The public-private balance: A failed rationale for setting student contributions

A previous post on the reasons given by government for setting student contributions, like this post based on a new paper of mine, listed five rationales used for implemented policies: course costs, private benefits, public benefits, increasing resources per student place, and incentivising course choices.

A sixth rationale has repeatedly been considered but never become policy, the idea that the distribution of benefits between public and private should drive the distribution of costs between public and private, as represented by the government and students. This post explains where this idea came from and why it has always been rejected.

Origins in the justification for HECS

As my earlier post noted, the public-private benefits idea first appeared in the Wran report that led to HECS. Its logic was not explained, but I think it was a corollary of the private benefits argument – that if students should pay for their higher education because they received private benefits then it seemed to follow that the government, on behalf of the public, should pay for the benefits they received. This is a normative argument about who should pay rather than an empirical claim that public subsidies produce public benefits.

The Wran report did not recommend this approach because calculating private and public benefits was too hard.

The balance metaphor

As part of the 1996 Budget the Howard government, with Amanda Vanstone as minister, introduced private benefits as a rationale for specific course contributions. Conceptually, however, this was quite different to the private-public benefits idea. The Vanstone version was the private benefits of a course relative to the private benefits of other courses, rather than the Wran private benefits of a course as a proportion of all benefits private and public or, at a system level, overall higher education private benefits as a proportion of all benefits.

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The five student contribution rationales since 1989

In a new paper published by the U of M’s Centre for the Study of Higher Education I chronicle the history of student contribution rationales – the reasons the government gave for HECS rates and then student contributions.

I argue that five rationales have been used: private benefits, course costs, increasing resources per student place, incentivising course choices and public benefits.

A key turning point is the 1996 Budget, when the government abandoned a flat HECS charge across all disciplines and introduced differential HECS. This required a more complex set of justifications than previously. The government’s arguments had to explain not just why students should pay compared to the previous free higher education system, but also why they should pay more for some courses than others.

The Wran report

The HECS system was recommended in a 1988 review chaired by former NSW Premier Neville Wran. It introduced four concepts that were subsequently influential in thinking about how to charge for higher education: private benefits, public benefits, a balance between private and public benefits, and course costs.

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Bonded scholarships for nursing students in Victoria

The Victorian government has announced an incentive program for nursing and midwifery students. For 2023 and 2024, students enrolling in nursing and midwifery ‘will receive $9,000 while they study and the remaining $7,500 if they work in Victorian public health services for two years.’

In a quote provided to the media, Premier Daniel Andrews says “If you’re in Year 12 and you’ve been thinking about studying nursing or midwifery – go for it. We’ve got your HECS fees covered.”

Are student contributions covered?

Student contributions (‘HECS fees’) for a 3 year nursing course are about $12,000 on current student contributions, so the initial $9,000 assistance while studying will not cover them in full.

Student contribution reform may start in 2024. Increasing the current $4,000 student contribution band that includes nursing is a plausible outcome, to reduce the debt burden of arts students. If so, that will increase the gap between the scholarship and student contributions.

On any scenario, nursing students who complete their degree will need to pay student contributions upfront or incur a HELP debt.

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The legal and bureaucratic problems of the government’s 20,000 additional student places policy

Last week the government’s announced the details of how it will meet its election promise of 20,000 additional student places. Many of these details create legal and bureaucratic problems for the government and universities.

General lack of statutory authority

The program guidelines, unsurprisingly given Labor’s election promise, refer explicitly to the allocation of the 20,000 places. While unexceptional in historical policy terms this is not how things work for public universities (‘Table A providers’) under the Job-ready Graduates version of the Higher Education Support Act 2003.

Section 30-10 of HESA 2003, as cut-and-pasted below, does not give the minister the power to allocate student places to Table A institutions except in the case of designation. Only medicine is currently designated. For higher education courses, covering every course except medicine, the unit of allocation is dollars rather than student places.

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How can the government steer teaching enrolments to ‘quality’ courses? And what could go wrong?

