Finding a cheaper way of delivering higher education

In a sign perhaps that the higher education sector is worn out from seemingly endless reviews, the base funding review received only 161 submissions compared to 353 for the Bradley review.

I’m yet to read more than a fraction of the latest batch (though I think I am safe in predicting that ‘gimme money’ will be the dominant message), but there is at least one interesting submission – from Lawrence Cram, a Deputy VC at ANU, though for reasons that will become apparent the submission is personal rather than institutional.

What Cram does is apply econometric analysis to the expenditure of universities, along with their teaching outputs (as measured by completions) and research outputs (as measured by publications). I will have to wait on people expert in econometrics to judge the value of Cram’s model.

Cram’s finding is that expenditure per completion is around $26,600 and expenditure per publication of $226,600. Figure 2 in Cram’s paper indicates that these represent improved efficiency since 1996. This is plausible, given casualisation of staff and increased class sizes on the teaching side, and the pressures of publish or perish on the research side.

Also consistent with theory is Cram’s finding that revenue increases over this period have increasingly been devoted to research. Almost everything backs research over teaching: the financial incentives from government, the preferences of staff, and the desire for prestige.

In what will be the most controversial finding of Cram’s paper, annual teaching costs are estimated at $8,750 – much lower than current government funding rates. Through an unexplained methodology, the Victorian Auditor-General arrived at a similar estimate for the cost per international student in Victorian universities.

Though these precise figures will be disputed, it is becoming clear that this is the key issue for the funding review. The source of the financial woes of public universities is that they are running integrated teaching-research businesses which rely on profits from teaching to sustain their research. As per student Commonwealth teaching revenue was cut in real terms 1995-2004, and then again 2009-11, their teaching profit margins were reduced, leading to cost cutting and international student recruitment to maintain the teaching-research model.

On my reading of the draft higher education provider standards, the teaching-research model is mandated for universities. What level of funding is needed to meet these requirements is something the review panel will have to decide.

Whatever the figure, however, this is clearly a very expensive way to run a higher education system. Creating a lower teaching-only funding rate and letting TAFEs and private providers into the system may allow some of the forecast expansion to occur at lower cost to students and taxpayers.

16 Responses to “Finding a cheaper way of delivering higher education

  • 1
    June 13th, 2011 23:58

    Looking at the state of private for-profit teaching universities in the US, where if the recent newspaper articles are to be believed, it appears Obama basically wants to close some of the worst offendors down (for what appear to be quite legitimate reasons), I’m becoming even less convinced that cheap teaching-only universities are a good thing (based on empirical evidence, not just theory). Perhaps a better way would be for the government to earmark some of the money it gives univerisities to teaching.

    I’m also yet to hear how you intend keep subjects like engineering going in teaching only universities. Which private providers are teaching those?

  • 2
    Andrew Norton
    June 14th, 2011 04:52

    Conrad – The issues surrounding the US for-profits have been to do with their recruitment practices rather than their courses (as I have observed before, in the US enrolling under-prepared people is seen as an unethical business practice, here it is ‘access and equity’).

    The US has a large number of undergraduate colleges, with public, private not-for-profit and for-profit ownership. Until very recently most Australian academics had little or no research output.

    While I think the nature of the academic labour market is a key issue, I think a significant part of the problem here is that for the last 20 years the message has been that if you don’t have a PhD there is no place for you. I’m sure there will be a market for teaching jobs across all the professions if the entry obstacles are lowered.

  • 3
    June 14th, 2011 17:56

    My recommendation would be to first look at some of the private providers that already exist and see what is good and bad about them. At the non-cheap end of the scale it seems fine (Bond; Various providers of IT certification, etc.), but at the cheap end of the scale, I can only anecdotally say it is awful (I don’t know if there is any real data, but this would be really useful as it would tell you how open-slather it could be before it gets exploitative). As I’ve complained before, we already have private providers that dishonestly market themselves as university-entry courses, and they’re awful (some owned by Kaplan I believe!). It would be interesting to know what type of rules would be needed to get around this problem.

