Contrasting takes on how much the government contributes to uni costs

The data from Figure 4.1 reveal that there has been a radical change in the nature of funding, particularly from 1987 to 2000. … the increase in revenue coming from students, which went from just a couple of per cent to about 25 per cent.

Bruce Chapman, Government Managing Risk, Routledge, London & New York, 2006, p.55.

Bruce Chapman, who developed the original scheme for the Hawke-Keating government, yesterday disputed the Howard Government’s claims that students are paying only about 25 per cent of the cost of a degree. …
“Does it stop people going to university? The answer to that seems to be no. But the next question is how much should students pay compared to taxpayers. We’re now at a level of about 45 per cent of the recurrent cost. I think the case for making that higher is very weak.”

Bruce Chapman, The Australian, 29 December 2006.

Ok, he’s not being completely inconsistent. The book – in an annoying feature of academic publishing – uses old data and the same basis for assessing the student contribution as the government, looking at what percentage of the whole university enterprise students pay for and not just the teaching component.

On my calculations, Chapman as reported this morning is right on the student contribution to the nominal cost of their tuition (ie, ignoring the cross-subsidy from fee-paying students), though if we allowed for likely bad debt it goes down to 38%. But in a debate where no data or fudged data are the norm, Bruce shouldn’t be surprised if his own words are quoted back at him.

23 thoughts on “Contrasting takes on how much the government contributes to uni costs

  1. I don’t see anything inherintly wrong with including the whole cost rather than just the tuition cost (especially considering how up to date staff in certain areas need to be) — I think universities should spend and earn money how they see fit — why should they have limits on the amount they can charge based on one component of their cost structure?

    Also, aside from the issue of regulation stopping it in Australia, if students want to go to cheaper teaching only liberal arts universities, there are countless numbers of them in the US (including many distance learning ones), some of which I assume must be cheaper than Australian HECS fees by now.

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  2. Conrad – Though the government can’t very well tie money to particular research projects, few if any of which will tie directly into teaching (including many ‘research only’ staff), and then say that this should be included in teaching costs.

    “aside from the issue of regulation stopping it in Australia,”, ie they should do this apart from the minor matter of it being effectively prevented! Australian students can’t get an income-contingent loan if they study at an overseas institution.

    But creating a market in higher ed is, of course, the solution here.

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  3. When we are comparing the students’ and taxpayers’ contributions, surely we should take account of Austudy and other taxpayer subsidies given directly to students.

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  4. Does Austudy have much to do with education? Not all students qualify for it. Eligibility does not vary by subject combination, by degree or by university. It might be better classified as income assistance. If so, it should be lumped in with the various other welfare benefits, rather than education subsidies.

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  5. I think Mark’s point is sound, though some people on student benefits would be on welfare anyway. The reason I have not done this in the past is that the government has not released financial data that distinguishes university students from school, TAFE etc students.

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  6. Damien wonders what Austudy has to do with education? I thought you had to be enrolled in an education institution to receive it. It is a subsidy to some students that lowers their cost of enrolling in university (it covers part of the foregone earnings cost and could be spent on the direct costs of education). Yes, only some students get it and it doesn’t vary by course. But if we gave out an income tested uniform voucher, would you call that a welfare benefit?

    Last time I looked (a decade ago) the present value of the HECS debt accrued by higher education students each year didn’t even cover the Austudy and Abstudy payments to higher education students. so the net contribution of domestic students to the taxpayer was negative (things have probably changed now, and this was before fee-paying domestic students).

    The government does release data on the numbers of higher education students receiving Austudy. I assumed they each received the average Austudy grant (probably an underestimate as they probably receive more than a high school student).

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  7. It would depend on your purpose. If you are trying to measure government subsidies to tertiary students, then you would include Austudy. However, if the purpose is to look at who bears the direct cost of education, then I don’t think Austudy should be included. Students living costs would have to be incurred regardless of whether they sattended university or not. Furthermore, austudy is not a contribution towards the costs incurred by a university in providing a degree. The rationale for Austudy seems to be different to the rationale for the tuition subsidy and the rationale for HECS. Austudy is allocated on the basis of financial disadvantage, while tuition subsidies and income contingent loans to students are not allocated according to financial disadvantage. To some extent, it might be possible to view austudy as primarily an equity measure, tuition subsidies as an attempt to overcome a market failure associated with Pareto relevant positive externalities and HECS as an attempt to overcome problems in the capital market.