The communique from last Friday’s education ministers meeting stated, in part, that:

The Teacher Education Expert Panelwill focus on strengthening the link between performance and funding of ITE [Initial Teacher Education]. This will include but not be limited to advising on how Commonwealth supported places for teaching should be allocated based on quality and other relevant factors. [Emphasis added.]

This post examines how the government might go about doing this and the problems it would face.

Discipline-level funding under Job-ready Graduates

An initial problem is that the government does not allocate Commonwealth supported places to teaching.

Under section 30-10 of the Higher Education Support Act 2003 the government has no power to allocate student places except for ‘designated courses’, of which more below.

Education is not designated. It is funded under a block grant for ‘higher education courses’. Dollars rather than places are the unit of allocation and the entity that receives the allocation is a higher education institution, not a course or discipline. Recipient universities are free to distribute these dollars between courses according to their own priorities.

With its COVID-19 short courses the previous government bypassed the restriction on allocating student places by allocating dollars to specific courses instead. Using the funding agreements to quarantine dollars for education would, however, be a bad move. It is inconsistent with the apparent legislative intent, which is for university flexibility except in the case of designation. We need to restore full operation of the rule of law in higher education policy. Without amending HESA 2003 that means designation.

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Inflation and higher education

The return of inflation has led to questions about what this means for students, graduates and higher education institutions. This post lists some of the implications.

Indexation of HELP debt

HELP debt is indexed each 1 June. It is based on a two year period of CPI data ending in the March quarter of 2022 (I am not sure why it is two years). Because inflation March 2020 to March 2021 was lower than inflation March 2021 to March 2022 indexation for 2022 was 3.9 per cent, rather than the 5.1 per cent it would have been on a one year CPI cycle. The downside of this reprieve is that after inflation comes down again indexation will still exceed the recent average.

I said at last week’s Universities Australia conference that increased indexation will affect the politics of HELP debt. The big increase in the number of HELP debtors and total HELP debt over the last 15 years occurred at a time of mostly low inflation. Annual indexation rarely attracted much comment. This year there was much more media and social media coverage.

CPI is well above bank interest rates, giving people who can afford to repay early an incentive to do so. Indeed, low bank interest rates may help explain why voluntary HELP repayments have grown in recent years.

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A few notes on the future of higher education policy

Labor went to the 2022 election with few specific policies on higher education, but with general plans for a different style of policymaking. The teal MPs have a few things to say about higher education. If Labor gets a clear House of Representatives majority, however, the opinions of the yet-to-be-determined Senate crossbench will be more important than those of lower-house teals in the passage of higher education legislation.

Additional student places

Labor’s main specific election promise was ‘up to’ 20,000 more student places. As I wrote when the policy was announced, the ‘up to’ is an important caveat, because under Job-ready Graduates the government allocates dollars rather than places. The same number of dollars can convert into lots of places in arts or business courses with low Commonwealth contributions, or relatively few places in courses with high Commonwealth contributions.

Labor’s costings document also indicates that this money for extra places appears to be temporary, starting to decline before the full impact of demand from the ‘Costello baby boom’ cohort is felt. It may also be too little to offset the inflation impact on Commonwealth-supported places. Commonwealth contributions are indexed to CPI, so as contribution values go up universities need to deliver fewer student places to get each $1 million of Commonwealth Grant Scheme funding.

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University offers under Job-ready Graduates

In an earlier post I looked at how university applicants responded to COVID-19 and the new Job-ready Graduates student contributions. In this post I look at how universities responded, based on the offers statistics released yesterday. All the numbers are for domestic undergraduate applicants only.

