Category: Per student funding

Inflation and student places under Job-ready Graduates

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Earlier this week I made my first submission to the Universities Accord review. One issue the submission covers is whether Job-ready Graduates policies can meet demand from the so-called Costello baby boom birth cohort. This post looks at how large variations in Commonwealth contribution rates and misaligned systems of indexation could affect overall growth in student places. A subsequent post looks at the geographic distribution of places.

The relative value of Commonwealth contributions

Job-ready Graduates combines a fixed maximum basic grant amount (MBGA) for higher education courses (all CSP coursework except medical places and places for regional Indigenous bachelor degree students) with Commonwealth contributions that vary between disciplines. The maximum funding a university can receive for higher education courses is the lesser of their full-time equivalent places delivered multiplied by the relevant Commonwealth contributions or the MBGA amount in its funding agreement.

This system creates trade-offs between opportunities for students, which are maximised by focusing on the courses with the lowest Commonwealth contributions, and meeting skills needs, with skills shortage occupations typically requiring graduates from courses with higher Commonwealth contributions.

Trade-offs were already a feature of the pre-JRG funding system, but JRG exacerbated them as the chart below shows. One new place in a funding cluster 4 course (medicine, dentistry, agriculture) costs 24.6 places in funding cluster 1 course (business, law, most humanities and social sciences). Under the pre-JRG system the highest funding cluster was 10.9 times the lowest funding cluster; still high, but a less extreme trade-off than under JRG.

We don’t yet have 2021 enrolment data to see where enrolments are moving by discipline. A move towards the higher Commonwealth contribution fields will consume more of the available funding, leaving less money to finance additional student places.

I don’t believe this is an immediate major issue. System capacity may be down on 2020 JRG projections but so is domestic demand, due to a strong labour market and flat or falling numbers of school leavers with an ATAR in the big states. But increased school leaver numbers due to a larger birth cohort will push demand up again in the mid-2020s.

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Bonded scholarships for nursing students in Victoria

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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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University offers under Job-ready Graduates

Andrew Norton2 Comments

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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A farewell to arts?

Andrew Norton3 Comments

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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The Job-ready Graduates student places debate

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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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How should student contributions be set? Part 2: Letting universities set their own prices

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In the first post in this series on the conceptual and philosophical thinking behind student contributions, I argued that successive governments have primarily used them to limit system-level public expenditure.

Once the public spending constraint is achieved, this approach leaves room for other methods of setting student contributions. This post looks at giving universities a role in deciding what level of student contribution to charge.

Liberal plans for fee deregulation

The idea that universities should set their own fees on top of a government subsidy has a long Liberal lineage. Plans to lift controls on fees were in the 1991 Fightback! package, David Kemp’s 1999 leaked Cabinet submission, and in Christopher Pyne’s unsuccessful 2014 higher education reform proposal.

For fiscally-constrained governments, part of fee deregulation’s attraction is its scope to further reduce public expenditure. Universities can compensate for public spending cuts with increased student charges. But fee deregulation also has a more positive agenda.

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Notes on the Job-ready Graduates bill, as introduced

Andrew Norton7 Comments

The Job-ready-Graduates bill was introduced in the House of Representatives this morning. A couple of points on the funding floor and the social work/mental health deal with the National Party:

Funding floor

One unpleasant surprise in the draft Job-ready Graduates bill of earlier this month was that, with each funding agreement, the minister could reduce a university’s funding without parliamentary scrutiny or approval.

The bill as introduced has a clear fix of this problem – but from 2025: amending section 30-27(3)(b) of the Higher Education Support Act 2003 (HESA 2003). From then, the minister cannot reduce the university’s maximum basic Commonwealth Grant Scheme funding for higher education courses below what it was the previous year.

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How should student contributions be set? Part 1: Should student charges contribute to system costs or the student’s course costs?

Andrew Norton1 Comment

This is the first of a series of posts looking at the conceptual and philosophical issues underlying debates about student contributions since the late 1980s.

The series is prompted by Dan Tehan’s proposed changes to student charges, but not limited to them.

This first post looks at the student contribution’s relationship to overall public funding, and whether it is intended to offset total government expenditure on higher education, or the cost of the student’s own course.

Course cost student contributions have been considered, but not implemented

The Whitlam experiment with free higher education ended in the late 1980s because the Hawke government wasn’t willing to pay the full cost of expanding enrolments. But then and since people have disagreed about whether students should contribute to their own costs or more broadly to the system’s costs.

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2021 will be a competitive year for university applicants

Andrew Norton3 Comments

Whether the Tehan reforms pass the Senate or not, in 2021 universities face a recession-induced spike in demand. This post looks at the system’s capacity to respond under each policy scenario.

Commonwealth Grant Scheme

Based on last year’s portfolio budget statement, which requires some averaging of years, under status quo policies the Commonwealth Grant scheme will increase by about the rate of inflation. As Commonwealth contributions are indexed to inflation, and universities are already delivering more student places than needed to get their maximum grant, the 2021 CGS funding increment would not require any additional student places.

Under the Tehan reform scenario, starting in 2021 the government will add ‘growth places’ that are partially linked to population increases in the 15-29 age cohort. But these places will not increase Commonwealth Grant Scheme funding compared to 2020. Rather, the maximum CGS payment is first reduced and then slightly increased by the growth places. The lost funding would be recycled in a proposed industry linkage fund, but this puts new constraints on university spending rather the freeing up funds for new student places.

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How will the number of student places increase under the Tehan reforms?

Andrew NortonLeave a comment

Although I don’t support the Tehan plan to steer student demand to ‘national priority’ fields, from day one I have supported increasing the number of student places.

According to the Department’s discussion paper on the reforms, they will ‘support an additional 39,000 university places by 2023 and almost 100,000 places by 2030’. These additional places are needed to meet previously unexpected demand due to the COVID-19 recession and, from the mid-2020s, the ‘Costello baby boom’ cohort (although the former Treasurer perhaps should not get too much credit for them).

This post examines how student places for undergraduates might increase under the Tehan reforms. For general readers, the first section on major sources of additional places includes the key policy changes. Read on after that part if you need to know the detail of higher education policy.

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