On Monday in the AFR I was calling (again) for a more market-driven higher education system. In the Budget tonight the government is taking some very messy first steps in that direction.
Under the current system, each public university (plus a few private institutions) signs a funding agreement (read, ‘agreement’) with the Commonwealth. This sets out the number of Commonwealth-supported student places the university must provide, and in which disciplines. If universities enrol up to 5% more than the target number, they get to keep the student contribution, but get no Commonwealth money. If they enrol more than 5%, for the excess they must pay the student contributions to the Commonwealth. Clearly, this has been a strong disincentive to expand – even if student demand is high. Once all Commonwealth places in a course have been filled, universities are allowed to offer full-fee places up to 35% of domestic enrolments. In a small number of courses, this too has represented an artificial restraint on university expansion.
These restraints are now going to be relaxed. It sounds like the funding agreements will be more genuine negotiations – I infer this from the statement that the Commonwealth will continue to require universities to take Commonwealth-supported places in some fields, such as nursing, teaching and medicine, implying that they will not be forced to accept them in other areas. Universities will now be able to enrol 5% more than their target number and get full Commonwealth (and student, as before) funding for them. Beyond the 5%, they will get the student contribution amount only. This is an incentive to expand, for those universities that want to – a good thing.
The 35% cap on full-fee places is to be abolished entirely. As the funding increases for Comonwealth-supported places are generally small, this will create an incentive to ask for fewer Commonwealth-supported places and replace them with full-fee places, so as to increase average revenue per student.
Perhaps worried about what might happen to weaker universities in a market where aggregate demand and supply are already close to being in balance, and with the potential for some universities to expand both their Commonwealth-supported and full-fee places, there is a floor in funding losses for under-delivery of Commonwealth-supported places.
It’s a long way from a student demand driven system. The base is still the funding agreement, which will largely reflect the historic distribution of places, not student demand. Private higher education institutions remain excluded, artificially restricting student choices. The absence of a voucher system that treats everyone equally will maintain the current difficult-to-justify distinctions between those in private compared to public institutions and those in Commonwealth-supported places at public universities compared to those in full-fee places.
But these reforms will facilitate movement around the edges. It is perhaps like moving from Stalinist central planning to Gorbachev-era perestroika.