Demand-driven system review: experts respond

The government should keep the demand-driven system of university funding, the review found, but what do the experts say? Shutterstock

The Federal Government has released a review into the demand-driven system of higher education funding implemented by the Labor government. The review, undertaken by David Kemp and Andrew Norton, largely supports the system, which removed caps from the number of Commonwealth supported university places offered. Education Minister Christopher Pyne will now prepare a response to the 17 recommendations, but first, here’s what the experts say about the review’s findings and recommendations.


Hamish Coates, Centre for the Study of Higher Education

Rubber band stretched white, then released, or stretched again? Can Australian higher education improve by jointly improving size and quality, or are shifts in price and productivity required? These basic principles, among others, were tackled in a review just released of the ‘national demand-driven funding system’ introduced by the Gillard Government in 2012, though with policy tentacles dating back to 2009.

Australia needs to grow its higher education system to compete academically and financially, but quality is important. What is really needed is growth in the productivity of learning, teaching and institutional management. The shift to a ‘demand-driven system’ was perhaps the major policy reform in the last decade to expand and diversify higher education. Did it work?

The review concludes, broadly, that it did. In summary, the review concludes the “there is no persuasive case for returning to the ‘capped’ system, and that the demand driven system should be retained, expanded and improved”. This is a major finding from two eminent reviewers. Of course, however, funding education is a matter which touches lots, and is never straightforward.

For instance, many of Australia’s university applicants still hail from schools and apply based on a single achievement rank. Admitting more students, therefore, means taking lower-ranked students. The report concludes rightly (drawing on prior research) that students with a lower rank on entry can still perform well, but the risks of dropout and poor performance are magnified, as is the need for professional individual support. While informed, the analysis of student outcomes is necessarily constrained, mainly due to data limitations. In any case, to help students not fail and ensure quality education outcomes there remains a need for ongoing improvement. Importantly, the review concludes that the demand-driven system spurred many education innovations, often involving technology. Over time, it will be important to see if these go merely to efficiency, or to productivity.

The review suggests that idiosyncrasies of the baseline policy (plus revisions) be addressed, by extending the funding model to Australia’s 130 or so non-university providers of higher education, and by extending the model in prudent ways to the qualifications below and above the bachelor degree. From certain angles this all makes conceptual sense, though perplexing contexts many impede implementation. The extension of public funds to private providers is controversial, for instance, as it further dilutes funds available to universities and at the cost of increasing per student funding. Crucially, the review sidesteps around any recommendation of price deregulation. In a politically expected move, the review recommends the removal of the Gillard Government’s population and disadvantaged group attainment targets—unlikely after five years to shape institutional or individual behaviour, and symbolic of a new perspective on excellent and equity.

Reviews such as this are an important means of guiding the evaluation and formation of public policy. Of course, it remains unclear if the Abbott Government will accept any of the findings or recommendations, and what if any policy will be initiated in response. Minister Pyne has yet to release a response. The mid-May Federal Budget will shed short-term light on this matter.


Tim Pitman, National Centre for Student Equity in Higher Education

The most significant aspect of the report is that it not only supports maintaining the demand-driven system, but extending it to sub-bachelor places, private providers and the vocational sector. It also recommends removing caps on postgraduate courses that offer community benefit, for example health degrees. Overall, this will help provide access and opportunity for a wide range of students. The review has confirmed that for some students, pathway programs provide the best preparation for university study and extending access to these places will help increase their chances of success, rather than enrolling directly into a bachelor degree.

The reviewers also confirm that quality has been maintained within the system despite its significant expansion. Overall, attrition rates are going down, which is a sign that the system is improving. However, the report recommends dropping enrolment share targets for low socio-economic status students, which is concerning. The most likely outcome of this will be that even if overall access for disadvantaged students does increase, it will do so even more unevenly across the sector than it currently is. Put simply, many disadvantaged students will find that access to higher education will remain limited to certain courses at certain universities. For example, the Group of Eight has been vocal about wanting the right to opt-out of Commonwealth supported places and charge full fees for some of their courses. This would make their universities less, not more accessible.

