In my series of posts on why universities became financially reliant on international students I have, to date, focused on domestic factors. Research funding policy changes are the most important. Universities needed new discretionary revenue to finance government-supported research projects, and to pay the salaries of staff with teaching and research roles.
But universities did not need a nearly 500 per cent real increase in international student fee revenue since 2000 to fill these budgetary gaps.
Suppose annual Commonwealth research spending was 50 per higher across the last few decades, all of it paid through block grants rather than generating additional costs via competitive grants. Up until the year 2000, as the chart below shows, a 50 per cent increase in public funding would have covered all research spending. But in 2018 Commonwealth funding 50 per cent higher than it was would still have left over 40 per cent of research spending unfunded (although there is about $1.9 billion in non-Commonwealth research income).
Profits on international students have been used to help finance a massive increase in university research expenditure this century.* Growth on this scale was something universities chose to do, not a change forced on them by government policy.
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In my previous post in this series, I argued that international student fees help pay for under-funded government-sponsored research grants. But these research projects are not the only partially-funded research universities are trying to finance. They also have many teaching staff on contracts that include research time, but who do not attract equivalent research income.
For academics, the expected and preferred academic career is generally to have a teaching and research or research only role. For most academics, however, teaching is not their top priority. A survey about a decade ago found that, among teaching-research academics, nearly two-thirds leaned towards or were primarily interested in research.
This bias is reinforced by the academic recruitment process, which favours people with PhDs. In 1987 less than a quarter of academics in the Colleges of Advanced Education, which by then taught the majority of higher education students, had PhDs, and 69 per cent of university academics. In 2018, across the now unified system, nearly 74 per cent of academics have a PhD.
Not surprisingly, most people who do PhDs are interested in research. In a 2010 survey, only six per cent of research students planning an academic career nominated a ‘mainly teaching’ role as their ideal job.
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In a previous post, I doubted that inadequate public funding for Commonwealth supported students could, with a few exceptions, explain why universities have enrolled so many fee-paying international students. For publicly-funded research, however, structural changes in how funding is delivered have changed its economics.
Government policy has moved away from block grant funding – lump sums of money that universities can spend as they choose – towards project funding awarded on a competitive basis, mainly through the Australian Research Council and the National Health and Medical Research Council.
In the 1990s, as the chart below shows, competitive grants made up less than a quarter of Commonwealth research spending on universities (counting Department of Education plus NHMRC). By the middle of the 2010s nearly half of Commonwealth funding was delivered through competitive grants, though with an easing off recently as ARC funding was cut.
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In a previous blog post, I argued that stagnating or declining government revenues encourage universities to seek additional international student fee income. By 2018, international student fees provided 26 per cent of all university revenue, up from 10 per cent in 2000.
However, I doubted that aggregate public funding levels fully explained university dependence on international students, whose numbers grow when public spending is increasing as well as decreasing.
But in thinking about how government policy affects university decision making it is not just revenue that matters. The cost of the services universities deliver for their public money is also crucial to understanding university behaviour.
A recent article in The Conversation suggested that government student-linked revenue did not cover the full cost of growth in student numbers. Another Conversation piece this morning also suggested that universities have become reliant on international student fee revenue to cover the cost of teaching, as well as research and other activities.
However, a chart in my first post shows that since the mid-2000s average per student funding for Commonwealth supported students grew by more than inflation and then stabilised in real terms, although with a small recent decline.
But one point made in response to my original post was that wages usually grow by more than general inflation. This means that my CPI indexation of revenue does not fully adjust for the changing purchasing capacity of grants, given the bundle of goods and services universities actually buy. In 2018, 56 per cent of university expenditure was on wages.
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A decline in international student numbers has triggered Australian higher education’s biggest-ever financial crisis. But why did universities became so financially reliant on international students?
In university constituencies, a common belief is that the government cuts going back to the 1990s are a factor.
Assessing trends in government funding is not straightforward. No official time series data exists. Different historical data sources do not always match.* There are notes about these issues in the text below, the footnote and the slides. I am confident of the overall pattern, although some year-to-year comparisons are not precise.
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