Category: Higher education finance

Should unis voluntarily cap student numbers?

Andrew Norton7 Comments

From my perspective, the demand-driven funding system is Labor’s main higher education achievement (it’s described at pages 56-58 of this report). Over time, I expect it will drive a more efficient allocation of student places and through creating competition improve teaching and student services. Already we can see that a student’s chances of getting an offer in their first-preference field of study has improved in most disciplines:

offer rates
Source: DIISRTE. The figure shows offers in each field of study as a % of all first-preference applications for that field of study.

But uncapping the number of Commonwealth-supported students is costing a lot of money, a factor in recent higher education cuts. An article in yesterday’s AFR reveals that the universities want a de facto re-introduction of caps – not through changing the higher education funding legislation but through universities agreeing to constrain student numbers.

This would be a backwards step. The fear of losing students to competitors is a key driver of responsiveness to students, and a cartel-like restriction on places would be nearly as bad as the old regulated control.

Should higher education courses be tax deductible?

Andrew Norton3 Comments

The universities are calling for tuition fees to be exempt from the $2,000 maximum tax deduction for self-education.

The low tax deduction plus the more easily-defensible closing off of the voluntary HELP repayment bonus could have major effects on some students.

For a presentation I was doing at Swinburne today I prepared an example using a Swinburne Graduate Certificate of Engineering, a course marketed as professional development and therefore likely to have sufficient link to the student’s current employment to be deductible.

I assumed that the student was currently earning $75,000 a year, giving them a tax rate of 32.5% plus the 1.5% Medicare levy. I assumed they would take out a FEE-HELP loan and then repay it to claim the 5% bonus for voluntary repayments. As figure 1 shows, the two measures substantially reduce the effective cost of the course to the student.

Figure 1: Effective cost of course under current arrangements
swin 1

As figure 2 shows, with just a $2,000 tax deduction and abolition of the repayment bonus the effective cost of the course to the student increases by more than 50%, from $6,600 to $10,100.

Figure 2: Effective cost of course under proposed arrangements
swin 2

There are interesting conceptual issues here. The tax system is already biased against human capital investment, as students cannot claim a tax deduction for their investment in their future salaried earning power, though they could if they bought a range of physical assets to produce trading profits.

For undergraduates, arguably the public subsidy and the HELP loan scheme removes any bias against human capital investment. Most undergraduates cannot get easy access to other forms of capital. But in the largely full-fee postgraduate market many students would have alternative investments for the available cash.

There are complications in the argument. It is not always easy to distinguish ‘consumption’ and ‘investment’ higher education. It doesn’t seem quite right that with tax deductions the effective cost of course is much higher for someone on a 15% marginal tax rate than someone on a 45% tax rate. In a book I wrote a decade ago, I thought that maybe flat-rate subsidies were less distortionary than tax deductions.

I’m still not entirely sure how to deal with this issue. But we should watch enrolments in postgraduate courses very carefully.

Uni VCs should take some blame for consequences of latest cuts

Andrew Norton5 Comments

Well so much for the Universities Australia campaign for increased public funding of higher education, with another half-page ad in today’s Weekend Australian. The government has announced a new wave of higher education spending cuts.

As usual with these weekend announcements there is not much detail available, and not all the numbers make sense to me on current information. For universities, the main impact will come from ‘efficiency dividends’ of 2% in 2014 and 1.25% in 2015. This will be the first cut to nominal per undergraduate student funding since the Dawkins reforms 20 years ago. [Mookster makes the point below that after indexation there will not be a year-on-year reduction, though I am anticipating that there will be a reduction to Commonwealth contribution amounts in the Act.]

Reducing public funding to higher education is not in itself problematic. But arbitrary changes to the prices universities receive for reasons which have nothing to do with higher education (funding Gonski is the claimed reason in this case) are not easily justifiable. In a more market-based system, we could see whether students would rather put up with cuts or pay more to maintain current services.

This outcomes highlights the political failure of the Universities Australia process that led to their current policy document. By maintaining an exclusive focus on public funding rather than building a political case for more fee deregulation they were always taking a big risk. The idea that a $5 million university advertising campaign could alter the political calculation that there are more votes in schools and health was always pretty fanciful. And so it has again proved to be, even sooner than I thought.

