The government has failed with its twofold attempt to create a single higher education system in which all providers are government funded with each able to charge students what they wish.
Now we need an open exploration of the various options for the future. Important to such discussions is a better understanding of how university funding is allocated and how much students should contribute.
To do this we have to look at the way universities are currently funded, what students pay, and how the fees would be used if universities were free to charge what they needed.
How does university base revenue work?
Universities’ base funding from government is driven by the number of students and the discipline of each unit they study. The intent is to ensure each university gets a reasonable share of the available funding, reflecting how large they are and the likely cost of the mix of areas in which they teach and research.
This table sets out the current 2015 rates:
Funding is higher for some disciplines (like engineering) than for others (like business) on the basis that in an efficient world a university should spend more on engineering than on business to produce decent graduates in both. The model assumes broadly similar approaches to a particular discipline across all universities and a focus on sufficient outcomes, not the best possible.
The variation in revenue across disciplines dates back to decisions in the early 1990s. The relevance of the 1990 relativities is increasingly dated: in 1990 engineering used many more expensive machines than business; now the widespread use of computers and related technology has helped narrow the gap.
The base funding review of 2011 concluded that no discipline needed less funding but that some, notably those at the bottom and top of the spectrum, needed more. The Innovative Research Universities (IRU) estimated the minimum cost of its proposals was a 17% increase in government funding.
What is base revenue for?
The funding is not “teaching funding”. It is for any purpose the university thinks suitable within the broad functions of teaching, research and use of scholarship. It is important to avoid telling the universities what they should do with the money.
Universities are not expected to spend precisely A$25,618 on each engineering student. They are meant to use the overall revenue to best teach the students they enrol and support research and other activities.
The allocation system strongly influences what universities spend. Hence it is not easy to answer what should be spent on a discipline because those involved are caught up in spending what they are used to getting.
How much should students contribute?
Having set the amount per discipline, the current arrangements then split it between government and student. There are three student rates. The government amount is the gap between the student payment and the intended total for the discipline. This produces 11 combinations of government and student funding.
The student rates reflect what governments over time have thought they could get away with. The formal rationale is a mix of the assumed cost of the course combined with the potential earnings for graduates.
Something that is questioned regularly is the fact that in some disciplines, such as business and law, students pay a high percentage of the course revenue (84%), and in others, such as medicine and nursing, they pay a far lower percentage (32%).
The argument that each student should pay a set percentage of the total cost is a narrow one – it targets the individual for their choices, and assumes the notional revenue for a discipline is really spent in that precise way.
Should a student pay more because the course they take costs more to deliver? The instinct is to say yes – we are used to paying more for items that cost more to produce. However, education underpins what we each can do with our future. It is not a purely individual outcome.
We each need someone to be an engineer, a nurse, a dentist, a scientist or a social worker. From the government’s whole-of-society perspective the system should support each individual to pursue their own potential with the expectation that it will pay off through an effective working economy.
Earnings by degree are also highly variable. The Grattan Institute’s higher education researcher Andrew Norton has done a lot to identify earnings by different degrees based on census data where graduates report their field of study. His data shows both that graduates with some degrees, such as law, tend to earn more than others, such as agriculture, while for some graduates’ earnings are spread widely, such as information technology. In all fields there is considerable breadth, with large overlaps for all except male medicine graduates.
Australia is rare in having highly discipline-specific student fee bands. In many systems with student charges the fee is common across the institution or the system. The English use a maximum of £9000 (A$17,300) across the board, with most universities charging the same across each degree. Many US universities do the same.
The argument for a common charge is that the student earns a degree, with the government ensuring sufficient funds for that degree. If I get my arts degree should I fuss that the scientist has more government money invested in her, if we both receive the needed level of teaching, facilities and support?
If all students paid the top-level charge that business students pay then this would raise around $1.2 billion, according to estimates by the IRU in April 2014. If business students can pay such amounts why can’t everyone else?
What happens if fees are deregulated?
Discussion about fee deregulation has been hampered by assumptions relevant to the current system. If the student could be paying any amount it throws open the question of how much could or should be spent on a particular course.
In a world of deregulated fees the government is giving an initial subsidy against an unknown total resource – because the university could charge the student any amount it chooses.
Once fee constraints are removed it is harder to say there is some benchmark resource for a discipline when the point of the system is to allow variation and difference.
The government argued in 2014 that students should pay about 50% of the cost of their degree, up from around 42% now. That may be plausible to some.
Its weakness was that in a deregulated system the student charge could be at any level so there was no basis for the 50% estimate other than universities clawing back exactly the proposed reduction in government funding, no more and no less.
In a deregulated world there is no reason that engineering need be resourced significantly higher than business – for two reasons.
First, a university could decide that it wants to maintain engineering at the sufficient level now possible but greatly ramp up the intensity of teaching for business, through more staff and more resources.
Second, a university could decide to significantly increase the staffing available in all disciplines, reducing student-staff ratios back to past levels. This would reduce the differences across disciplines driven by non-staffing costs.
Hence the higher charges go the less difference is rational in the government subsidy and student fee by discipline – but also the less need for government subsidy at all. This is the rationale behind mechanisms that reduce government funding as fees rise.