Sub-prime courses and students?

As Rafe and others have pointed out, the US financial meltdown is giving market critics a long-awaited opportunity. Indeed, over the last few years things had grown so desperate for them that they had given up arguing that capitalism didn’t work, and instead resorted Clive Hamilton-style to claiming that it worked too well, causing unhappiness and trashing the planet.

But now the argument is swinging back to markets don’t work. The National Tertiary Education Union is jumping on this bandwagon as the Bradley committee considers the future of Australian higher education, with several submissions (including of course mine) calling for relaxing quantity and price controls.

In this week’s Higher Education Supplement of The Australian, NTEU Policy and Research coordinator Paul Kneist says:

Opening up the higher education sector to competition to give potential students greater choice no doubt echoes the calls for financial deregulation in the ’80s.

Specialised private providers with lower costs will enter the market. Student choice will increase and the cost of a higher education qualification may fall. Universities will be forced to respond if they are to remain competitive.

However, will increased competition and lower prices result in lower entry standards and a lowering of the quality of education being delivered? Will there be a proliferation of sub-prime qualifications?


Nobody is calling for lower accreditation standards; indeed this is the one area where I think the current system is under-regulated, with self-accreditation creating clear conflicts of interest. This doesn’t mean that the government needs to do the accrediting, just that independent organisations should assure students and employers of academic standards. Student outcomes across all institutions could also do with more scrutiny.

My prediction is that average quality would almost certainly rise after deregulation. This is for the following reasons:

1) Price control has kept average expenditure per student lower than it would have been in a market; more fee income will let universities provide better facilities, reduce class sizes, and be more competitive in the market for staff.

2) More competition will create a greater consumer focus; in my submission I argue that this is already evident thanks to the international student market. I hope that better information about courses and facilities will increase this effect over time.

3) We are likely to see more growth in the teaching-only private sector; this lacks the conflicts caused by staff who are rewarded for research rather than teaching, and is as I understand it largely free of NTEU influence. The NTEU, like education unions generally, works to prevent staff being dismissed, when sackings are a vital part of quality control.

The most interesting issue here is ‘sub-prime’ students. It seems that when public universities recruit students with weak academic potential it is ‘access and equity’, but when private institutions do it entry standards are being compromised.

At the current time, there is no formal regulation of entry standards. In practice, quotas on student numbers – set for budgetary rather than academic reasons – combined with rank order of academic merit selection have largely excluded very weak applicants from receiving places.

With full deregulation, these quotas would disappear. While in some versions of voucher schemes minimum entry standards would be created, I have argued in the past that these are inevitably arbitrary, given the modest correlations between prior and future academic results.

What we need is not to pick an entry standard, but to provide much better information about academic and employment prospects for people at varying levels of initital academic performance. It will be then up to the student to decide whether he or she wants to risk the time and money involved in study. The protection to the community from incompetent ‘graduates’ is testing of what the student has achieved, not excluding people who might turn out ok from ever getting an opportunity.

8 thoughts on “Sub-prime courses and students?

  1. You mention that you think deregulation would allow reductions in class sizes due to higher fee income. Can you explain how you think the optimum class size would be established by a commercial institution in a deregulated environment?

    My initial thought was that it would be a tradeoff between profit per class (larger class sizes = more profit) and demand (all things being equal I’d expecct larger class sizes = lower demand for courses). I don’t really have the inclination to think this out any further at present, but I’d be interested in your thoughts.

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  2. Where I work we get feeder students from some of the places that offer private courses that I think are sold to students who didn’t do well in Year 12 as entry courses into university. Students in these courses always get top marks (which is annoying, because it doesn’t allow us to discriminate between them even if we wanted to) and they are almost aweful, so it’s not clear to me private providers are going to do a better job in many cases — Australian universities are already cheap and most of the demand is going to be at the cheap, not the expensive end.

    Also, if you look at the US, what you find is very mixed. There is a whole echelon of private universities that don’t offer anything particularly great or of a particularly high standard (generally Liberal Arts degree). Most of the “private” providers (which I put in quotes because they still get vast government subsidies) that are really good generally have lots of money and also act as research universities — but they can only do this because people in the US are willing to pay real fees (unlike Australia — people in the US often save their entire lives to send their children to uni) and because they have often accumulated huge amounts of money from rather different times. In my books, you can look at Bond as an example of the best that is likely to happen. They do a job not dissimilar to public universities at the undergraduate level, but most of their advantages will be wiped out in the coming years as other universities start doing three semesters etc. (especially if Griffith does), which means they’ll just be bottom fishing (which is a good thing if they can get the students up to a decent level — we’ll see).

    Personally I’m not against deregulation of the university sector (in fact I support it), but I think that, as the Bond example suggests, it’s not going to lead to a great jump in standards. It may lead to a lot of people wasting time and money if the standard is like the feeder courses we see that are marketed at certain groups of students. The main advantage in my books is that it might stop the current universities declining, but as soon as they try to jack up fees, we’ll see the constant public whining so this may be politically unfeasable.