The report also finds that an increase in maximum student contributions is one way in which the cost to the government could be reduced. It is important to note that the report did not go so far as to make this a recommendation. A fairer way might be to introduce means-testing and require pay-as-you-go for those students most able to do so. This could significantly reduce future bad debt, without any additional cost to students. Overall, the report’s recommendations rightfully have been well received by the sector - but which of the recommendations will the Government adopt?


Geoff Sharrock, The University of Melbourne

The Kemp-Norton report is very informative, incisive and lucidly explained. It provides a good basis for evidence-based policy. It’s the kind of report we’ve come to expect from Andrew Norton, who, if he had a pop band would probably call it Fundamental As Anything.

The report gives the uncapped, demand driven system a very positive report card on key questions of widening access, lifting course quality and encouraging innovation. It recommends against reimposing enrolment caps on Commonwealth supported undergraduate bachelor-level degree places (CSPs), a view that the sector will welcome. It proposes to extend the demand driven system of publicly subsidised places to a wider range of higher education providers, to put them on a more level playing field with public universities. It also proposes to extend the demand driven approach to sub-bachelor qualifications, which are growing and important for student access and attainment at the bachelor level.

In the postgraduate space it recommends removing current caps on CSPs for fields such as nursing, where there is a combination of community benefit, skills shortage and modest earnings; but not for fields where full-fee demand is strong and there is no labour market shortage, such as law. Several of the recommendations are designed to remove anomalies, such as which institutions are eligible for public subsidy for their domestic students, and when domestic students pay different fees in the same courses.

I don’t find too many things to disagree with in this report, but others will. The more controversial suggestions, which don’t appear as firm recommendations, go to how the government might finance the higher cost of extending the demand driven system. Along with the proposals in Andrew Norton’s recent Doubtful Debt report, which included recovering HELP debts from deceased estates and overseas residents, this review suggests a loan fee for HELP loans (of say 10 per cent), to be added to the HELP debt, which students would repay at the same rate, but for longer. This would help offset the government’s carrying cost of HELP loans, which are already $30 billion and rising, and currently attract zero real interest.

Another suggestion in the report is to reduce the direct public subsidy rates for CSPs (which the report notes will cost the government over $6 billion this year) and raise the student contribution rates by the same amount, to maintain stable total funding rates for courses and institutions. The report offers plenty of food for thought on the longer term design and sustainability of the system.


Conor King, La Trobe University

University funding transcends the standard political divide to create a different split: between those who support consumer choice and the use of market mechanisms to achieve wide ranging access, whether to drive productivity and encouraged individual achievement or reduce social inequities; and those who prefer universities to be highly selective for the brightest and those with the right backgrounds.

The introduction of the demand driven funding system in 2009 highlighted this difference. It supports student choice, creates more of a market, and acts against discrimination on the grounds of superior prior academic performance.

The Kemp Norton review of its achievement confirms that the system is working well to give all Australians capable and interested in university education that opportunity. Recent data indicates 48% of students are the first generation of their family to access university, with a startling difference between the older universities with far fewer such students and those established since the mid 1960s.

The report addresses important long-term questions and more immediate needs for change.

Of the latter it rightly recommends including pre-bachelor qualifications within the demand driven system. This will give universities and students the flexibility to choose between initial foundation qualifications and immediate entry to bachelor study.

The approach to the postgraduate places is less convincing. More work is required to address the problem of the current badly structured mix of funded and fee based places for postgraduate qualifications. The Report’s recommendation to restrict funded places to a small set of course areas plus an arbitrary set of ‘legacy’ courses is not a viable solution. The problem of The University of Melbourne’s graduate degrees is considerable. No-one wants Melbourne to unpick its model but the funding that goes with it should not be a special favour but part of a coherent arrangement.

The big long-term change is the logical extension of funding to all higher education providers that wish to be subject to the full Commonwealth regulatory system. Already the system happily includes the non-public Australian Catholic University. The issue is whether the other providers can be trusted to use it well. The report rightly insists that any extension must be on the same terms as apply to universities where all undergraduate places are funded and regulated. Additional providers will not undermine universities but provide additional flexibility to meet short term needs.

Finally the underlying funding questions remain critical. As the report says “we do not recommend measures leading to a reduction in total university income per student” but it does set the grounds for a change in the relative balance of government and student contribution. That will be the focus for debate for some time yet.

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