Category: Higher education finance

Sitting out the recession at university: postgraduate courses

Andrew Norton1 Comment

In previous posts, I looked at whether demand for undergraduate education would increase during the COVID-19 recession. In this post, I examine potential demand for postgraduate education.

As with initial undergraduate qualifications, theory suggests that a recession is a good time for postgraduate study. The opportunity cost of time spent out of the workforce is lower or non-existent. Studying is a relatively productive and interesting way of sitting out a recession.

In examining what happened in previous recessions I have been helped by a project that has put all the old graduate destination surveys online (scroll down to the bottom of the page here). Recessions aside, the trends are interesting.Read More »

HELP remissions and COVID-19 university course changes

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Last week I published a blog post on the financial dangers posed by the COVID-19 crisis starting prior to the census date for each subject. It is a critical date for universities. They get no Commonwealth or student contributions for subjects dropped prior to the census date.

As Stephen Matchett reported in Campus Morning Mail yesterday, social media talk about dropping subjects is still at high levels. One of the reasons, that unemployment income support benefits would be more generous than student benefits, seems to have been fixed in Parliament yesterday. Although I think students are better off finishing their course on schedule if they can, we should expect higher drop-outs than usual prior to the census date.

I am also hearing reports of international students heading home before the census date because of family pressure. They might also leave because they can no longer support themselves due to the collapse of the student labour market. Due to an extraordinary new power to widen social security eligibility some international students might temporarily receive benefits, but I think entitlements are too unclear to change short-term behaviour.

If these drop-outs are happening at any scale then, except for the universities on trimesters that are already past their first census date, then serious higher education financial problems are very close, as universities will have to scale back their expected Commonwealth-supported student revenue and international student fee income for the year.Read More »

University finances, the census date and COVID-19

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On Facebook I have seen undergraduate petitions calling for university classes to be suspended.  One person claimed that their institution was stalling until after the census date. This is the day when students became liable to pay their student contributions and the university becomes entitled to receive Commonwealth contributions, their government tuition subsidy.

In the Grattan report on dropping out I co-wrote a couple of years ago, we argued that the census date is an interesting and unusual feature of Australia’s higher education system. Effectively, it gives students a free try-before-you-buy option for every subject they take.

By law this period is at least 20 per cent of the semester, but on our analysis the median period before the census date was a quarter of the semester. Four weeks is common, with a census date at the end of March for first semester (earlier for universities with trimester systems).

In the other English-speaking countries we looked at students usually only have one to two weeks to change their minds without financial cost.

The late Australian date for dropping subjects or courses without cost transfers some enrolment risk from students to universities, who end up teaching students who never generate any revenue. Overall I think that is a good thing, as it creates pro-student incentives that would otherwise be lacking.Read More »

What happens if a university needs bailing out?

Andrew Norton3 Comments

University finances have been in the news this year. As the travel ban on Chinese students was announced some very big financial costs were estimated – since moderated due to the third-country quarantine exception, but still estimated to be well over $1 billion, at least in temporary cash flow issues.

In worst-case COVID-19 scenarios there would be travel bans from many international student source countries, along with campus closures that could require refunds or compensating classes for affected domestic and international students.

While I doubt the worst-case scenario will become reality, the ‘rivers of gold’ era (as Simon Birmingham once described it) for university revenue is over.

Even before COVID-19 international student demand seemed to be softening, while remaining high by historical standards.

On top of this, all public universities are dealing with a decline in the real value of their bachelor-degree student funding, and some are struggling to maintain domestic student numbers due to soft demand.

Cutbacks have been reported at many universities including Wollongong, La Trobe, Sydney, Macquarie, Monash, and in the last day the University of Tasmania.

Fortunately, the universities that are most exposed to the China market are relatively wealthy. They should be able to deal with short-term liquidity issues from a mix of reduced and delayed spending, drawing on reserves and perhaps bank borrowing. But what if a university faces more serious difficulties?Read More »

Teaching public funding is skewed to STEM and health-related courses

Andrew Norton1 Comment

With the government now publishing data on students by funding cluster we can get a clearer idea of where Commonwealth Grant Scheme money goes.

My calculations are for 2018, and based on multiplying equivalent full-time student numbers in Commonwealth supported places by the relevant funding cluster rate. Due to the demand driven funding freeze and some universities over-enrolling allocated places the overall total exceeds what universities were actually paid. However, as it is usually not possible to specifically identify ‘over-enrolled’ students I am going to assume that this does not affect relativities between the clusters.

As the chart below shows the science, engineering and surveying funding cluster is by far the biggest recipient of Commonwealth funds, at $1.8 billion in 2018 (and this is missing the maths and statistics buried in another cluster). The health-related clusters between them received $1.6 billion, and this is also an under-count due to some health courses being in other clusters.

funding cluster spend 2018 (all)

As is the case with public research spending, public tuition subsidies are skewed to STEM and health clusters. They have 32 per cent of EFTSL but 48 per cent of funding. The humanities, which are the subject of much of the controversy around higher education, received the least money of any cluster, $151 million in 2018. This is 2.1 per cent of the total.

However, it should be noted that other subjects typically taught in Arts faculties are in other funding clusters. For example, fields such as politics and sociology are in the second largest funding cluster by dollars (which also includes psychology, social work, and similar fields) and in the fourth largest funding cluster by dollars, which includes foreign languages and media and communications, which despite a recent downward trend has grown significantly over the last decade.

