Buying students

When students buy their way into public universities through full-fee places it is described as an ‘inequity’, but when public universities buy students – as many of them are busy trying to do now with scholarships – it is reported by newspapers without negative comment and I suspect with very little tut-tutting among readers.

The SMH tells the story of former North Sydney Girls High student Jie Gao who, because she received 99.95 as her Year 12 score,

was offered a $10,000 annual scholarship by the University of Sydney and the University of NSW, a $4000 annual scholarship from Macquarie University and a $13,000 scholarship – funded by business – to attend the University of Technology, Sydney.

Yet which practice is really more objectionable? The full-fee students don’t make anyone worse off – indeed they generally make life better for other students by easing the financial pressure on universities and (usually) by giving up a HECS place in their second preference course. But the main effect of the scholarships is to provide further reward to people who are already very fortunate simply by virtue of their academic ability, and many of whom will also come from the privileged backgrounds that tend to produce very high school results. Though many universities have donations and endowment income that they have to spend on scholarships anyway, surely need would be a better basis for distributing it? And if the money comes out of general revenue, scholarships deprive cash-starved teaching activities of much-needed resources.

‘Merit’ scholarships are offered because of status competition between universities, as status partly comes from enrolling the best school leavers. But scholarships probably aren’t highly effective in doing this. As Jie Gao sensibly says:

she would make her decision according to which university and course she preferred.

I’d guess her choice is between UNSW and Sydney, which offer identical scholarship packages. So the scholarship will be a neutral factor, as it will be for other very bright students. Both universities, and their other students, would be better off if they had never started this status competition and instead spent the money on something that would make a difference.

Only UTS really has anything to gain by trying to push its way into the NSW higher education status game, and this is presumably why it is out-bidding UNSW and the University of Sydney. But how prestigious can you be if you have to pay bright students to attend? Isn’t this just a relationship of convenience, like the ugly but rich old guy with the attractive young woman who is really only after his money? And if the student is ambitious, what makes more sense – an extra $3,000 a year (less tax) or being with other very bright students at UNSW or Sydney, where the long-term networking could be worth much more than the added scholarship?

Perhaps the better measure of prestige is not 99.95 students, but how much the full-fee students are prepared to pay. If students are willing to pay top dollar, universities know they have something that people really want.

12 thoughts on “Buying students

  1. This process is not so much about buying high achieving students – it is about purchasing high-profile alumni. The (perhaps not very strong) presumption is that a high achieving student will go on to be a high profile achiever and the University will be able to point to them in the future as a person educated at their institution. An institution in NSW like Sydney University, of course, is far ahead in these stakes, being able to point to numberous Prime Ministers, cabinet members, High Court Judges, international and national business people etc etc – this is why those with less illustrious off spring need to buy them…

    Of course, there is also the possibility that thier students will go on to be a *high-earning* alumni and remember fondly (and generously) their old alma mater.

    And this is also, of course, a very US approach. Generally one finds that in designing these sorts of programs the Australian public institutions are looking with an envious eye at the very successful programs of US Ivy League Universities – which are of course, a very different kettle of fish in a very different society!


  2. If university places are to be allocated accordiing to efficient market principles, the qualification on the basis of an exam mark should be dropped, and all places should be auctioned.

    Those applicants who value their likelihood of completing the course, multiplied by the net present value that they believe they can leverage from the qualification, will be prepared to pay the highest fees. (This only assumes, as is the case, that there is a lender prepared to fund students against the security of their future earnings stream.)


  3. I don’t know if the incentive driving this behaviour is the competition for students who will become high-profile or generous alumni. That seems to reflect thinking that is a bit too long-term to be credible. Presumably universities don’t want to waste money. Maybe they want to attract the high achievers to make their full-fee product more desirable and they believe this strategy to be more effective than improving teaching. It’s relatively low-cost and quick-acting whereas improving teaching is a long-term project and reputations for teaching take a long time to change and filter down to school leavers. As for UTS, if it’s offer doesn’t work, it hasn’t lost anything! None of this means that greater freedom for universities to offer full-fee places would not be a good thing.


  4. Andrew, I’m not sure why you’re worried about UTS spending money buying bright students. I disagree with Joel – I think merit scholarships are basically buying peer effects. Having a smart kid sitting next to me is an input into the education production process just as good faculty are. So just as I don’t mind UTS paying money to poach smart faculty from GO8 universities, I don’t mind them spending scholarship money to buy good students.

