unlimited student contributions. Under the Accord harder cap, universities with enrolments above the cap would receive neither Commonwealth nor student contributions for those students.

Students above the cap – load management is hard to do precisely – would still have to pay student contributions. Universities would then be taxed the student contribution amount of the over-enrolments.

The hard cap has a protectionist element, trying to limit the consequences for less-popular universities of their competitors growing rapidly. But I was not convinced by the report’s criticisms of current over-enrolments, for which universities receive the student contribution only, on quality grounds.

The overall funding rates will be based on some version of overall average teaching costs. But the marginal teaching cost – the cost of adding one more student – will often be much lower than the average funding rate. If the extra student uses infrastructure that already exists the marginal cost of adding one more student could be very low – some additional level A casuals to run extra tutorials, a small increase in other support staff full-time equivalents. Courses with clinical training would have higher marginal costs, but the problem’s significance will depend on the level of the student contribution.

What the new policy means is that when universities accidentally over-enrol – have more offer acceptances than they forecast, have lower attrition rates than anticipated, or more students studying full-time than expected – the university will get no money to support the needs of these students. Given the counter-cyclical nature of higher education demand a recession could cause unplanned spikes in student load. In these cases the harder cap will exacerbate rather than remove the problem the report thinks it is solving.

The incentives zero marginal funding creates also need to be considered. To avoid students with no funding, universities might be overly conservative in their offers to new students, which is the easiest way to manage student load. That runs contrary to the Accord report’s enrolment growth agenda.

From a student perspective, having paid a student contribution upfront or incurred HECS-HELP debt, they should be able to expect that their money will go to funding their education rather than being confiscated by the government.

Effective demand driven funding for equity?

While the report has a strong focus on providing student places for students from equity backgrounds it confusingly describes this as “effectively ‘demand driven for equity’ but within a planned allocation of places to universities”.

“Demand driven” funding in its 2012 to 2017 form was characterised by no caps on bachelor degree places or controls on courses offered, other than medicine. Universities had no obligation to accept any student, but they could freely meet student demand.

Provided ATEC does not regulate at the course level, the proposed system would be more flexible in responding to demand than the current system, because of the upper end of the tolerance band and easier moves between funding clusters, but less flexible than the system was between 2012 and 2017.

But there is another, more literal, version of demand driven funding – that students have an entitlement to a place if they meet some threshold requirement. Before the 1960s that was the system in Australia for students who had “matriculated”, i.e. successfully finished Year 12. But quotas were introduced after too many students met this requirement. Some other countries use an entitlement model, although numbers are moderated by stronger streaming in schools (e.g. Germany) or failing first year students (e.g. France).

The big practical issue in entitlement models is setting the threshold. The final report says ATEC needs to ensure that “genuine” demand is met. ATEC will have to do some work on this topic to estimate the potential pipeline of students. But ultimately the pool of prospective students can only be roughly stated at the national level. Few potential students are generically suited to higher education. They are suited or not to specific courses and specific institutions, with their different capacities to meet varying student needs.

On this point the final report seems to accept that a decentralised approach where universities still decide which applicants to accept is the only practical option. The report says “universities remain accountable for ensuring students are suitable for the courses to which they have been admitted”.

I don’t think the Accord report proposes either type of demand driven funding. Students won’t have entitlements and universities won’t be able to expand to meet all demand. Extra system-level capacity, however, would increase a prospective student’s chance of receiving an offer. Preferential admissions for equity students, as universities try to reach their targets, would help them when the university still has too few places to meet demand.

First Nations “self-determination“

I am unclear on how the final report’s support for “moving towards a self-determined approach to funding and policy settings” for First Nations people and “removing barriers around access, participation and outcomes” fits into the Accord system of allocating student places.

Will the current Indigenous demand driven system for bachelor degrees be abolished, and Indigenous students accommodated within the overall target range of EFTSL? That seems like a small reduction in “self-determination” and a minor new barrier to access. In practice it probably won’t make much difference but it is conceptually untidy.

And if policy settings applying to First Nations people are to be self-determined, why has the Accord panel (with one First Nations member) already decided that they should make up 3.3% of undergraduates in 2035?

20,000 places money

Another confusing (to me) part of the final report is a suggestion that unused money from the 20,000 places policy should be deferred to meet medium term demand. However, in response to the interim report, unused CGS money – with a larger total due to the 20,000 places – was already to be spent on equity activities (which is mentioned in the final report). As my blog post on the funding agreements notes the necessary measures to make this use of CGS money legal have not yet been put in place, but some universities might already have started on their “equity plans”. Holding the money over would be more sensible than the equity plan idea, but quick clarification is needed on this point.

[Update: At the Universities Australia conference someone told me that there will be two under-enrolment funds. Students in the 20,000 places (called “equity places” in the funding agreements, example below) are separately tagged in the enrolment data so the holdover would be, in the example below $10,794,027 minus tagged EFTSL * relevant Commonwealth contribution amount. For the equity plans I think the amount might be base MBGA minus enrolled EFTSL * relevant Commonwealth contribution amount. I am assuming that submarine, national priority and innovative places, as well as the equity places, are excluded from the calculation.

However this explanation does not match the current wording of the funding agreements which refers simply to MBGA, which according to the funding agreement definitions matches the meaning in the Higher Education Support Act 2003. There is no such thing as base MBGA in HESA 2003, it is just what the funding agreement calls “total MBGA”. All in can say with confidence is that this is a policy shambles.]

Conclusion

The final Accord report’s recommendations on how student places will be allocated are less concerning than some readings of the interim report. But a lot will depend on the detail of ATEC legislation. The discretions given to the government in current legislation authorising university funding agreements highlight the dangers of how broad powers can be used in practice. ATEC’s powers will need to be clearly limited by its legislation to prevent over-reach.