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Enough muddling through: higher education needs a shake-up

And so the university fees debate starts again. Over the last few days, several university leaders have come out in favour of increasing fees to fund a better higher education system. A government commitment…

ANU Vice-Chancellor Ian Young and Chancellor Gareth Evans have called for student contributions to be deregulated so they can charge students higher fees to attend university. ANU

And so the university fees debate starts again. Over the last few days, several university leaders have come out in favour of increasing fees to fund a better higher education system. A government commitment to reform could come as soon as next month’s federal budget.

Reforms need to address increasing costs and student numbers

We have long been in a situation in which few people support the status quo on university funding, but it survives because none of the alternatives have enough support.

The total funding rates paid to public universities for each student are based on a 25-year-old university expenditure study, with a few ad hoc changes since. While another funding study was conducted in 2011, the then government ignored it. The “student contributions” paid by students are largely based on a 1996 assessment of the relative earning capacities of different graduates, plus 25% added in 2005.

With little science to these numbers, and no system of adapting student funding rates to changes in university costs, the danger is that costs will rise above the capacity of universities to meet them. A major risk here is tying university fortunes to the Commonwealth budget.

Budget cuts to Higher Education

Last year the previous government announced a so-called efficiency dividend, which would reduce Commonwealth expenditure on tuition subsidies and research. With Labor changing its mind this year and blocking its own policies in the Senate, these cuts are now waiting until the new Senate sits in July.

Whatever eventually happens to the efficiency dividend, the finances of universities should not depend on these political machinations. While the Universities Australia lobby group is reviewing funding options, its longstanding position of campaigning only for more public funding exposes its members to unnecessary financial risks.

This is not saying that students necessarily should pay more. But universities should have options other than their own spending cuts to deal with a downturn in government funding. If universities can find genuine efficiency savings, they can keep their student contributions at current levels. Otherwise, they should be able to increase charges and maintain their service levels.

One-size-fits-all funding doesn’t work

Another major criticism of our public higher education funding system is that standardised funding levels lead to a narrow range of education services, at least when compared to countries like the United States. That’s the argument being offered by Ian Young and Gareth Evans from the Australian National University and by Warren Bebbington from the University of Adelaide.

The private higher education sector in Australia has found a niche for itself offering what public universities typically cannot on Commonwealth funding rates, especially small classes and personalised attention for students. But unless some public universities, which have more than 90% market share, can enter these markets, small classes will not be a common experience for Australian students any time soon.

Lower-prestige institutions could benefit

While few people oppose a more diverse higher education system in principle, they are worried about status differences. Extra fee revenue would almost certainly be partly diverted to fund more research, which along with ATAR cut-offs is a main indicator of university prestige.

Despite status concerns among vice-chancellors, lower-prestige institutions could benefit from fee deregulation. Under the current system, they cannot compete on price in the domestic undergraduate market. In the international market, some of them have found good markets among more price-sensitive students.

Although I have supported a more flexible university pricing system for many years, just introducing this now without any other policy changes would not be ideal.

Higher student fees means higher student debt

If student charges went up, most students would borrow money to pay them through the Higher Education Loan Program (HELP). HELP has significant costs in debt not expected to be repaid and in interest subsidies. HELP needs reforming to reduce the cost of deregulated fees to taxpayers.

It is also important to ensure competition in the higher education market to help keep prices down. TAFEs, for example, are moving into higher education courses. They have a strong commitment to accessible and affordable education, but under the current system most of their courses have no tuition subsidies and cost more than a university course. An important recommendation of the demand driven review I conducted with Dr David Kemp is that TAFEs be brought into the public funding system on the same basis as universities.

Australia’s higher education system is reasonably good. But it is struggling to meet the diverse demands of students at a cost government can afford. We might be headed for one of the major turning points in higher education policy history when more muddling through is not enough. Major reform is needed.

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39 Comments sorted by

  1. Russell Hamilton

    Librarian

    "Major reform is needed."

    True. Let's learn lessons from Northern Europe ... Norway is often cited as about the only OECD country in better economic shape than Australia: they must be doing something right. Denmark seems to always be doing well ....

    Let's have free, publicly funded, universities.

    If Gareth Evans wants ANU to have more money, perhaps he should be encouraging wealthy alumni to donate, in the American style.

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  2. Garry Baker

    researcher

    "higher education needs a shake-up" - So the editorial turns to money.. Nothing is mentioned of Australia's national interests, just the cash flow

    Sounds very much as if the marketing folk reckon they can squeeze some more dollars from the product they vend. That is, bring the locals into a similar price line with the products the corporation exports.

