Category: Higher education finance

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For those who downloaded my Grattan report, Mapping Australian higher education, there was an error in table 8 on page 50 which lists funding rates for Commonwealth-supported places. The maths and science rates did not include $3,499 in transitional funding paid for students enrolled in 2009 or later, who paid a student contribution amount reduced by that amount. The correct numbers are in a revised version of the report.

Further complicating matters, these student contributions will be put back up next year, so assuming that the required legislation is passed future calculations should take this into account. Other than via indexation the total won’t be affected, but the student contribution will go up, and the Commonwealth contribution will go down.

The HECS-HELP handout nobody is taking

Andrew Norton3 Comments

Back in 2007, I thought that Labor’s election promise to introduce HECS remissions for people entering specified occupations might have something going for it, at least compared to other mechanisms for steering labour market preferences via higher education funding.

It’s not paid unless the graduate actually enters the desired occupation, and provides near-term financial relief, which is more attractive than cuts to student contributions – which effectively mean that someone entering first year will typically gain financially in 8 to 12 years time (when they finish repaying earlier than they would have otherwise). (The ATO site on the scheme is here.)

However a report in The Australian this morning shows that only 405 people applied for the benefit for 2009-10, and only 232 were approved.

This is consistent with some analysis of graduate occupational choices by Graduate Careers Australia, done at my request comparing the first year of the program (2009) with the year before. Statistically, the two years were identical in the proportion of graduates entering the occupations being favoured by the government. I did not publish the data at the time because GCA argued that the scheme was new and that 2009 was a bad year for graduate employment, so more people could have tried to enter those occupations but failed (though if there are no jobs anyway, a policy aimed at increasing demand for non-existent jobs is not necessary).

The 2010 data should be examined, but the very small numbers claiming the benefit suggests that this scheme is so unsuccesful that the government can’t even give money away (far more than 232 would have been able to claim just for pursuing the career they were going to pursue anyway).

Perhaps this policy escaped the last couple of rounds of higher education cuts because its failure meant its costs were much lower than anticipated. But as the government is imposing cuts on the public service, getting rid of a complex and bureaucratic policy that is not obviously achieving anything would make sense.

Higher ed price problems not fixed

Andrew Norton1 Comment

The ‘demand driven’ funding policy starting next month combines deregulated places with regulated prices for student places. This is a potential problem. When the government no longer allocates places between institutions and disciplines the prices universities receive for each place are a key steering mechanism. If the price they receive is unattractive, they can not take Commonwealth-supported students.

The base funding review commissioned a study of costs, and it was able to shed some light on prices relative to costs, as they were in 2010. The figure below shows median, mean, maximum and minimum teaching and scholarship costs in a sample of eight universities.

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Why does the base funding review panel think lawyers should pay less for their education, and teachers and nurses more?

Andrew Norton7 Comments

The most contentious aspect of the base funding review report, released today, is likely to be its proposal to change the basis of public subsidy for higher education.

At the moment, the public subsidy is not explicitly based on public benefits. Effectively, it’s just what’s left after student contributions are deducted from total per student funding by discipline. Total funding is loosely derived from a study of higher education expenditure 20 years ago, while student contributions are loosely based on differential HECS introduced in 1997. Differential HECS was in turn based roughly on average private earnings of graduates in particular disciplines. So law and medical students paid the most because lawyers and doctors earn a lot. Education and nursing students pay lower amounts, because teachers and nurses have modest salaries.

According to the base funding review, public subsidy should be based on the government paying for public benefits. They say the public benefits are equivalent to between 40% and 60% of total annual expenditure per student. These public benefits are defined as miscellaneous non-pecuniary benefits to society, plus the ‘direct fiscal dividend’ from the additional taxes graduates pay due to their increased earnings.

Leaving aside whether these numbers are robust (I doubt it, but assume they are for the sake of argument), what is the justification for using public benefit as the basis for public subsidy? The base funding review offers two possibilities.

One possibility is that without subsidy ‘private benefits might not be enough to motivate a student to pay full fees’. So the logic would be that through subsidies the private benefits are increased to a point where it is financially attractive for students to enrol in higher education, and then go on to the produce the claimed public benefits. Read More »

Science degrees to cost $11,000 more

Andrew Norton2 Comments

One of the policy decisions in today’s Mid-Year Economic and Fiscal Outlook is to rescind Labor’s cut in the student contribution amounts for science, maths and statistics subjects.

While students starting before 2013 will be grandfathered, those starting in 2013 will according to the government’s estimates pay $3,662 a year more, or about $11,000 over a three year degree.

I opposed the cut to student contributions at the time, among other reasons because I doubted that it would increase demand. The MYEFO repeats this argument, citing the Bradley review of higher education policy.

The Bradley review, however, reported shortly before the cut to student contributions came into effect. The student applications data since suggests that my prediction, along with Bradley’s prediction, was wrong.

In the two years after the cut took place, demand for science courses increased 32% in a market that was up 12% overall. Though the slow-moving DEEWR bureaucracy hasn’t yet published the 2011 applications data, media reports earlier in the year from the tertiary admissions centres suggests that science demand was up again.

Given that science graduates were having above-average difficulty finding work on course completion even before the demand surge converted to more graduates, cooling demand is not a problem if that is what occurs.

Though we can never tell for sure simply based on applications, a drop in demand following a price increase would help increase our confidence that relative prices were a science demand driver.

Please study at home

Andrew Norton6 Comments

The bill introduced last month to reduce the discounts for up-front payment of student contribution amounts or early repayment of HELP debts (discussed here and here) contains a previously unannounced policy: to stop Australian students getting tuition subsidies or HELP loans if their course of study is primarily at an overseas campus of an Australian university.