The reality here is that there are vice-chancellors who would rather undermine the services they can provide than concede an ideological point about student charges. They should take some of the blame for the problems these cuts will cause.

Is the University of New England’s MOOC legal?

Andrew Norton2 Comments

Update 21 February: UNE VC Jim Barber advises me that UNE Open students will not be enrolling at UNE, and that DIISRTE is ok with UNE Open. I still think that current regulation is poorly designed for innovation in higher education, but it looks like this venture is OK to proceed.

——————————————————————————

Original 20 February post:

Today the University of New England announced an innovative new way of delivering higher education. Inspired by the MOOCs, it plans to unbundle its higher education services.

…through a new platform called UNE Open, UNE will [] begin offering a range of postgraduate and undergraduate units through open courseware…..UNE Open will offer a range of fee-for-service products alongside the open courseware, including tutorial support, examinations and, ultimately, students may choose to have their learning recognized for credit into a UNE degree

Vice-Chancellor Jim Barber’s op-ed on his plans is here. I think this is an excellent initiative. But in offering its services this way, UNE is moving into uncertain legal territory.

Problem #1 is that under section 19-85 of the Higher Education Support Act 2003 universities are supposed to charge every student who enrols in a unit of study. They can offer ‘scholarships’ to bring the price back down, but that significantly complicates this ‘freemium’ model.

UNE can argue that the open courseware is not a unit of study, defined as a ‘subject or unit that a person may undertake with a higher education provider as part of a course of study’. Just studying the curriculum materials online could not lead to recognition as a unit in a course of study, but if students have the possibility of examination and academic credit then arguably it is a unit of study.

Perhaps UNE could create a legal workaround in which students don’t actually formally enrol, they just take the unit without enrolling. However, even this is skating on thin legal ice. At a course of study level, enrolled is defined to include ‘undertaking’ the course of study. Again, we hit the problem of the closer the ‘undertaking’ gets to academic credit the more it looks like an enrolment and something to which section 19-85 applies.

Problem #2 is that under section 36-55 of HESA 2003 there is a floor price of the highest student contribution amount for a Commonwealth-supported student unless the student could not have enrolled as an award (ie degree) student. I’m not sure how this provision is intended to be applied. People already enrolled in degrees at UNE for which the unit in question is relevant are covered I think, but it seems to cover a broader group: anyone who might have been admitted. So if your ATAR was very low you can get a discount, but if your ATAR was high you can’t? Sorting out who falls within section 36-55 and who does not would be complex, and undermine a simple open enrolment model.

Problem #3 is that HESA does not support the unbundling of charges into separate components. Section 19-100 reads

A higher education provider must not charge a person a fee for a course of study that exceeds the sum of the person’s tuition fees for all of the units of study undertaken with the provider by the person as part of the course.

I think this makes it difficult to offer cheap, stripped down versions of units and then charge more later for examinations or academic credit.

A literal reading of section 19-90 suggests that UNE could have multiple different fees charged at enrolment depending on level of service. But that wasn’t the intention of the legislation – as I recall it, the purpose of this provision was to allow different cohorts of students to be charged different fees for the same bundle of services (for example, students who enrolled in a course at different times could be charged different amounts). And it undermines a key flexibility of the stated UNE model: that students can decide as they go what level of service they want.

I hope my reading of HESA is wrong, or that UNE can drive its open courses through the loopholes. But Australia’s system of higher education funding and regulation was designed to support an homogenised higher education service. It is poorly equipped to deal with innovative higher education business models. That the system is an obstacle to premium higher education services has long been well understood. But with UNE’s proposal, we are starting to see how it is also an obstacle to discount higher education.

—
More detail here.

Uni scholarship donations not so praiseworthy

Andrew Norton6 Comments

I saw the PM on the news tonight praising Graham Tuckwell’s $50 million donation to the ANU to fund undergraduate scholarships. No doubt there are worse ways for a rich man to spend $50 million, but there are also much better ways.

Like many scholarship schemes, the Tuckwell scholarship will go to people who already have plenty of potential that is unlikely to go to waste. They will go to university anyway, find mentors anyway (one of the claimed benefits of the scheme), and make something of their lives. They are not the people who need help.

