One objective of the government’s recently announced funding changes for universities is to increase the number of graduates in areas of expected employment growth – such as teaching, nursing, agriculture, STEM (science, technology, engineering and maths) and IT.
The education minister said student fees in these degrees would drop. But what he didn’t say is universities would also receive less funding for these degrees, because the government had assessed they are currently over-funded.
We have modelled the shortfall in guaranteed base funding to universities for degrees in areas of employment growth, and others, using the latest 2018 domestic student enrolment data.
To educate 584,346 domestic full-time bachelor students, the government will save A$769 million per year. Students will be charged an extra A$476 million per year and universities will have reduced funding of A$293 million per year.
The reduced rate of funding to universities (of up to 17%), per place, for national priority courses sends perverse messages to universities. They will be receiving a lower rate of funding when they are expected to expand domestic enrolments.
It’s not as it seems
The basis for the government’s funding decisions is a Deloitte Access Economics report on transparency in higher education spending.
The reform package sees substantial reductions for student fees in certain national priority degrees – 21% for science and engineering to 62% for agriculture and mathematics.
As the table below shows, the government contribution for four of these courses (teaching, nursing, agriculture and mathematics) has increased.
But universities won’t be fully compensated for the student fee reduction for any of these courses.
The funding reductions for universities, per place, of between 6-17% will be a barrier to the minister’s objective of seeing more enrolments in these courses.
In sharp contrast to the STEM courses, humanities and social sciences students (except those in languages and English) will have to contribute much more of the cost, and the government significantly less.
As the below tables shows, universities can expect to receive increased funding, from 15%-55% for courses in languages, English, humanities and social sciences, law, economics, management and commerce.
But the government’s pricing signals are designed to redirect students from humanities and social sciences to courses of national priority. If these signals succeed – meaning fewer students will be studying humanities, and therefore paying the fees – overall university levels of funding for humanities will decline.
Does the government now expect universities to subsidise STEM subjects from humanities and social science domestic student fees in the same way they have cross-subsidised research and research training from international student fees?
As part of the reform package, the table below shows university funding, per place, for ten fields of study (including engineering, nursing and teaching) will reduce, and increase for 11 (including health, creative arts, and society and culture).
The level of funding reductions for national priority places, and in environmental studies (with a decrease of nearly $10,000 per place), are most significant.
What signal does the government seek to send about the importance of the environment for Australia’s future social well-being?
The government’s package indicates much of government savings ($769 million per year) will be redirected to rural, regional and Indigenous programs. This outcome will be of marginal benefit to metropolitan universities.
Issues for universities
The focus on national priority courses in government’s reform package raises some important issues for universities.
Overall, universities will receive less funding per student place than they currently do. This is at a time when universities are experiencing a massive shortfall in the billions in international student fee revenue.
Universities could, within their internal budget allocation models, restore funding for national priority courses by redirecting income from humanities and social science programs. But this would be counter-productive, divisive and inefficient for universities, as it involves budgetary opaqueness and removes incentives for revenue growth.
The reform package encourages universities to reallocate places across disciplines to reflect changes in student demand. If universities respond to desired changes in student demand by increasing places in national priority courses through reallocation from other disciplines, a fixed level of government funding will result in fewer places becoming available. For example, a student in engineering ($16,500) will attract 15 times the level of government funding than a humanities student ($1,100).
An issue for government will be whether the discipline-based changes in funding places will lead to gaming by universities, which may seek to redefine subjects to secure higher funding rates.
In humanities, the incentive will be to have subjects coded as English and languages. Environmental studies will receive increased funding if coded as agriculture. Legal studies may be presented as education. Costs will increase if this occurs.
Thirty two universities participated in the 2019 data collection for the Deloitte report the government’s funding decisions is based on. Of these, 13 universities were unable to supply detailed activity-based costing data.
The validity of the new discipline-based funding model will depend on whether the Deloitte report reflects true costs of university teaching.
Universities are already predicted to lose billions of dollars in international fee revenue in 2021 and beyond. A further financial impost would severely affect their capacity to maintain high quality teaching programs and undertake internationally competitive research.