Can performance penalties reduce university maximum basic grant amounts?

The current university funding agreements change the nature of performance funding. Previously performance funding was configured as a reward scheme, providing additional funds in exchange for meeting performance-related criteria. Now it is a penalty scheme, deducting money from teaching grants if universities don’t meet performance criteria. The performance benchmarks are assumed to align with the pre-Job-ready Graduates performance funding policy, but this has not been publicly confirmed.

This post explores whether a performance deduction from teaching grants is legally permissible under the Higher Education Support Act 2003. It is clearly not the kind of performance incentive envisaged by HESA 2003, and there are grounds for thinking that a court might find that it is partially or entirely invalid.

The maximum basic grant amount and the performance penalty

The most important grant provision in HESA 2003 is the maximum basic grant amount (MBGA) for higher education courses. This establishes the maximum amount the government will pay from the Commonwealth Grant Scheme (CGS) for Commonwealth supported student places in coursework courses, other than demand driven enrolments for regional and remote bachelor-degree Indigenous students and medical courses. The total value of this grant for 2021 is about $6.8 billion.

Under HESA 2003 each university is to be paid the lesser of the higher education courses MBGA, as set out in their funding agreement, or the total Commonwealth contribution value (relevant discipline funding rates * full-time equivalent students) of student places delivered. Any enrolments above the cap are funded at the student contribution rate only.

The funding agreements include total MBGA amounts for the next three years. The example below is from Macquarie University’s funding agreement, but all agreements have the same or similar formats.

Another clause in the funding agreements, however, purports to take away an element of the MBGA in the event of poor performance. The example below is again Macquarie but all other other agreements have the same format.
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The Budget and higher education

The Commonwealth Budget has triggered confusion about higher education funding. How much does the government spend? Has there been a cut or not?

The Budget documents understate government higher education expenditure

The only summary statement of higher education expenditure in the Budget documents is in Budget Paper No. 1, which reports spending on the higher education ‘sub-function’ (sub- of education generally).

But what is in the higher education sub-function? I’ve collated as much information as I can from the Budget papers and I think it means grants administered under the Higher Education Support Act 2003. I can’t exactly replicate it but my numbers are very close – slightly less in every year. I lack expenditure on the Indigenous Student Success Program, which HESA 2003 funds but PM&C rather than DESE administers.

The ‘higher education sub-function’ significantly understates Commonwealth assistance for higher education. As the top line in grey in the chart below shows, using numbers from Budget Statement No. 4 on agency resourcing, it doesn’t even cover money flowing under HESA 2003 itself. The difference is money lent through the HELP loan scheme. Although the Budget papers don’t specifically quantify HELP lending this is likely to become the single largest source of funding for higher education, as international student revenues collapse and the Commonwealth Grant Scheme stagnates.

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New allocations of money and student places in the university funding agreements

Last month I wrote an overview and critique of the new university funding agreements. This post looks at new allocations of funding for student places, while a subsequent post will look at total funding allocations. Not all my numbers match previously announced total funding for the relevant program, so that is a caveat on both posts.

Under Job-ready Graduates universities are free of sub-bachelor and postgraduate student places being allocated by funding cluster, but the funding agreements show that universities have significant additional work to do in applying for and reporting on a range of small programs.

Numbers of universities getting different allocations

Job-ready Graduates introduced several new or substantially revised pots of money. Not all universities receive each of these. As the chart below shows, programs driven by criteria or formulas set out in legislative instruments (NPILF and transition funding) or the legislation itself (demand driven funding for Indigenous students from regional and remote areas) benefit the largest number of universities. Apart from the general grants for higher education courses (sub-bachelor through to masters coursework, except medicine), the ministerial/departmental discretion programs benefit fewer universities.

Short courses funding

According to the funding agreements, 27 of the 37 public universities have received once-off 2021 funding for undergraduate certificate and/or graduate certificate short courses. When a university’s funding agreement reported $0 for short courses I cross-checked against CourseSeeker with its ‘short course’ filter on and found three more universities. I am not sure whether this is because those universities adopted the ‘short course’ brand without a specific funding allocation, or because their funding agreements are yet to be updated, or because CourseSeeker is wrong. My adding up of the value of funding agreement short courses gets me to $213 million, out of the $252 million allocated for 2020-21 in the October 2020 Budget.
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Has Job-ready Graduates increased the number of commencing students?

This morning the government released the first enrolment data of the Job-ready Graduates. The published data covers only 25 of the 40 full universities (including private universities). No information is available on which universities are in the 25, but based on previously published first-half-of-the-year enrolments I estimate that they enrol just over two-thirds of domestic students.

The government had previously published tertiary admission centre applications data, which based on previous years would represent just under two-thirds of all applications.

As each source has significant missing data any conclusions must be tentative. The chart below lines the two sources up by field of education. Each of demand and supply is up about 7 per cent, but there are significant differences between the two at the broad field of education level.