  • 4
    Andrew Norton
    June 14th, 2011 18:53

    Conrad – But these are quite different issues to teaching versus research. Bond has low research intensity (though they are trying to build it up) but an impressive focus on the undergraduate experience. Notre Dame is also very low research intensity but it is very cheap no frills education that while not nearly as good as Bond is probably value for money. SAE Institute (now owned by Navitas) is a world leader in audio, video and interactive media education; so far as I know it does no research (in any case, it is has nothing to do with their accreditation).

    This is an industry with information asymmetry and sometimes a lack of third party accreditation (in the public unis too). But I don’t think teaching/research or public / private or for-profit/ not-for-profit provide any reliable guidance as to which institutions will be good and which not.

  • 5
    Rajat Sood
    June 15th, 2011 19:21

    Andrew, why do you say that “almost everything backs research over teaching: the financial incentives from government…” when in the next paragraph you note that annual teaching costs are much less than government funding rates? Shouldn’t this provide unis with strong incentives to curb research and expand teaching to the extent they can? I understand academics themselves might have other incentives, but the administration should want to do this.

  • 6
    Andrew Norton
    June 16th, 2011 05:18

    Rajat – There is certainly an incentive to expand student numbers, as indeed we have observed. I meant incentives for how resources are used – with weak incentives to invest profits back into the teaching business or to give discounts to students.

  • 7
    Rajat Sood
    June 16th, 2011 09:31

    Andrew, I take your point, but if there is a surplus to invest, why not invest it in a profitable activity rather than an unprofitable activity? But I guess Cram’s teaching cost estimate is an average cost that takes account of unis’ stinginess on teaching expenditure to date. If they tried to expand teaching significantly, the marginal cost of such a major expansion may be well above $8,750 per student and thus not worthwhile.

  • 8
    Andrew Norton
    June 16th, 2011 11:00

    Rajat – Because universities are not motivated by profit, but by the desire for prestige and the staff preference for research activity. Profit is only a means to these ends, and if they can make profits without delivering better services, then that’s what they will do.

  • 9
    June 16th, 2011 19:26

    Andrew – I don’t know what University you work for, but I can assure you that profit (or operating surpluses to use the appropriate term) are very high on the agenda at the University I work for. Of course as you note, so is desire for prestige, but many University administrations want to have their cake and eat it to.

  • 10
    June 20th, 2011 09:34

    I agree with Andrew. Unis are looking at hiring academic staff solely from a research perspective. I believe that some teachers may not interested in or inclined towards doing research and yet they are inspiring in the classroom. What happens to these teachers?

  • 11
    June 21st, 2011 14:12

    What this does not consider is that the prestige gained from research is a significant part of the product paid for by students. Students don’t just want a degree, they want a degree with the name of a prestigious institution at the top. This means that the money funneled from teaching into research isn’t a subsidy, it’s payment for an intangible product.

  • 12
    Andrew Norton
    June 22nd, 2011 06:09

    Caf – A point I have made myself in the past. The point of the post is that these products can be unbundled and teaching delivered more cheaply.

  • 13
    June 22nd, 2011 11:18

    But is there really a big market for teaching without a prestigious degree at the end of it?

  • 14
    Andrew Norton
    June 22nd, 2011 13:41

    At least the international student market suggests that the answer is yes. And it is surprisingly difficult to find evidence that employers are prepared to pay out on high-prestige degrees.

  • 15
    June 23rd, 2011 13:14

    “At least the international student market suggests that the answer is yes.”
    And the rest? If students really wanted cheap degrees from unknown places, then there is nothing stopping them from going to overseas providers now (many of which are completely online).

  • 16
    Andrew Norton
    June 23rd, 2011 13:45

    I’d be surprised if there were any overseas providers which were very price competitive with the public unis for Oz students, especially when the soft HECS-HELP loan is factored in.