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

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

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?

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

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?

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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Commonwealth and student contribution reforms create a harder cap on ‘priority’ than ‘non-priority’ courses

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.

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Funding incentives for students and universities in the Tehan reforms: some are aligned, others contradict each other

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.

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Regional universities are especially disadvantaged by funding based on average costs

Dan Tehan is the most regionally-focused education minister I can remember, and quite probably ever. Multiple new or expanded programs for regional campuses and students are part of his higher education plan.

But a sector-wide central feature of his policy, the closer alignment of discipline-level funding rates with average costs, poses particular problems for regional universities.

As the Deloitte Access Economics analysis of teaching and scholarship costs found, regional universities have higher average costs than city universities. It says that:

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Can a block grant system work on lower per student funding rates?

In recent posts I examined how various average teaching costs compared to the proposed new student funding rates. Average costs provide a rough guide to the decisions facing universities. Fortunately, the cost data has average costs for each field in each university in the sample. This detail offers a more nuanced understanding of how the new funding rates will affect universities.

The published cost data is from 32 universities and covers 20 fields of education. Not every university offers courses in all fields. In total, 551 fields are examined for profits and losses.

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