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  8. Mark, I didn’t see your second comment before posting my previous comment.

    I suspect that an income contingent voucher (a voucher whose value varies by students, or their parents, income or wealth) would be a combination of a welfare benefit and a subsidy to overcome positive externalties associated with higher education.

    The mere fact that you have to be in education to receive austudy does not mean that it is best characterised purely as an education subsidy. You have to be looking for work and unable to find any to recieve unemployment benefits. As a result, some long term unemployed people may be moved onto disability pensions. Most pewople would consider both of these to be welfare payments.It seems to me that there is a different rationale for things like austudy, unemployment benefits and disability pensions than there is for tuition subsidiesand HECS.

    There may be another sense in which austudy could be viewed in a different light, however. If higher education is associated with higher incomes and children are more likely to undertake higher education if their parents did so, then austudy might be a (possibly poorly targeted) attempt to overcome intergenerational disadvantage.

    Why is a comparison between the present value of a HECS debt and austudy payments relevant? It would not make sense to claim that full fee students are receiving the same tuition subsidies and access to government backed income contingent loans as Commonwealth supported students. Furethermore, some Commonwealth supported students don’t recireve austudy. The present value of their HECS debts will exceed their austudy payments.

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  9. Slightly OT: There is a magnificent letter in the AFR today (9 January) from Giles Pickford of Towradgi NSW. It ends,

    Therefore what must be done for the good of the nation is that the best universities should do anything they can to cut themselves free of government funding entirely.
    One way of doing that would be a float on the stockmarket. it is preferable to be accountable to the Australian Securities and Investments Commission and the Australian Competition and Consumer Commission than to any minister of higher education, now or into the future.

    Well done that man. I’ve been saying this to anyone who’d listen. Now there are two people with sensible views on Australian Higher Education. 🙂

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  10. How many of the world’s top universities are publically listed companies? I actually don’t know the answer to this, but I suspect that it is few if any. If this is the case, is it likely that running a university as a publically listed company isan optimal strategy? Probably not, I suspect. It might not even be the best approach given the current regulatory structure.

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  11. One of the world’s biggest universities (Phoenix) is listed. ‘Top’ university really means ‘top research institution that happens also to enrol some students’, which is quite different to which institutions add most value for their students. Not-for-profits can do a good job at teaching, but they are also prone to producer capture and ineffective management, because there is no clear bottom line.

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  12. Presumably the universities that the letter writer that Sinclair mentions is referring to would consider themselves research universities. As such, the appropriate comparison may be with other research universities.

    The relationship between teaching and research may be worth further examination. There is a time constraint, which would suggest that to some extent, they are substitutes. Even given that some good researchers are also good teachers (while some may not be), comparative advantage would suggest they devote their time to research. Furthermore, there are probably good teachers who re not great researchers. All of this would suggest that specialisation may beappropriate. However, on the other hand, there are arguments that suggest they might be complimentary. Teaching a course in an area is a good way to develop expertise in an alternative field of a disciplone. Furthermore, research active faculty may be more familiar with the frontiers of their discipline, which is good for at least some of the students.

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  13. It’s not clear to me that research wouldn’t survive in a university MBO environment or a public listing. To be sure, some research wouldn’t but that work worth being done, would continue. Most of the admin functions, worth doing (and there are some), could be subcontracted out. A lot of ‘teaching innovation’ would come to a grinding halt, value adding teaching activity would expand. A lot of real estate would come onto the market and student satisfaction scores would increase.

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  14. To answer your questions Damien:

    “Why is a comparison between the present value of a HECS debt and austudy payments relevant?”

    It is relevant to work out total government subsidies to tertiary students.

    “The mere fact that you have to be in education to receive austudy does not mean that it is best characterised purely as an education subsidy.”

