Should higher education student numbers be capped?

New higher education minister Kim Carr is considering a rethink on the opening up of university places. AAP/Julian Smith

Australia may be going through higher education ministers at an extraordinary rate, but they seem determined to use their time in office. First Craig Emerson announced major funding cuts to universities, and now new minister Kim Carr is publicly reconsidering the demand-driven funding system.

This funding system is former prime minister Julia Gillard’s big higher education reform. She flipped publicly-funded higher education from being supply-dominated to demand-driven. Under the old system, the total number of university places was set by government. Now it is set by universities and students. Any university applicant offered a place can have one.

Universities responded to this change more enthusiastically than the government anticipated. With rapidly increasing student numbers, budget forecasts of future higher education expenditure were regularly revised upwards.

Carr, echoing statements by some university leaders, is suggesting that standards and quality may have been compromised by all these new students.

This is a polite way of saying that admission requirements are not as high as in the past. University applications data shows the number of applicants with Australian Tertiary Admission Rank (ATARs) below 70 receiving offers increased by more than 40% between 2009 and 2013.

A re-capping of the system would bring these numbers back down again. Universities ration places by prior academic ability. Fewer places mean fewer lower-ATAR students.

The money saved by depriving lower-ATAR students of higher education - or forcing them into the full-fee colleges - could then be used to reduce the university spending cuts announced in April.

But are lower-ATAR students equivalent to low standards or quality? It is true that lower-ATAR students are not as academically well-prepared as students in an earlier “elite” higher education system.

The chart below shows successful course completions by ATAR for students who started higher education in 2005. The available data stops in 2011. As some students are still enrolled then, eventual completions will be a little higher.

Department of Industry, Innovation, Climate Change, Science, Research and Tertiary Education data supplied to Grattan

The chart tells a complicated story. There is a reasonably strong relationship between ATAR and completion. Ninety per cent of students who began their degrees in 2005 with ATARs of 95 or more, completed a degree by 2011. By contrast, for students with ATARs below 70 completion rates are generally clustered in a few percentage points either side of two-thirds.

This suggests that ATAR-based rationing is a broadly efficient way of allocating scarce higher education resources. But the chart also shows that rationing by ATAR deprives many people who could complete a potentially life-transforming education.

The people who would miss out are not a random group. They would disproportionately be the low SES students Gillard’s policy was trying to attract. It is no coincidence that universities began attracting more students from a low SES background at the same time the demand driven system was phased in. And the applications and offers data now suggests further growth.

Capping the system to provide more per student funding for those left behind would be a case of robbing from the academically poor to give to the academically rich.

Under current law, the easiest way to control student numbers is to impose limits on how much money a university can receive. This could be done via university funding agreements, which have not yet been signed for 2014.

So as not to look like the less-prestigious universities are being unfairly targeted, the government would probably cap every institution.

And with that, we would be back to the old system - historical allocations of student places, frozen in time.

That would be bad news for the students still in higher education, not just the would-be students who would no longer get a place.

It’s the new flexiblity and fear of competition that has meant that applicants are now more likely to get into their first preference field of study.

The new freedom for universities is allowing innovative new higher education options, such as Swinburne Online and Curtin Online. It has encouraged new relationships between universities and TAFEs.

The demand-driven system is the big higher education achievement of Labor’s term in office. It would be a policy tragedy to start unwinding it now.