Apparent trends to date

Demand for IT, science and engineering is up, but supply is up by much more. It is possible that the idiosyncrasies of what is in each of the demand and supply datasets explains some of this discrepancy, but also that the national priority places and short courses allocations, which have a policy bias to these fields, are driving up supply more quickly than demand.

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University-Commonwealth funding agreements and the rule of law in higher education

The 2021-23 funding agreements between universities and the government, the first of the Job-ready Graduates era, were put on the DESE website earlier this year. In this post I compare them to the pre-JRG agreements.

My main concern is that the funding agreements are being used for matters that should be based on clear legal rules, not DESE discretion based on a one-sided ‘agreement’.

My concern reflects both the general political principle that policy decisions should be subject to parliamentary scrutiny and the practical problems caused by lack of certainty. Important funding conditions or criteria are not included in any legal document and DESE is given wide scope to interpret vague terms.

A broader scope

The most immediately obvious change is that the new funding agreements include more content than previously. They contain an overall summary of Higher Education Support Act 2003 institutional funding, including the Commonwealth Grant Scheme (CGS) funding that is the legal purpose of the funding agreements; rules around course closures, professional training, and the provision of information on costs and admissions; research, engagement and equity funding; and some background information and principles. The research, engagement and equity material is new and derives its legal standing from separate legislative instruments.

Putting key information in one place is helpful, and I would encourage the government to collate the summary funding tables combining teaching, research, equity and engagement funding for each university into a publication. But funding agreements with parts of varying legal status are not desirable. A mixed document makes it less clear for universities what they must do according to law and what is just the government/Department taking advantage of the sector’s culture of compliance. With such a large share of their income depending on their funding agreement, universities are reluctant to push back against the government’s demands.

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Recurrent critiques, concerns and crises in Australian higher education

In a previous post on Gwil Croucher and James Waghorne’s Australian Universities: A History of Common Cause, I noted a range of significant changes in Australian higher education over the last century. This post looks at recurrent themes.

Debate about the purpose(s) of the university

From the start Australia’s universities served multiple purposes, with on-going tensions between knowledge for its own sake, typically most strongly supported by academics, and meeting practical needs, typically most strongly supported by governments.

At the 1920 meeting that Croucher and Waghorne mark as the start of a national organisation of universities, University of Sydney Chancellor Sir William Cullen warned against ‘adopting too enthusiastically the current preoccupation with ideas of “national efficiency”‘.

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A farewell to arts?

I am on a panel discussion this evening called ‘A Farewell to Arts? On the Morrison Government’s University Legislation’. I will do my preparation in public via this blog post, working through the event questions.

Why does the Morrison Government want to dissuade students from enrolling in an Arts degree? [A reference to more than doubled student contributions.]

As the policy name ‘Job-ready Graduates’ suggests, the main stated reason for changes to student contributions is to promote graduate employment outcomes. Or as the JRG discussion paper puts it ‘incentives in the current funding system could encourage sub-optimal choices for students and institutions, leading to poorer labour market outcomes and returns on investment in higher education.’ The assumption is that if arts becomes more expensive students will instead choose a course with lower student contributions and better employment prospects.

Employment outcomes can be measured in many ways, but every method shows that graduates in fields typically taught in Arts faculties are at an elevated risk of disappointing outcomes.

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How will performance funding work under Job-ready Graduates? (I don’t know, but here are some possibilities)

How performance funding will work under Job-ready Graduates remains unclear, to me at least. Some recently published FAQs on Job-ready Graduates, which are a cut-and-paste from a previous statement, indicate that performance funding will continue:

From 2021, the PBF scheme will be adjusted to make approximately $80 million amount of growth funding per year contingent on performance requirements. Performance funding will grow each year to a total equivalent to 7.5 per cent of funding for domestic, non‑medical bachelor places to incentivise university performance. This measure is in line with the PBF model implemented in 2020. [emphasis added]

Is performance funding a condition of other announced CGS increases?

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The complexities of new student places (again)

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:

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The Job-ready Graduates student places debate

Update 30/9: The minister has announced $326 million over an unspecified period, but starting in 2021, for additional student places. This would have a a significant effect on the calculations below. I will update again when I have more detail.

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One of the many disputed points in the Job-ready Graduates Senate inquiry was over the number of student places it would create. The Department of Education’s answers to questions on notice provided new detail, including annual estimates, shown in the chart below.

Over the longer-run, there are multiple mechanisms in JRG that could require or encourage universities to deliver more student places than now. However, the Department does not explain how it arrived at most of its numbers. They do explain the assumptions behind their 2021 forecast. For the reasons given below, I doubt that these justify a claim of additional places compared to status quo policies remaining in place.

Funding envelope

Of the 15,000 additional funded places, 7,000 are said to come from ‘increased flexibility for universities within the funding envelope’. This refers to ending three separate Commonwealth Grant Scheme grants for sub-bachelor, bachelor and postgraduate coursework places. Instead, universities would have a single ‘funding envelope’, within which they could freely move resources between qualification levels.

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