Peter Garrett’s second reading speech explained the rationale:

As students are only required to pay back their HECS-HELP debt if they file an Australian tax return, there is a higher risk that HECS-HELP debts incurred offshore will not be repaid, or not repaid for a longer period of time.

I’m not sure how big a problem this is in itself, but it is a sign that the government is concerned about HELP debt held by people not living in Australia. That the government makes no attempt to recover HELP debt from Australians working overseas is one clear design flaw in the income-contingent loan scheme.

It’s a flaw that has been exacerbated by other changes to law and policy. As dual citizenship has been permitted by Australia and other countries, the number of people with work rights in multiple countries has increased. More people can work overseas, and it would be very surprising if we did not see more people doing so.

The source countries of migration to Australia have also shifted towards the Asian countries in which Australian universities have their overseas campuses. According to the 2010 enrolment data, nearly 7% of domestic students speak an east or south-east Asian language at home (and probably more can speak one, but tend to speak English at home). A similar proportion were born in those countries. It would presumably be relatively easy for them to return to Asia to study at an Australian campus.

The flow of people between Australia and other countries is not a problem it itself. But it becomes a problem when it interacts with a debt recovery system designed for a less mobile world.

Enrolment share in deregulated higher ed markets

Andrew Norton2 Comments

With the supply of Commonwealth-supported places to be largely deregulated from next year for public universities, there is considerable anxiety at some institutions about how this will turn out. My theory is that a market without price signals will be bad for lower-prestige universities. But what about markets with price signals? The 2010 enrolment data can give us some guidance.

For domestic fee-paying students (mostly postgraduate coursework students), three university types have greater market share than they do for CSPs: the Group of Eight, the Australian Technology Network Universities, and the New Generation Regional Universities (groupings defined below, taken from the categorisations in this paper). Charles Sturt is very strong in postgraduates, helping to explain the strong showing of that group.

For international students, the Group of Eight and the ATN again have market share exceeding their CSP market share, with the New Generation Regionals having about the same share of internationals as CSPs. This is largely due to the entrepreneurial activities of Central Queensland University and the University of Ballarat, which are both highly competitive on price and recognising that students will not come to them, go to the students.

Clearly the Group of Eight and the ATN start in strong positions. But only two universities have less than 10% of their students from overseas, and there is lots of variation within broad university types. Mission and management can make a big difference.
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Teaching funding and teaching costs

Andrew Norton4 Comments

A new Universities Australia lobbying document released today (The Australian‘s report is here) contains some not previously publicly released information on university costs, based on information from six universities. The data is presented in a slightly confusing way, as UA have made the assumption that 25% of Commonwealth subsidies paid on a per student basis is for research, creating separate funding ‘gaps’ for teaching and research.

However, what it shows (if you get your calculator out) is that teaching-driven Commonwealth funding of $16,068 per average EFTSL and teaching-driven expenses of $16,151 per average EFTSL are pretty much in alignment. This helps explain why so many universities are significantly ‘over-enrolled’ – once the demand-driven funding system is fully operational they expect to at least break-even by avoiding research costs.

The funding ‘gap’ varies significantly between fields of study:

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The workforce supply of female graduates

Andrew Norton8 Comments

I’m writing a piece for The Age on the feminisation of Australia’s universities. In 2009, 59% of domestic commencing students were women. Overall the proportion of students who are female is a little lower, as there are strong male biases in education in some source countries for overseas students.

The gender shift in enrolments has big implications for the future labour supply of graduates. Though the 2006 census is getting a bit out of date, the figure below is striking. After their 20s, only a minority of female graduates work full-time except for age 50-54, when 51% are full-time workers. Obviously parenting responsibilities are a major factor in this, but even childless women are much less willing to work full-time than men.

I thought these numbers might offer some insight into the finances of the HELP loan scheme, but the ATO tax statistics don’t support this hypothesis.

Women owe 56.6% ofthe outstanding HELP debt, much what we would expect given their share of the student population. The average female balance of $12,361 in 2008-09 is lower than the average male balance of $13,914. I can think of a couple of possible reasons: the strong female majorities in cheap (to the student) courses such as education, nursing and arts; and a larger number of female than male graduates who have old unpaid debts, but at lower totals due to cheap HECS rates in the past.

If the gender age-work patterns persist, it does however raise questions about what happens if student contributions increase. Historically, the average repayment time for HECS/HELP debts is about 8 years. So on lower student contribution amounts, women who graduate in their early 20s could clear all or much of their debt by the time they leave full-time work to raise kids. But if initial debts are larger, that may not be the case.

Pragmatism and ‘fundamentalism’ on the funding of the humanities

Andrew Norton3 Comments

While clearing out my office earlier this month I found lots of old media clippings. Compared to the early 2000s, the higher ed debate now seems less ideological. I’m not sure exactly why, though the NTEU‘s lower profile in policy debate is probably part of it, along with the arrival of a Labor government, which attracts less heated opposition than a Coalition government.

But sometimes the old style of debate re-appears, as it did in this swipe at me in today’s Age for being a ‘market fundamentalist’, written by University of Melbourne English professor Ken Gelder.

He was responding to this article, which was a pragmatic analysis of higher education funding politics, based on a presentation I gave to a seminar on the public funding of the humanities and social sciences.

My argument was that given Australia’s political and economic arrangements the chances of significant increases in public funding for the humanities and social science were low. Smaller university English classes aren’t likely to win out as a spending priority against the many other pressing political demands. Labor and Liberal governments have behaved in quite similar ways on higher education funding, because whatever their ideological differences they face the same political imperatives. Read More »