    As for national interests and the pursuit of excellence ..forget it.

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  3. Fergus Ferguson

    Political Exile

    Education does need a shake up. Move the academic units online. It is quite simple. Contact hours can then be dramatically reduced, and student schedules become more flexible so that part time study by workers, and part time work by students become much more practicable. Plus there is a huge cost reduction as staff costs drop precipitously after the initial set up period.

    There was nothing more frustrating than sitting in a lecture theatre for two hours a week while a Doctor of Anatomy dictated…

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  4. Gavin Moodie
    Gavin Moodie is a Friend of The Conversation.

    Adjunct professor at RMIT University

    Andrew

    I am surprised you repeat the old Greedy 8 canard that 'Under the current system, they [universities] cannot compete on price in the domestic undergraduate market'. All universities have infinite capacity to compete on price, in 2 ways.

    1 The Australian Government does not determine fees but sets fee caps or maxima: universities can set fees as low as they like. That provides very great but not infinite fee flexibility.

    2 All universities can award scholarships to pay students…

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    1. Andrew Norton

      Program Director, Higher Education at Grattan Institute

      In reply to Gavin Moodie

      Gavin - I take your point, and the demand driven review report does note a couple of minor examples of price competition in the domestic undergraduate market. But in practice I doubt the price differences are large enough to change behaviour, or that many unis have enough scope given their cost structures for significant price reductions.

      I also agree that straight public/private spending swaps are more likely than fee deregulation more broadly, which is what the G8 want. On the other hand, given the two issues are always going to be conflated anyway, if the government is going to take the political pain of lifting student contributions there is little extra political cost in making a substantive micro reform as well.

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    2. Guy Curtis

      Senior Lecturer at School of Psychology and Exercise Science, Murdoch University

      In reply to Gavin Moodie

      The argument was made with the introduction of "premium HECS" some years ago that it would allow universities to compete on fees. Unfortunately, as universities are so starved for funds in Australia that within a few years nearly all universities were charging the maximum 25% premium. Essentially, this just created a big tick up in fees not price competition. True enough, total deregulation would better deliver price competition, but the likely initial and sustained result is that fees across the…

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    3. Peter Bentley

      logged in via LinkedIn

      In reply to Gavin Moodie

      Under the current system there is little scope for price competition. This is not because of fee inflexibility, as you point out there is scope in there, but due to the HECS/HELP system which removes most of the price sensitivity. Why would anyone compete on price if consumers are not sensitive to price competition?

      I think it is impossible to have both universal access with no upfront financial barriers to HE, while at the same time wanting price competition. One could remove the price caps and eventually the higher prices would lead to price-response from students, but this would lead the HECS system to bloat and be unmanageable.

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  5. Geoff Clark

    Senior Lecturer at University of Tasmania, School of Architecture and Design

    TAFE should rightly take a greater role in higher education because education is their focus; their core business.

    The current university system fails utterly to articulate or distinguish teaching from research, but it most certainly prioritises.

    How we have come to a point where students pay say $40,000 for the pleasure of being there, yet seem to be treated as nothing more than a nuisance by the system, is completely beyond me; research priorities always prevail.

    The relationship between…

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    1. Geoff Clark

      Senior Lecturer at University of Tasmania, School of Architecture and Design

      In reply to Geoff Clark

      ...and, the real coup was to ensure that the fees are not paid up front, they accrue as a debt, and this desensitises students to relationship between the price that they pay, and the service that they get. They remain mute.

      TAFE on the other hand has more motivation to put its money where its mouth is.

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  6. Liam Hanlon

    Student

    I love being told by people who went to uni for free or for very low cost that my fees need to be dereglated aka increased.

    In terms of the universities crying poor when cuts happen or funding isn't what they expected, one need only look at the annual reports of these institutions to see its all crocodile tears. My uni has made close to $500 million in profit over the last 5 financial years! The universities should absolutely be absorbing any finding cuts. They should stop treating students as customers and our education as a commodity that can be simply made more expensive to boost their profits further so they can build more buildings with no new classrooms and the like.

    There is absolutely no justification for raising tutition fees at all.

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    1. John Campbell

      farmer

      In reply to Liam Hanlon

      Don't think about what you can do for your pocket, but what you can do for your country and your fellow citizens.

      If people keep fighting over the 'pie' and trying to justify how there share should at least be as big as someone elses' there will never be enough. In particular the poor, disadvantaged and those without political clout will suffer. Also money will tend to go into peoples pockets rather than infrastructure.

