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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
My previous post examined how, for many disciplines, price signals to students and universities contradict each other under the Tehan reforms. Without demand and supply incentives lined up, enrolment patterns by discipline may not match the government’s ‘national priorities’.
The overall price signal for the university, the total per student funding rate for each full-time equivalent enrolment, is made up of two components. These are a Commonwealth contribution, paid out of the Commonwealth Grant Scheme, and a student contribution, a university charge paid by students up to a legislated maximum amount. Most students use HECS-HELP loans to pay their student contributions.
This post looks at what separate effects the Commonwealth and student contributions might have on university behaviour, independently of how they combine to form a total funding rate.
The higher education reforms Dan Tehan announced last month make the idea of ‘national priority’ courses, which are often but not always linked to employment prospects, a central feature.
This is a significant conceptual shift in the funding system. Historically, deliberately steering the system by course has been a marginal aspect of policy. It has occasionally been done by allocating new places to preferred fields, especially in the mid-to-late 2000s. In the same period, some changes to relative student contributions, particularly in the case of science, were designed to boost demand. But universities, influenced by student preferences, largely decided how student places were divided between courses.
In the Tehan proposal, universities will remain the main decision makers. The government will not directly allocate money to national priority fields. Instead, the government will send price signals to students across all fields of education, with low student contributions indicating national priorities, and high student contributions discouraging non-priority fields. Altered student preferences will, if the policy goes to plan, cause universities to shift student places to priority areas.
Student contribution effects
To date, most discussion has centred on what effect the new student contributions will have. My own position on this is mid-debate.