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Creating a quasi-market in higher education in Australia

The 2014 Federal Budget has turned the higher education sector into a market system. AAP

The introduction of the demand-driven system for undergraduate places in 2012 saw the differences between the government regulated world of public universities and the market-driven world of international and postgraduate education diminish. With the federal budget that difference has almost disappeared.

In the demand-driven system, domestic students wanting to attend university can choose which university and which program they wish to take, subject to meeting the entry criteria. The government will now extend this open access to diploma and associate degree places.

Access to government funding for these undergraduate and sub-degree places will be extended to non-university higher education providers both public and private.

As a result, Australia’s public universities will now operate in what can be described as a quasi-market, rather than as public universities funded by federal government.

Continuing cuts in the government subsidy per higher education place have accompanied greater access to higher education. It is a small step from an open system of higher education to a market system of higher education, when governments are unwilling or unable to fund an exponential rise in total funding to higher education. Our public universities will now operate in a ‘quasi-market’ which is uniquely Australian.

Student subsidies invest in more than just students

Offering government subsidies to a larger number of higher education providers is likely to increase the number of subsidised students. This increases pressure on government to reduce the subsidy per place.

Many non-university higher education providers have lower costs than public universities, having less costly infrastructure, less costly staff, and no requirement to provide funding to support research and higher degree students. Nor do they typically support scholarships for students or maintain costly facilities such as museums, art galleries, or sporting facilities open to the community. Most are clustered in capital cities and do not support regional provision.

Currently the government subsidy for an undergraduate place varies by field of study, covering differing proportions of the total cost. Most importantly this subsidy includes support for the research and higher degrees undertaken in public universities, as well as the maintenance of their campuses and related cultural and sporting facilities.

Funding for teaching, government subsidies and student fees, also supports research within public universities. Research is principally conducted by academics with responsibilities for teaching and research and these staff are paid largely from student fees and subsidies.

In other words, the current government subsidy for undergraduate degrees in universities is supporting a range of public activities beyond educating undergraduate students. The government is investing in the social good of community and the research and innovation of this major engine of the nation’s research.

The logic of the “quasi market” created by government in the higher education sector, demands the funding subsidy allocated should reflect the service being purchased. Otherwise the government is subsidising a range of activities that it may not wish to purchase from all higher education providers.

Government funding and deregulation of fees

Universities get their funding principally from two places: government funding and student contributions or fees. Australian domestic student contributions in public universities are already high by OECD standards.

The federal budget contends that student contributions could and should be higher, given the benefits graduates gain from tertiary education.

In the logic of a “quasi-market” for undergraduate places with different government subsidies among providers, student contributions shouldn’t have to be the same among providers either. If the government can purchase only those services it requires, why should a student be required to pay the same contribution for a higher education institution that is offering a full campus experience as for one that is not?

Variation of student contributions or fees already occurs in the full-fee domestic postgraduate area in Australia. Here the students have access to deferred contributions through HELP so that they do not need to pay fees upfront.

Public universities will now, along with private providers, have the ability to set the price for their education at a level that will allow them to maintain the range of services consistent with their mission. This will produce diversity in fee levels - although inevitably many may be higher than the previous student contributions.

Australian public universities have already been operating in open markets for international students and nationally for domestic fee-paying postgraduate students. In these markets the student chooses the university and the university sets prices for places and determines the number of places it is willing to provide.

Australian universities set different fees among themselves and across the degrees they offer. They moderate fee increases consistent with their judgement of what is appropriate and the market circumstances in which they find themselves. For example when the Australian exchange rate increased and with it the cost to many international students of the fees set by Australian universities, most universities moderated or reduced the fees or the fee increases proposed.

From 2016 fees set by Australian universities for new domestic undergraduates will differ across universities, and the responses of students will change the shape and nature of higher education in Australia.

Apart from the continuation of HELP, a much larger investment in scholarships for students to ensure that the disadvantaged are able to access education on their merits is necessary. The scale of scholarship provision will need to increase substantially because the changed arrangements for repayment of HELP and the higher fees that will occur in many degrees will make the burden on graduates more onerous.

Markets and regulation

Markets in public services do not just happen. Governments create them. And the circumstances of their creation are very important for the effectiveness of their operation and to avoid unintended negative consequences.

In the 1980s government allowed public universities to operate in international education markets. The operation of this market in Australian higher education has changed with the creation of more sophisticated regulations, but the quality of education and outcomes for international students is high.

In contrast, a change in the rules of the market in vocational education for new vocational education providers saw various quality difficulties emerge, due to a weak regulatory regime.

In extending government subsidies to a range of higher education providers beyond those traditionally charged with this role, government relies on the regulatory regime to underpin standards and must set a price that reflects the public service they intend to purchase.

In opening access for undergraduate and associate degrees government has recognised the differing requirements of universities and provided for differentiated government subsidies.

In deregulating student fees from 2016, the government has allowed universities the autonomy now available to non-university higher education providers to set the price for the student contribution. To do otherwise in the face of substantial cuts to government subsidies would have devastated the university sector in which Australia has invested so much and from which so much is gained in economic and social prosperity. Without the autonomy to set fees combined with the obligation to extend support to students through scholarships (both government and philanthropic), the new market would undermine equity.

This newly created ‘quasi-market’ will change profoundly higher education in Australia. The outcomes are now beyond the control of government.

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