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    2. Liam Hanlon

      Student

      In reply to John Campbell

      I'm not just thinking about my pocket, I'm thinking about every students. We have more than enough money in Australia to make sure everyone can live comfortably but we let the likes of Gina and Clive hoard it all.

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  7. Tristan Croll

    Lecturer

    This article ignores the insidious effect of per-student funding (public or private) on the quality of outcomes. The role of a University in society is to produce well-trained graduates qualified for work in their chosen field. A very important part of that role (perhaps THE most important part) is quality control: rejecting the students that are unable to reach the required standard. This is in the best interests of society: nobody wants a bridge to collapse because the design engineer slept through…

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  8. Alistair McCulloch

    logged in via email @unisa.edu.au

    The UK saw the introduction of a variable fees regime with a maximum fee of, initially, 3,000 pounds per annum and more recently lifted the maximum to 9,000 pounds per annum. Virtually no universities charged below the maximum because no one wanted to be seen as being 'cheap'. the fear was that a low price would be interpreted as 'low quality' and the consequence was a very expensive HE system, imposed largely by people who had received a 'free' university education themselves.

    I've often wondered…

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    1. Michael Hooper

      Research Fellow at UNSW Australia

      In reply to Alistair McCulloch

      'I've often wondered why there isn't a simple 1% to 2% 'graduate tax' imposed as an addition on the income tax rate which all graduates pay.'

      Two reasons come to mind why this mightn't be a good way to go (the second is highly significant, to my mind):
      1) There is no simple relationship between being a graduate and being better paid, and asking people to commit to paying a graduate tax at the outset may predetermine their choices of what to study. There's an ethical question, for me, about whether…

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    2. Andrew Norton

      Program Director, Higher Education at Grattan Institute

      In reply to Michael Hooper

      There is a basic conceptual question about why the government should effectively buy shares in someone's entire future income because they went to university, possibly decades ago, rather than just help people purchase a service.

      Michael Hooper is right that if the government wants to tax people it should just do it, rather than link it to possibly irrelevant characteristics.

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    3. Alistair McCulloch

      logged in via email @unisa.edu.au

      In reply to Andrew Norton

      You're right, Andrew, but given the current desire for market-based instruments which tie the 'consumer' to the 'benefits' accruing as a consequence of the good having been consumed and the current existence of such levies (e.g. the medicare levy) through which the government is already 'buying shares in someone's entire future income', it seems strange to object to a very simple market instrument for making higher education sustainable.

      In terms of the generational point you raise, I agree with the implicit call for equity between the generations that received a 'free education' and the current generations that are paying and my choice would be to make it free for all and to pay through taxation. I suspect, however, that this is a lost battle for the foreseeable future. Hence my preference for the 'tax levy' approach.

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    4. Andrew Norton

      Program Director, Higher Education at Grattan Institute

      In reply to Alistair McCulloch

      John - Taxes have no direct link to consumption, and so do not create any incentives or penalties around a particular service. The Medicare levy is just income tax with no link to personal consumption of health services, even if calling it that reduces political resistance. A graduate tax would however create an incentive not to study or to take non-credentialed courses. It would mean that there were higher taxes on income generated through human capital as opposed to other forms of capital.

      A government is not buying shares in income with taxes, it is just taking a share. The idea behind a graduate tax is usually that it would buy a share, subsidising individual education in exchange for future financial returns.

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    5. Peter Bentley

      logged in via LinkedIn

      In reply to Alistair McCulloch

      In terms of intergenerational equity, tuition fees are almost so insignificant as to be a diversion from the real issues, and I am someone still with a substantial HECS debt (accrued via a 4-year program UG from 2000-2003).

      The real intergenerational issues lie in the enormous range of tax breaks, welfare programs and other policies which have supported older generations over the young. I believe Grattan are preparing a report on this, these are the real issues.

      It would be great to have no HECS debt, but even it was wiped out and reimbursed, I still would not be in a position to have job security, own a home in an inner city suburb, retire at 55-65 and claim a part-pension.

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  9. Tim Pitman

    Senior Research Fellow, National Centre for Student Equity in Higher Education at Curtin University

    Hi Andrew, I am very concerned that the debate regarding higher education funding is proceeding from a couple of highly significant false assumptions. Unless these are challenged, some good policy options will be overlooked.

