Out-of-control Vice-Chancellors?

The final 2009-10 budget outcome released today shows that exenditure on higher education blew out $200 million more than expected at the time of the May 2010 Budget. And even then they were forecasting a big increase on spending on top of what had been anticipated in May 2009.

What’s driving these financial blow-outs is a massive rush to enrol students before the 2012 lifting of caps on funded enrolment (which has not been legislated).

An article in the AFR a couple of weeks ago reported data showing 17 universities appear to be enrolled above the current 10% above-target funding cap.* Six are 17-19% above their original target number of funded students. For the additional students above the 10% cap universities get the student contribution amount (commonly called the HECS payment), but no Commonwealth subsidy.

This means that for unis the financial attractivness of over-enrolment varies a lot depending on discipline. For law and business courses where the Commonwealth subsidy is low anyway little is lost by over-enrolling. But in courses where the subsidy is high – 80% of revenue for science, for example – a lot is sacrificed.

If I was a VC I’d be very worried about this. But not University of Canberra VC Stephen Parker, 18% over-enrolled: ‘Very pleasingly, IT and science numbers are up.’

The stated reasoning by various quoted uni officials (not Parker) is that they are preparing for 2012. A Deputy VC at the University of Western Sydney was reported as saying that the students they were enrolling now were ‘almost at marginal cost’ and that when full funding comes in 2012 ‘we can invest the money in some future developments’.

This is actually one of the most important statements by a university official in recent times, confirming that at the margins Commonwealth funding per student rates – despite endless claims of their inadequacy to the contrary – are actually profitable (and international students hugely profitable).

I think this puts the higher education sector’s claims for across-the-board per student funding increases in serious question, and makes the complex relationship between average and marginal costs an important one for the still-promised review of teaching funding.

The timing of these words and deeds could not be worse for long-term uni revenue/rent-seeking. When the government was trying to boost enrolments would have been just the time to put the squeeze on and not take additional students until the government increased the price. Instead, they have volunteered the information that they don’t really need the money that badly after all.

I’m not clear why the over-enrolment had to start in 2010. Many of the students who enrol this year will spend only one year in the new funding system, and two years at ‘almost marginal cost’. Waiting another year or two would have been a better financial and political strategy.

* This is commonly expressed as a maximum of 10% above the agreed number of students, but it is actually 10% above the funding available for the agreed student numbers. Depending on which disciplines they are in, a larger or smaller number of students may break the cap.

5 Responses to “Out-of-control Vice-Chancellors?

  • 1
    Mookster
    September 24th, 2010 15:18

    If I am reading the commentary on p.4 of the Budget Outcome correctly, changes in expenses include a reduction of $277m in HELP expenses due to an actuarial change in the expected repayment profile of HELP loans.

    This offsetting reduction means that other parts of higher education spending must have increased by close to $500m, in order for the overall increase of about $200m relative to the May 2010 budget estimates.

  • 2
    Andrew Norton
    September 24th, 2010 16:09

    Mookster – Yes, I think you could be right. I will see if I can get a more detailed version of these accounts next week.

  • 3
    Joseph Clark
    September 25th, 2010 00:13

    Yes.

  • 4
    charles
    October 6th, 2010 08:57

    There are fixed cost and variable costs, I would think even for science that variable costs are no that high.

  • 5
    Andrew Norton » Blog Archive » A radical plan for British higher education
    October 18th, 2010 15:05

    […] can make good judgments at the margins as to which applicants are worth selecting. But given the cost blowouts in Australia I can understand why the Brits may want to take another […]