    Austudy is a subsidy to tertiary education no matter what the motivation for the payments. Surely you would agree the first home buyer’s grant is a subsidy to home ownership (even though not all home buyers get it) and the baby bonus subsidises having children (even though it need not be spent on the baby).

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  15. Mark, I agree that it is a subsidy to (some) tertiary students. I also agree with your other examples. If your purpose in to calculate the total cost of public funds devoted to tertiary education then you would use this figure and adjust it to reflect the fact that each dollar of public funds costs more than a dollar because of the deadweight losses associated with taxation. However, if your purpose is to look at the portion of the cost a university incurs in providing tertiary education (a poroxy for “competitive” tuition charges) that is funded by students and the portion that is funded by government, then austudy should not be included. I suspect that when people are comparing student contributions and government contributions, this is the scenario they often have in mind.

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  16. Sinclair, whether research would survive in dsome form or another is not really the issue I was raising. If a publically listed company was the optimal structure for world class research universities, then why don’t we currently see that structure being employed by the world’s top research universities?

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  17. Probably because there are barriers to exit in their existing ownership structures, and senior academics tend to be very conservative. What would need to happen is a couple of second tier uni’s privatise (via an MBO) then go public.

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  18. Damien,

    Assume that places at public universities cost $10,000. Take 3 scenarios;
    1. The government offers a student a free place at a public university.
    2. The government charges a fee of $5,000 but gives the student an Austudy grant of $5,000 if he attends a public university.
    3. The government charges a fee of $10,000 but gives the student an Austudy grant of $10,000 if he attends a public university.

    I can

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  19. The difference lies in the way the policy actually works, which is not in the scenarios you present. Lets ignore full fee places for the moment. Suppose the cost of providing a tertiary education is $100. The government subsides each students education by $50. It allows students to borrow $X in the form of income contingent loans, where X is some fixed value less than or equal to $50. Since we are ignoring full fee oplaces (including overseas students), lets fix X at $50. Then clearly, for each student, the gobvernment is paying for half of the cost of their education and the students are paying for half of the cost of their education. Now, maybe in addition to this the government might choose to offer students from poor families some income assistance. This might be a $10 per week subsidy if they are sufficiently poor and enrolled in full time education. This subsidy might have the impact of increasing the demand for higher education, if demand is sufficiently elastic. However, since demand already outsrips supply in most courses, this is unlikely to have much of an impact on the number of students if the supply of commonwealth supported places is fixed. You want to interpret this as the government paying 0.5+0.1y of the cost of higher education where y is the proportion of students who receive austudy. I want to measure the income assistance separately (although not ignore it!!!). From a public policy perspective, the reality lies somewhere in between the two bounds. Some of the students who recieve austudy might have recieved other benefits if they had not gone to university. If these benefits would have been higher than austudy, the fact that they go to university may actually reduce government allows on those individuals. For this reason, I think it is more convenient to consider the two separately. This has the added advantage that it focusses attention on the various rationales for public intervention. The rationale for austudy is very much income assisatance to the children of poorer families (although it may be poorly targetted). The rationale for the government subsidy is presumably some form of Pareto relevant external benefits from education. The rationale for HECS is presumably some form of capital market failure.

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  20. Slight correction: The expression for the proportion of government funding of higher education if you include austudy should be (0.5+0.1y)/(1+0.1y).

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  21. The 0.1y figure implicitly assumes that austudy is paid per year rather than per week. (I’m doing this on the fly!!!) Even then, I’m not sure that the expression needs to be rescaled. If you assume that the student spends the entire austudy cheque on repaying HECS debts, then the unscaled figure (0.5 +0.1y) would be correct. I still prefer to consider the three components separately. Disaggregated data is usually more usefuil than aggregated data.

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  22. then austudy should not be included

    While I understand your argument above and recognise different motivations for each payment, I suspect austudy should be included. One, it has an impact on the decision to attend uni and two, it reduces the amount of scholarship money uni’s need to find to attract students (or part-time work uni’s need to create to provide some income to students). I suspect it has a small marginal effect; the total cost of Austudy (including deadweight costs and admin costs) probably wouldn’t pass a cost-benefit analysis.

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