    First, I don't think only a few within the sector support the status quo. The Go8 universities are the most strident in arguing for fee deregulation but beyond them, they have few supporters. Whilst the ATN universities support a 10% rise in student contributions this is nonetheless…

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    1. Andrew Norton

      Program Director, Higher Education at Grattan Institute

      In reply to Tim Pitman

      Tim - I said none of them support the status quo, because so far as I know all unis want more money. They are just divided on where it is mostly likely to come from. Some would rather just make do than see the G of 8 getting ahead.

      In theory taxes could go up. That is at least the implicit UA position. But how often has this strategy been successful? Apart from a few ad hoc discipline-level changes, the argument that there should be real increases in public funding per student has failed continuously…

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    2. Tim Pitman

      Senior Research Fellow, National Centre for Student Equity in Higher Education at Curtin University

      In reply to Andrew Norton

      The political history and reality is a valid point and taken on board. However I would argue in return that the Dawkins revolution was just that - a revolution - and it is therefore possible to implement and enact radical higher education policy in Australia in the right set of circumstances. Rudd attempted to do just that with the mineral tax Mk I and directly link it to improved superannuation for workers. It's failure was, in my opinion, a result of poor implementation plus the ensuing dysfunction of the Labor Party. The principle remains sound.

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    3. Tim Pitman

      Senior Research Fellow, National Centre for Student Equity in Higher Education at Curtin University

      In reply to Tim Pitman

      "It's" should be "its". So much for higher education, at least in my case...

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    4. Nick Fisher

      Programmer & Analyst, pt student

      In reply to Andrew Norton

      I think saying we would have to become 'Scandinavia' to get free university education is exaggerating the situation a bit. I remember there was extensive discussion of this issue in the comments to Tim's article a while back: the government would have to replace the income stream from domestic up front fees and then decide what to do about the existing debt, that is let it slowly fade away or just write it off and replace the income from repayments as well. I can't remember the exact figures but the amounts involved would be of the same order of magnitude as other government initiatives.

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    5. Andrew Norton

      Program Director, Higher Education at Grattan Institute

      In reply to Nick Fisher

      Nick - And every other big-spending program that succeeds diminishes the political scope for higher education. The reality is that students paying something for their own education is not a genuine problem (in the way say that the plight of disabled people and their families is, eg NDIS) and not backed by a massive political constituency (eg schools, health).

      And here we are not even talking about free education, just significant per student increases.

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    6. Peter Bentley

      logged in via LinkedIn

      In reply to Andrew Norton

      The Scandinavian system works because "free higher education" is part of a complex system of taxation, redistribution and social egalitarianism. In isolation, free HE is regressive. But if part of a system of highly progressive taxation of wealth and income, with egalitarian policies in primary/secondary education, it is not regressive.

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  10. Cathryn McCormack
    Cathryn McCormack is a Friend of The Conversation.

    Lecturer (Teaching and Learning) at Southern Cross University

    Under current structures an 'efficiency' dividend just means every single university employee is commanded to work an extra amount equal to the 'efficiency'. Nothing efficient there, just a whole lot of extra unpaid overtime.

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  11. Peter Andrew Smith

    Retired

    Underpinning the prestige of Harvard is its ability to attract students from many of the families who feature on the Forbes Rich List and to screen others through their scholarship entry pathway to ensure that key donors get value for money.
    Andrew Norton appears to want to support reorientation of Australian universities to fit this model with accessible and affordable higher education through TAFE for those who do not make the cut. He does not go as far as suggesting that TAFE students who fail to make the cut should be grateful that their large classes and online courses are enabling the small classes for those who did. But maybe that's being saved for a post budget Grattan report.

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  12. Andrew Fisher

    Worker

    I marvel at how the word reform has come to mean funding cuts. What University education probably needs, is someone in charge who cares more about teaching than business, and a government that is willing to pay more than lip service to achieve that goal. Seeing every human interaction and public service through the business/market prism is stupid and does us all a disservice. And yet that view persists amongst our so called leaders.

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  13. Sam Yates

    Research Fellow

    Just come back from reading Andrew Norton's very thorough Grattan Institute report 'Graduate Winners', which does put this argument in context. In purely financial terms, the report makes a strong case for increasing student contribution not significantly increasing the long-term risk of poorer financial outcomes for graduates. Certain classes of public good are also considered, and are reported as being (broadly) not very significant.

    On the other hand, the average financial gain to the state…

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    1. Andrew Fisher

      Worker

      In reply to Sam Yates

      I totally agree with you. I would also point out that the user pays approach treats education as a personal fanancial investment. This means that students are more likely to "invest" in a career with higher returns, ignoring those fields that are of great benefit to the country, but not as highly remunerating.

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