Instead, these scholarships are used for essentially wasteful positional competition between universities. The ANU will use the Tuckwell’s scholarships and the associated publicity to try to take top students away from Sydney, Melbourne and other universities that buy talented students .

If I had $50 million to spend on higher education I would put it into MOOCs. I don’t know if they will really turn out to be the next big thing in higher education. But Coursera, for example, on a capital base of US$22 million has already attracted 2.5 million enrolments. It includes many people from developing countries with little prospect otherwise of higher education. It can make so much more difference than adding to the advantages of people who have so many already.

Government rejects higher ed funding review’s main recommendations

Andrew Norton5 Comments

To nobody’s surprise, the federal government has rejected the 2011 base funding review panel’s main recommendations (media release here).

The biggest policy change suggested by the BFR panel was that every student should pay 40% of the Commonwealth-supported funding rate, with taxpayers paying the other 60%. With students currently paying between 28% and 83% of their course’s funding rates (details at p. 52 of Mapping Australian higher education), that would have meant some students paying less (eg law, business) and many others paying more (eg medicine, nursing, engineering, science, education).

Logically and empirically, 40/60 was always dubious. It was based on the idea that government should pay the anticipated future value of higher education’s public benefits. Graduate Winners argued against that idea, proposing a framework in which the public aims to profit from its higher education investment.

The flat 40/60 was based on the idea that public benefits were similar between disciplines. As one of the main public benefits was increased tax revenue, that assumption is clearly false (data also in Graduate Winners, but easily inferred from the BFR background paper on private financial returns). And even if this was true, it logically leads to a flat rate subsidy and not a proportion of total funding rates, which have nothing to do with subsequent benefits.Read More »

What do OECD comparisons tell us about Australian higher education funding?

Andrew Norton2 Comments

In The Australian this morning, Simon Marginson suggests that there is something wrong with the methodology in Graduate Winners.

He starts by accusing Grattan of starting with conclusions and backing them with ‘selective studies’ and cherry-picking data from other sources. My colleagues who did the empirical work for Graduate Winners are very unimpressed with this impugning of their professional integrity. We started with the public benefits claimed in the base funding review, and looked for whatever primary Australian data we could find. There was no cherry picking, no selectivity – and nobody has come forward with anything Australian that we missed.

Particularly on the non-financial benefits, I can confidently say that nobody in Australia has ever analysed this issue as carefully and comprehensively as we did. Jim Savage’s work on this did not get the attention it deserved due to the political controversy over tuition subsidies, but his technical paper has to be the starting point for any future work in this area.

Marginson’s alternative methodology is to look at OECD comparisons, stating that ‘it is significant that the Grattan report carefully avoids both the method and content of the OECD. It would have us believe Australian higher education has nothing to learn from global comparisons.’ Given how often this point has come up, in hindsight perhaps I should have included a section on this subject. But I don’t think the OECD funding data in itself tells us much other than that countries have very different mixes of state and private funding, and that these are reflected in their higher education financing systems. A high fee university system would not mesh well with Scandinavian tax rates. But it does fit with the lower tax rates in Australia, the US or Japan.

Similarly, I find Marginson’s claim that other countries report stronger relationships between education and social engagement uncompelling (we report this fact, he did not need to go to the OECD). American colleges and universities expressly inculcate civic values, Australian universities very rarely do so. The differences between the countries reflect the different histories of their higher education systems, and not public funding levels.

If I had 15 minutes to prepare a debating case on higher education, I probably would turn to the OECD for some handy facts and figures. The key OECD document is called Education at a Glance for a reason. But if as was the case I had months and the help of colleagues to explore the Australian data and think through the conceptual issues, that is surely preferable. In my mind the two big issues in higher education public funding are whether it causes significant additional public benefits (on top of those that would be derived from a market system), and whether there are access implications from fees. We focused on these big issues.

In any case, if we had used OECD data it would have tended to support our conclusion that the level of public funding is not the key variable in higher education systems. As I showed in an earlier post, there is no evidence that lower fees result in higher attainment. Indeed, the data suggests the reverse. One of my colleagues updated our analysis today with the latest Education at a Glance data, and (unsurprisingly) it shows again that high fees and high attainment tend to go together.

