Category: Higher education

Do higher education subsidies produce public benefits?, 1985 version

Andrew Norton4 Comments

I spent the last day of 2012 tidying up my chapter in a book I am co-editing on the Dawkins higher education reforms (the aim is to publish in mid-2013 to coincide with the 25th anniversary of the government white paper). The subject of my chapter is the Liberal response to the Dawkins reforms, which turned into a story about the Liberal role in the long, convoluted path from the state-dominated higher education system created in 1974 to a more privately-funded, market-based system.

Mid-1980s Cabinet papers released today provide a bit more of the background. At this point, Labor was still committed to free education for domestic students. But the Department of Finance thought that this was a bad idea, and wrote a memorandum explaining why.

It has the usual material about free higher education not changing the socio-economic profile of students. But it also contains a version of the key argument in my Graduate Winners report:

While these external benefits [better organised and functing political and social systems, potentially lower crime, sickness, disease, application of research undertaken in conjunction with education] are of course very difficult to measure they are widely believed to exist. To acknowledge their existence however is not to make a case on efficiency grounds for the full public subsidisation of higher education: full susbidies would only be warranted if there were no private benefits at all which is not likely to be the case; most people would expect extra income, status, and work satisfaction as a result of tertiary education…

It goes on to note that there is no public benefit from hobby or recreational study, and there is a risk of over-investment – ie, there could be greater economic and social well-being from investing the same money elsewhere.

I don’t think Finance’s document quite describes the underlying logic of its argument, which 1) are there public benefits from a course? (if no, just leave it to the market); 2) If yes, are the private benefits large enough to attract students? (if yes to this question, just leave it to the market); 3) If the private benefits are not large enough, will public subsidies lead to enough public benefit to justify intervention?

But they are certainly right that a public benefit argument can’t possibly justify full public funding of higher education, as susbequent events showed.

Australia’s university with no courses or students

Andrew Norton11 Comments

In October 2011, the for-profit Laureate International Universities group announced that it was opening a new university, Torrens University Australia, in Adelaide. Back then, I commented that it was just in time – that it was using provisions for new universities that were to be abolished under the new standards system enforced by TEQSA.

My comment about it being just in time for a while seemed premature, as when the TEQSA register of higher education providers was created in early 2012 Torrens was not there. The problem seems to have been that though there were transitional rules putting all existing higher providers on the register automatically, the definition of ‘higher education provider’ in the TEQSA legislation referred to an organisation offering or conferring a higher education award. As Torrens did neither, it was not automatically transitioned to the register.

That created significant problems, as the rules on creating new universities make it very difficult for this to ever occur. To become an Australian university, it is necessary to offer undergraduate and postgraduate degrees, including PhDs, in at least three broad fields of study (a specialist university can have one field – MCD University of Divinity is the only example). It is also necessary undertake research leading to ‘the creation of new knowledge or original creative endeavour’ in those three fields.

A version of these rules has been in place since 2000, and unsurprisingly no new Australian university has commenced operation since. Our existing private universities would not have met them in their earlier years, and Notre Dame is still only just likely to qualify (three fields of study get a rating in the Excellence in Research for Australia exercise). With restricted public research funding eligibility, few organisations can fund the loss-making research needed to qualify as a university.

It seems like a regulatory workaround was created in June, though I (and it seems most other people) missed it at the time. A new regulation was created retrospectively allowing higher education providers registered but not operating to be included in the transitional arrangements. So Torrens University now appears on the TEQSA National Register (and also has a website promising a 2014 start). It is Australia’s 40th full university, albeit one with no students or courses.

Torrens University is registered until the end of 2017, so it has five years to meet the three field of study course and research requirements. While drawing on foreign resources is the most plausible way a new university could be created, I’m not sure why a for-profit like Laureate would devote large sums of money to activities that are unlikely to deliver financial returns. If Torrens does not meet the threshold three fields, there will be a messy situation in which the regulator tries to strip an institution, its students and its graduates of the ‘university’ title. Perhaps they are hoping that between now and then the government will take a more flexible view of what constitutes a ‘university’.

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.

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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 »

Are low SES people more worried about fees than other people?