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  3. Simon – One reason I am confident that lower class sizes will flow from price deregulation is that lower class sizes are already observed in the existing price deregulated sector. The feeder colleges that Conrad mentions advertise lower class sizes, and Bond promotes the smallest class sizes of any university in Australia and a mentoring approach.

    ‘Standards’ here is a very confusing term, because it means three separate things: entry standards, the standard of the course (curriculum, teaching, assessment), and exit standards (how good the graduates are, which will be determined by a mix of the first two standards). Since deregulation will increase opportunity, it is right to say that average entry standards will decline slightly, though current demand statistics suggest that most people who did poorly at school don’t want to go to university. I think deregulation will tend to increase the standard of teaching. The issues of curriculum and assessment, as I noted, need more third-party involvement, and changes here will be the main factor in their long-term standards.

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  4. Andrew, it’s easy to work out how “small” classes can get. Let’s say you get $10,000 per year from one student and a single staff member, including oncosts, costs $100,000 per year. This means you already have a 1:10 ratio, without even considering other costs. Given that other costs (buildings to rent, computers, etc.) might realistically add 50% to your costs per student ($5,000 per student), this means the best you can hope for is about 1:15, somewhat lower than most public universities now, but not a whole lot — and I think that’s very optimistic pricing (note that most public universities often don’t consider some costs, so the staff/other-spending ratio is not reflective of what a new provider would have come up with).
    The other problem that you will get with private Liberal Arts style degrees where you keep costs down is that the normal universities many not be willing to take students into their honors/post graduate programs which are almost never offered by these private providers (Bond I think is exceptional in this matter — but I believe it got that via exceptional government help — I’m thinking more of the US style system). Where I work, for example, we wouldn’t don’t consider them (we have massive demand for 4th year and above, so we can take whoever we feel like. But thanks to outside organizations, having to organize placements etc. it costs so much to run that it’s very hard to expand — many other universities have in fact closed their similar programs down because of this). In fact, we already have a hierarchy where some public universities basically get the chop because their students cause too many problems because they haven’t been taught well (oddly enough, Deakin is one of them). Once word gets out of this sort of thing (and easy to see the hard left brigade making sure it does), it would make it all the harder for private providers here. This is one of the reasons why I think there are so many providers that offer entry into second year of an affiliated university, but fewer that do higher up stuff.

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  5. In the US, don’t a lot of the Liberal Arts colleges specialize in preparing students for subsequent entry into a professional course (such as law) at one of the universities proper?
    In Australia, won’t the viability of a market for similar undergraduate colleges depend on more of the established universities — especially the elite ones — switching to the “Melbourne model” of post-graduate entry into professional courses?

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  6. “In Australia, won’t the viability of a market for similar undergraduate colleges depend on more of the established universities — especially the elite ones — switching to the “Melbourne model” of post-graduate entry into professional courses”

    I think it will depend more on whether people want to let them into those courses — some, for example, require accredited undergraduate degrees where accreditation means having lots of expensive things (like a certain number of full (level E) professors as well as a certain number of staff who are members of various organizations). It also depends on both politics (many universities protect their own undergraduates degrees by favoring their own students in their postgraduate programs — this is already very common), and whether the private providers can get students to the same level as their competitors.

    In my books, the biggest advantage of entirely new competitors is not where things are already over-supplied in the Australian market (i.e., cheap degrees), but in things like CMUs new program, which targets specific things that Australian universities haven’t done well (of course, paying private universities to start up, as happened with CMU, makes things more cloudy).

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  7. alanc

    The significance of liberal arts colleges in US higher education is one of the great Antipodean myths. Liberal arts colleges are only about 2% of US higher education enrolments.

    But your general point is correct: there are lots of colleges whose highest award is a bachelor or masters degree which prepare students for graduate schools, and many students transfer from the undergraduate college of a research university to another university’s graduate school.

    Many Australian universities already offer graduate entry programs: graduate entry medicine was first offered by Flinders in about 1996 and it is now offered by about a dozen Australian universities.

    I suggest that the viability of preparatory undergraduate programs will also depend on Australian students’ willingness to relocate to study. They have been remarkably unwilling thus far. The quality of a university is most apparent in its research and there is real value in earning a PhD from one of the leading departments in the field. But most PhD candidates simply continue in the university and department in which they read their honours program.

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  8. Conrad – I haven’t got my fees spreadsheets with me, but from memory the feeder colleges charge about $14K per year, and Bond charges more than that. So on your cost estimates there is scope for going below 15 students per staff member. Bond does not get any government money for tuition.

    The existing private higher education industry, with a few exceptions, avoids direct competition with the public universities. This is what we would expect given the history of the sector: competiting directly against better-known brands offering subsidised courses with soft loans for the fees is very tough.

    The interesting question is whether a level playing-field after deregulation would encourage direct competition from new entrants, as well as greater competition from existing players, or whether we would just see a greater proliferation of alternatives to the public universities.

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