Even if OECD comparisons were a better methodology, they don’t always get Marginson where he wants to go.

Can more per student higher education public funding reduce higher education attainment?

Andrew Norton8 Comments

One criticism of Graduate Winners was that I should have paid more attention to OECD comparisons. I am wary of ‘OECDitis’– taking OECD averages as normative when they are merely descriptive. In my view, higher per student public spending on higher education in some other countries reflects their overall political and economic systems, and does not make their higher education systems better.

But could higher per student spending make their higher education systems worse? I don’t think this is automatically the case. But I think high per student spending creates a greater risk of what I call the paradox of public spending: it may increase demand, but it also tends to decrease supply. Even big-spending European social democracies have budget constraints (as they are very painfully finding out). So if they can’t control spending by making students pay more, they control spending by reducing the number of students.

The figure below uses figures from OECD Education at a Glance showing average student fees at public institutions and overall higher education attainment rates. The Nordic countries tend to combine low fees and reasonably high attainment, but many other European countries have free or very cheap higher education and relatively low attainment.

Overall the higher fee countries have higher attainment than low fee countries (correlation of .35 between fees and attainment).

I don’t know enough about the particularities of each country to confirm my paradox. But given it is easier politically to control numbers than to increase fees (because the losers are less obvious, and less prone to rioting), it is likely that politicians in many OECD countries have capped supply of higher education, and reduced their rates of higher education attainment.

Misreadings and criticisms of Graduate Winners

Andrew Norton5 Comments

The AFR published a response to Graduate Winners from Caroline McMillen, VC of the University of Newcastle. It provides an opportunity to respond to misreadings and criticisms.

Article starts, my responses in block quotes:

Access to a high-quality university education is the key to a stronger Australian workforce, economy and society. In turn, these are all important contributors to establishing a stronger place for Australia in the world.

An accessible university education is essential to ensure that Australia in what has been called the Asian century becomes a beacon for innovation and competitiveness.

The proposals contained in the Grattan Institute’s Graduate Winners report would jeopardise that future.

The report, which was made public last Monday, presents in measured language a reductive future for higher education in Australia, where students are motivated only by their graduate earning potential and the state withdraws its funding from what is currently recognised as a world-class university system.

Incorrect: The report shows (pages 56 to 59) that interest in the field of study is the top reason for choosing a course, and that a financially-based motivation model cannot explain why so many students with good ATARs choose humanities and performing arts, which have relatively poor employment and income outcomes.

The proposal is to shift the entire benefits and the risks of undertaking a university degree onto each individual student.

Incorrect: The report recommends a 50% cut in tuition subsidies for most courses; the taxpayer further takes risk through the HELP repayment threshold of $49,000 a year.

Read More »

Why do university lobby groups under-sell their product?

Andrew Norton4 Comments

As expected, my Graduate Winners report generated plenty of controversy. Two of the university lobby groups put responses on their websites (Universities Australia here; Innovative Research Universities here). A couple of VCs added hyperbole to the sober complaints of their representative organisations:

Administrators and students alike have hit out, with Central Queensland University vice-chancellor Scott Bowman likening it to a “funding regime of which North Korea would be proud”.

Australian Catholic University vice-chancellor Greg Craven slammed the report’s focus on numbers while failing to recognise the wider community value of higher education. “This seems to be a calculator with a personality disorder,” Professor Craven said.

One common criticism was that Graduate Winners does not count every possible public benefit of higher education (though it has the most detailed empirical analysis of this issue yet published in Australia, it is true that not every public benefit claim was investigated). But you would struggle to realise from just reading the lobby group reaction that Graduate Winners also has generally very positive news about graduate prospects. The vast majority of graduates do well financially out of their degrees, and enjoy other non-financial benefits as well. And there was no criticism for not pursuing this issue further.

In other words, the VCs appear to think that total course cost increases of between $7,000 and $19,000 for most courses would have disastrous effects and must be loudly fought, but lifetime benefit, including financial gains from their services averaging hundreds of thousands of dollars, were not worth mentioning.

I think this one-sided reaction reflects the history of higher education in Australia, and mindsets that have not changed despite the underlying realities having substantially shifted.Read More »