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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.