The incentives faced by universities

In the lead up to 2021 university offers university leaders made various statements about trying to meet expected extra domestic demand, as COVID cut job and travel alternatives to study. But universities also faced, and face, a difficult finanacial situation. They are simultaneously being hit by the Job-ready Graduates policy, which reduces their per student funding in many fields, and by the loss of international student revenue, with the borders now closed to new international students since March 2020. These events compromise university capacity to fund domestic undergraduate student places that do not cover their own costs

Capacity aside, Job-ready Graduates creates complex incentives. By funding at average teaching costs it creates an economies of scale model. That’s one reason why we see the closure of low enrolment subjects and courses. If there is no longer any profit on some courses that may also disincline universities from expanding. On the other hand, if universities want to maintain a course then driving up enrolments may the key to it, by spreading fixed or semi-fixed costs over larger numbers of students. And in the $14,500 student contribution fields – arts (with a few exceptions), business and law – there may be a de facto demand driven system.

Universities also need to consider a complex short-to-medium term negative effect caused by JRG only partially grandfathering pre-2021 students. The link has explanatory detail, but the practical consequence is that more of a university’s total Commonwealth teaching grant has to be spent on continuing students, leaving less money for new students.

Yet another complexity for universities is that COVID-19 made estimating student numbers more difficult. For admissions, the key risk was that offer acceptance rates would be higher than usual, and the university would end up with loss making ‘over-enrolments’ (enrolments that earn a student but not a Commonwealth contribution). This created an incentive to be cautious about offer levels.

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How much the government paid for Centre Alliance’s Senate vote, and other updates from the funding agreements

This post updates one I wrote in April, including new information from revised university funding agreements posted on DESE’s website.

South Australian university Senate special deals

The updated funding agreements let us see how much the government paid to get Centre Alliance Senator Stirling Griff to vote for Job-ready Graduates, which is $68.6 million for South Australian universities over the 2021-2023 funding agreement period. Unlike much of the other additional money in the funding agreements, these increases are ongoing rather than temporary.

I am not sure what criteria were used in dividing the money between the South Australian universities. In 2021 Adelaide gets 1.9 per cent more than it presumably would have otherwise, Flinders 2.7 per cent, and the University of South Australia 3.1 per cent.

More short course places allocated

In my earlier post the allocated short courses fell short of the announced budget value of $252 million. Now they slightly exceed it at $258.7 million, divided between 256 undergraduate certificates valued at $102.9 million and 491 graduate certificates worth $155.8 million. My updated spreadsheet of short courses is here.

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Would universities have received JobKeeper under more favourable rules?

In 2020 the Australian government JobKeeper policy provided eligible employers and employees with a wage subsidy, which was designed to sustain employment during a COVID-related shock to the Australian economy.

Public universities were eligible for JobKeeper, but its regulations were changed several times to reduce the chance that they would qualify. I assessed the merits of the government’s university JobKeeper decisions in a previous post. No university received JobKeeper directly, although some benefited from it via their subsidiaries.

With most university annual reports now published I can partially investigate the effects of the government’s university JobKeeper decisions. As at 6 July 2021 I have 2020 financial results for 32 public universities. I am missing the South Australian universities, the University of Canberra, the University of Tasmania, and Charles Sturt University.

Time period of revenue loss

For all organisations JobKeeper eligibility involved comparing revenue in 2020 with the same period in 2019. Most organisations could choose a month or quarter, but for universities it was changed to the six month period from 1 January 2020. In my previous post, I rated this as the least defensible government university JobKeeper decision.

Early on, before the six month period was introduced, some universities thought that they could qualify (eg Sydney and La Trobe in April).

The original one month comparison option, starting with a calendar month that ends after 30 March 2020, seemed to create opportunities for some universities. Government payments arrive in fortnightly instalments, while fees are paid around due dates. In particular months international student fees received for the next semester may be a large percentage of all university income. A big drop in fee revenue in one of those months might have triggered the revenue decline threshold that made an employer eligible for JobKeeper assistance (the relevant level is discussed below).

At least at Sydney, most first semester 2020 student fee due dates were prior to 30 March (I could not find La Trobe’s dates). And Sydney is one of the ‘China universities’ affected by a border closure to China from 1 February 2020. The ‘India universities’ are unlikely to have had a March trigger month, as Indian students mostly arrived before the international borders closed completely to routine travel on 20 March 2020.

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