Andrew Norton7 Comments

My new Grattan report, Graduate Winners: Assessing the public and private benefits of higher education was released tonight (Canberra Times covering it already).

The basic argument is that given high private benefits, higher education will generally be produced with or without a tuition subsidy. Therefore we can start phasing down tuition subsidies. I suggest 50% over 4 years for most disciplines.

The usual reaction to such suggestions is that the low SES people in particular will be put off higher education. I report the contrary Australian evidence. There is interesting English evidence in this report. What the English have done is far more radical than anything I am suggesting. Except for the clinical and lab subjects, they haven’t cut 50% over 4 years. They have cut 100% over 1 year. Combined with some scope for overall funding increases for universities, some student charges will nearly triple.

For the school leaver group, overall demand dropped by one percentage point of the age cohort compared to 2011, or about 15,000 people (like Australia before 2012, the UK has a capped system with demand exceeding supply, so this will have no effect on the total number of students). Read More »

Which Labor education minister made the most difference for working class people?

Andrew Norton3 Comments

In education, nostalgia for the era of Gough goes on and on. This piece of it in The Age yesterday prompted several supportive letters today.

Access to higher education did expand under Gough, but his reforms was not as significant as many people imagine they were. Through a patchwork of scholarships and subsidies from both levels of government and from universities themselves, only a minority of students paid fees in the early 1970s. The average fee for those who did pay was $480, or $3,000-$4,000 in current dollars. Many also received financial assistance; Gough replaced this with a means-tested income support scheme TEAS, the predecessor of today’s Youth Allowance.

The clarity of what Whitlam did probably accounts in part for what people believe today. Though most bright school leavers who wanted to go to university would already have done so pre-Whitlam, the financial pathways were made much clearer by Whitlam’s reforms.

Overall, higher education enrolments expanded from 206,500 in 1972 to 287,700 in 1976 (first year of the Fraser government, but it came to power too late in 1975 to affect enrolments). Less than a third of the increase was in universities, with most new students going to the colleges of advanced education. Numbers had been growing steadily since the 1950s, so some of this growth would probably have occurred anyway.

A lack of consistent data makes it hard to tell exactly what opportunities Whitlam created for working class people. My reading of various sources is that the absolute number of working class students probably went up in the following years. But their proportion of total enrolments went down. The reason for this was simple. University entry usually requires school completion, and very few working class people did that. Therefore it was middle class people who were best placed to take advantage of expanded places in higher education.

The late 1980s and early 1990s were the turning point for improving working class higher education participation. School completion rates had increased dramatically during the 1980s, and the big HECS-financed John Dawkins led expansion in university places gave them somewhere to go. Dawkins and the most Labor state education ministers of the 1980s were more important than Whitlam in opening up education for people of all classes. Gillard is responsible for another wave of expansion since 2009, which also seems to be bringing in low SES students in large numbers.

Yet there is almost no nostalgia for Dawkins, and the state ministers are largely forgotten. Gillard’s time as PM will obscure her successful period as education minister. They all lack Gough’s charisma, and his simple message eloquently put.

Is the student amenities fee loan scheme constitutional?

Andrew Norton2 Comments

On the 7.30 current affairs program the other night, constitutional lawyer George Williams suggested that the Williams case High Court ruling might have implications for universities.

The case revolved around the constitutionality of the school chaplains program. Though reported in the past as about religion, the court in the end found for Williams on a ground concerning the executive power of the Commonwealth to act without legislation.

University funding does have a legislative basis. Its main constitutional backing is in section 51

(xxiiiA) the provision of maternity allowances, widows’ pensions, child endowment, unemployment, pharmaceutical, sickness and hospital benefits, medical and dental services (but not so as to authorize any form of civil conscription), benefits to students and family allowances; (emphasis added)

Three of the seven judges had something to say about what ‘benefits to students’ meant. Justice Kiefel said:

Social services provided to students might take the form of financial assistance, for example payment of fees and living and other allowances, or material assistance, such as the provision of books, computers and other necessary educational equipment, or the provision of services, such as additional tutoring. The term “benefits” in the context of s 51(xxiiiA) does not extend to every service which may be supportive of students at a personal level in the course of their education.

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