The proposed changes to higher education, including the removal of caps on student fees, have led many to question what drives students to pick a university. In a deregulated market will universities compete solely on price, or will they find other means to attract students?
Drivers of student choice
Studies such as Which university? The factors influencing the choices of prospective undergraduates repeatedly show that the field of education interests is dominant when students are picking a university. Having decided on an area of interest, such as physics, accounting or nursing, students then consider other factors such as course reputation, institution and location.
Before the demand-driven funding system was introduced, places were capped at a level lower than student demand. Through this period, students and institutions traditionally used the ATAR as currency to inform application and selection decisions. The role of higher education in influencing social status, and the role of students as co-producers of the higher education experience, meant that high-ATAR students would coalesce in particular institutions.
In today’s demand-driven system, eligible students can enrol in any institution that will offer them a place and ATAR is less influential than in the past. Non-school-leavers made up around 43% of undergraduate offers in 2014 and institutions increasingly use alternatives to ATAR during selection.
ATAR remains an important signal in segments of the higher education market, but other factors like student experience increasingly come into play. The development of Quality Indicators for Learning and Teaching recognises that access to information on student experience and graduate outcomes is important in assisting student decision-making.
The Australian approach is not dissimilar to that of England. The Browne Report into higher education in England recommended the easing of controls on student fees. It found that as higher education providers:
depend on student willingness to pay for a significant proportion of funding, so providing a high-quality student experience is critical.
Surely price makes a difference?
The Dawkins reforms marked an end to free higher education and the introduction of income-contingent loans. The last 25 years has produced a shift in the average proportion of higher education costs borne by students. Department statements during inquiry hearings indicated that student attainment of 25 to 35 year olds has tripled over this time frame. Cost, at least until now, has not been deterministic of participation, largely because of Australia’s income-contingent loan scheme.
There was no change to field-of-education preferences that occurred when Student Contribution Amounts were changed in the late 1990s from a low flat rate to the three bands in place today. Students are currently charged a per subject fee that varies by discipline, equating to around $6,000, $8,500 or $10,000 per year of study. Policies like HECS-HELP Benefit that offer discounts for some disciplines have also had little effect.
Student fees do vary across institutions for full-fee students, so we can be confident that some prices will increase under deregulation. We may see price interact in new ways with the disciplinary interests of students and the purchasing power of their ATAR.
The underlying logic of the reforms is that extending access to Commonwealth-supported places to more institutions and sub-bachelor programs will mean: accessibility will improve; competition will be enhanced; and the system will be more affordable for government. The costs of underwriting higher fees in some programs will be offset by lower costs in others and a 20% reduction in government contribution.
Some commentators suggest the reforms are an unsustainable blank cheque. Others suggest that limits to borrowing under FEE-HELP may mitigate price rises.
The government is putting faith in the market to operate effectively and has rejected any caps on pricing. Departmental statements made during inquiry hearings indicate that caps may contribute to higher costs:
… they could in fact have the perverse effect of dragging up prices for low-cost courses towards what might be perceived as the government-semaphored preferred pricing.
In perfect competitive markets consumers and producers have perfect knowledge about price and quality. If institutions have freedom to set their fees in what is an imperfectly competitive market, ease of access to pricing information will become more important.
University websites routinely publish their fees in advance. This is consistent with requirements under Section 6.2 of the Threshold Standards.
What may be an emerging problem is the degree to which students within subjects are charged different fees. There is no evidence of conflict in programs where full-fee and Commonwealth-supported students rub shoulders. However, price competition may be undermined where students are unaware that their peers are driving a harder bargain or receiving larger inducements.
In the American higher education sector, where needs-blind admission practice is common, student fees vary considerably. Discount rates between the gross and net tuition prices are as high as 38% on average in some provider categories. There is also evidence that discounts are increasingly applied to those least in need.
The government has scope to improve transparency of pricing by publishing tuition fee statistics alongside Quality Indicators of Learning and Teaching.