(Last paragraph added after original publication after Twitter commentary.)

How much did the demand driven funding freeze save the government in 2018 (and cost the unis)?

Andrew Norton2 Comments

When the funding freeze on university bachelor-degree places was announced in December 2017 there were some big claims made about both how much it would cost the universities and save the government.

But at least in its first year, 2018, its effects were probably smaller than many people (myself included) expected.

I have to first put some caveats around my data, because I am trying to reconstruct what went on from multiple sources. As is often the case, there are discrepancies between the sources on what should be the same number,  such as equivalent full-time student load (EFTSL) or money paid. The main reason for this is that they are revised during the year in question and afterwards. Read More »

Universities with good performance may still miss out on performance funding

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Last week the government released more detail about how its university performance funding scheme is to work (in the same week that the re-badged Department of Education, Skills and Employment’s administrative arrangements, showing some very dry bureaucratic humour, listed as one its responsibilities ‘reducing the burden of government regulation’).

Last week’s document confirms that the legal basis of performance funding will change from 2021. As I pointed out last year, at the moment there is performance funding but no performance fund. For 2020, all the government offers is to pay universities a bit more of their demand driven funding entitlements.

If a university’s demand driven entitlements (bachelor-degree EFTSL * the relevant funding cluster rates) don’t reach the performance funding maximum grant (2017 demand driven funding + special deals done since + population-growth based performance-contingent increment) it will not get the performance funding, or will get only part of it. Read More »

The hardline voluntary student union option, and other things from the latest release of Cabinet papers

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As in 2019, this year’s 1 January release of old Cabinet papers reveals new details about the Coalition’s internal debates about higher education. However, this time I am less of a disinterested observer, as the 1998 and 1999 papers made public today include the time when I was higher education adviser to the then education minister, Dr David Kemp.

There are several topics discussed – the government’s response to the West review of higher education, voluntary student unionism, and the 1999-2000 Budget. For me the common thread, apart from the portfolio area, is Dr Kemp’s efforts to maintain, despite competing fiscal and political pressures,  the policy and political conditions needed for an intellectually coherent higher education policy. He was headed to a major higher education reform Cabinet submission later in 1999 (not in this official release, but it was leaked twenty years ago).

When the Howard government came to office in 1996 its first priority was bringing the Budget back into balance. In higher education, this led to cuts to per student subsidies in higher education with offsetting increases in HECS charges, cuts to student places, and a reduced income threshold for repaying HECS debt.

As I have observed before, often the Coalition ends up with not so much a higher education policy as a fiscal policy with implications for higher education. But in 1996 they knew that quickly-made budget-driven decisions were not the basis of long-term policy, and commissioned a broader examination of higher education policy, which turned into the West review. (One of my tasks as a ministerial adviser was liaising with its chair, Roderick West, a retired school headmaster with no public policy experience. The technocrats were running rings around him, but you have to admire someone who can incorporate quotations from ancient Greeks and Romans into an Australian government policy report, as he did in his chairman’s foreword.)Read More »

Has the university funding freeze caused commencing enrolments to fall?

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The 2018 higher education enrolment data, published yesterday (yes, it should be released much earlier than late October), showed a rare fall in public university domestic commencing bachelor degree students. Both a headcount and full-time equivalent count show a decline of about 0.8 per cent compared to 2017.

2018 was also the first year post the demand driven system, the practical implication of which was that universities would not be paid Commonwealth contributions for enrolling additional students. Indeed, there is a financial incentive to let the number of student places fall.

So is this cause and effect, with changed funding rules causing enrolments to decline? I have no special insight into the strategic decisions of universities, but overall this trend looks to be driven by weak demand more than an unwillingness to supply student places.

As the chart below shows, applications trended down in 2018 and 2019 and offers (willingness to supply) followed this trend. Offer rates were stable: 83.2 per cent in 2017, 83.8 per cent in 2018, and 83.6 per cent in 2019. If universities were actively trying to reduce numbers we might expect offer rates to go down, but this isn’t happening.

applications down 2019

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Will the number of Commonwealth supported student places fall?

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A couple of opinion pieces about university performance funding last week suggested that the government’s policy is aimed at increasing student places with population growth. That may be the impression the government is trying to give, but their policy provides a financial incentive to decrease the number of student places.

The government’s promise is to increase nominal funding for bachelor-degree places in line with increases in the population aged 18-64, for those universities that meet performance targets. But because percentage population increases are likely to be below inflation,  total Commonwealth Grant Scheme funding will decrease in real terms each year, even if universities get 100 per cent of their performance funding.

Although maximum CGS payments will probably increase at less than the rate of inflation the underlying Commonwealth contributions are still being indexed to the CPI. As noted last week, the demand driven funding calculation is still going on as well, so that universities receive the lesser of their demand driven or maximum grant amount. The practical effect of this is that universities can decrease the number of Commonwealth supported places each year and still get their maximum CGS funding amount.

The chart below illustrates the logic, using nursing as an example. Under the Wellings review recommendations, universities are pretty-much guaranteed 60 per cent of their maximum performance funding. So on the left-hand side of the chart below I have indexed the maximum funding amount to that and divided it by the indexed Commonwealth contribution. Next year a university could offer 4 per cent fewer nursing places than in 2017 and still get its maximum funding amount. 100 per cent performance funding does not make much difference. Read More »