    Of course, both processes benefit the elite more than the ordinary student, which is why I’d support progressive taxes (for faculty), and needs-based scholarships (for students from poor families).


  5. Andrew – I agree there are peer effects, though neither Sydney nor UNSW need to buy them. But how many bright peers would UTS need to get to make a difference to their classes? As you half-imply, they might be better off spending the money to get top teachers, from whom everyone in the class could benefit. I think this is a case in which a fully market approach to education and egalitarianism go hand in hand; we sometimes forget that they had common enemies in the aristocracy, which universities are trying to emulate in their status preoccupations.


  6. Andrew, we know approximately nothing about how peer effects operate at university. Maybe you need to have one in the next seat, but it could be that just a few clever questions in a big lecture theatre can really improve the learning experience. Or perhaps there are other factors going on – I know my fellow lecturers are a lot happier if there are just a few kids in the class that they regard as ‘honours material’. My point is that I don’t have enough information to second-guess UTS’s decision, and the UNSW/Sydney response seems predictable enough.

    But I think we agree – in broad terms at least – on the policy prescriptions. I don’t take you to be saying that the feds should outlaw merit scholarships, just promote needs-based ones.


  7. Further to this, the financial wealthy classes of Australia often turn their backs on universities altogether as far as attendance goes, eg Packers. Although, the Libermans did set up a chair at Monash in spite of their offspring dipping out of higher education to some extent.
    To some extent the PM of Australia is a union leader for their purposes.


  8. Andrew – A lot of the US research focuses on out-of-class interaction, finding generally positive results. Perhaps the confounding variables in the classroom make that harder to study. But time limits the capacity of bright students to interact meaningfully out of class, suggesting that you would need quite a few of them for the effects to be widespread. The lower prevalence of living with other students and the de facto part-time nature of study in Australia (due to long hours of paid work) all count against these interactions too.

    I’m not saying the feds should do anything, just offering some gratuitous advice on how universities should organise their student recruitment and undergraduate spending.


  9. Rothschild and White claim that peer effects (they call them externalities) that bright students give poorer students mean that low quality schools should bid more for bright students. I agree with Andrew Leigh.


  10. There may well be externalities to having bright students in your class, but unless the scholarships induce the bright kids to go to university instead of dropping out, all they do is (1) redistribute $ to bright kids; and (2) cause a reallocation of bright kids between universities. I don’t care so much if the universities making the grants are private (the $ come from other students at the university who are presumably willing to pay the premium to be with bright students, or from donations), but in public universities a lot of the $ come from general taxpayers, and I don’t see this as a particularly equitable redistribution in that case. Seems to me more like states competing to offer incentives to build a car plant in their state rather than another: we generally agree that’s not great policy don’t we?

    Andrew L’s point that teachers care about having one or two bright students fits with my experience – but it’s not externalities to the teachers we should be worrying about, is it? (Actually, not quite true of course, and may explain why high quality profs might want to go to high quality institutions, but it is a bit off at a tangent.)

    There is some research for Canada that suggests these types of scholarships did little to change the distribution of bright students across universities. It’s pretty preliminary, I think, but probably more relevant to the Australian case than similar US research.


  11. I have often wondered why the HECS price for a course is seen as the fair price and full-fee paying places stigmatised. Surely it is only staus quo bias. HECS places could just as easily be recharacterised as a type of government funded scholarship that gives a discount on the full price to school leavers with higher scores. As Andrew points out, no one before has had a problem with brighter students paying less.

    I think Andrew might miss something, though, when he says that universities would be better off if they’d never started the undergraduate arms race. More and more the brightest school leavers in Australia are attracted to elite overseas institutions (just as the brightest graduates always have been). Scholarships are not only a way for Sydney University to compete against the University of New South Wales, but against Harvard and Oxford.


  12. Laszlo – I had quick look at Harvard’s website – 14 undergrads from ‘Oceania’, presumably mostly Australian. Whether they are people who travelled there or are the children of expats I can’t tell. But I really doubt scholarships would make a difference either way – who would turn down a chance to study at Harvard for A$10K? I think the key issue facing Australian higher education globally is not student costs, as we are already relatively economical. It is that we are stuck in the bargain basement end of the market, without any universities capable of offering first-rate facilities and teaching.


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