VC actions undermine VC rhetoric

Governments look at what vice-chancellors do, rather than listen to what vice-chancellors say. Last December I pointed out that the government is taking the willingness of universities to enrol additional Commonwealth-supported as evidence – contrary to the verbal claims of VCs – that it does not need to increase funding. I repeated the argument in the Higher Education Supplement this morning.

My article was written a couple of weeks ago, but the Higher Education Supplement’s lead story showed that not only will VCs take more students on the same rates as now, they will also take more students on lower rates. Three universities are reported in the story as planning to exceed their enrolment quota caps. When this happens, they get the student contribution amount but not the Commonwealth subsidy. For many disciplines, that is a third or less of the within-quota funding rate.

So these VCs say 100% of the usual funding rate is too little, but they behave as if one-third of the usual funding rate is enough. If you were a cash-strapped government, which would you believe?

What are the possible explanations?

In higher education, there is certainly likely to be a big difference between average and marginal cost. The average cost is taking all the costs – buildings, libraries, academics, administration etc – and dividing it by the number of students. The marginal cost is the cost of adding an additional student. If you already have all the staff and facilities, it’s likely that additional students can be enrolled at way below average cost up to the point where they meet current capacity. If this is so, it could be the case that marginal cost is in fact lower than the marginal benefit of one-third the usual funding rate. This could still be true even if, as VCs claim, the usual funding rate is below the average cost.

But if additional students require major increases in capacity – new buildings for example – it is likely that marginal costs greatly exceed average costs and the marginal revenue per student, whether the full rate or the one-third rate. Surely there has to be a point where marginal costs start exceeding marginal revenues, and taking more students makes no financial sense.

Another possibility is that VCs believe they should offer more student places, due to student and/or government demand, and will do so regardless of price, and patch up their finances the usual way, by taking more full-fee international students. Through a mix of high (international) and low (Australian) revenue students they get to a viable average per student funding rate. Though it seems like a high-risk strategy, to my knowlege only Central Queensland University has gambled and lost.

A third possibility is that claims of under-funding teaching are phoney. That is, if we look at how much it costs to teach and assess students for the six or seven months a year they are actually on campus each year the current funding rates – in all or most disciplines – are adequate. The problem has been that full-time academic staff are paid for the whole year. Through a mix of casualisation and teaching outside the normal periods this problem has been substantially alleviated.

Whatever is the case, VCs do not at this point have a compelling case for more funding. Their actions undermine their words.

19 thoughts on “VC actions undermine VC rhetoric

  1. Another possibility is that the VCs have changed their strategy to offering a high volume, cheap and nasty product. Casual lecturers, tutorials taught by 3rd year students who know barely more than the students they are teaching (in fact, it is the blind leading the blind)-it can be done. But it is to higher education what Target is to department stores.

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  2. Fixed costs and variable costs; I’d suggest the VCs if not the author knows the consequences when running a business.

    Sorry for being so blunt.

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  3. Actually, I think that most unis have a poor understanding of their costs, though things have been improving. I did not want to be so blunt as to suggest simple incompetence might be one of the possible explanations. It will be interesting to look at the financial results over the next few years to see if the ‘over-enrolling’ unis are in more trouble than the others.

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  4. Andrew – you compare marginal costs to marginal benefits when making expansion decisions (not marginal costs to average costs*). As you suggest many of the costs (libraries, full-time staff and buildings) are sunk. The marginal cost of an additional student in most disciplines is fairly low. Universities top up with internationals and also by varying the number of sessional staff. There are also all sorts of other costs that can be varied too – like maintenance. You’d be surprised how ramshackle things can get before people really complain (you might not but many would).

    * average costs can be high, but most of those costs (say large class marking) can be passed onto academic staff.

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  5. I’m with Charles. Where I work (or any place I’ve worked), I’ve never heard a single thing about how much it actually costs to teach students, only that there should be more and more, although luckily in my department there is an abundance of post-graduate students (who I think are fine incidentally).
    .
    I also think it’s partially the fault of the students. If they don’t like the way things are, they can move or complain, but they don’t. Indeed, there’s now a culture where some don’t even turn up to anything, and most only attend things if they think it will somehow help them get a better mark (especially the 18 year olds), so their main expectation is getting their degree, not learning the most they can (I’m sure some wouldn’t mind if they learnt nothing). So I think the expectation of students is such that perhaps poor conditions are not such a problem.

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  6. I think the universities have tried to lower their costs by skimping on investment in and maintenance of their fixed assets. I was shocked at the shabby state of the G-8 university I last attended. People notice these things, moreso when they are paying thousands of dollars for them.

    Things can keep going like this for a while – look at any communist country for an example! But it’s hardly the sign of a healthy, well-functioning system.

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  7. I don’t know that there is any evidence of incompetence (certainly Andrew doesn’t make that allegation). Rather universities are responding rationally to their external environment. Similarly government is cash starving universities because they need to allocate funds elsewhere and they know the uni’s will manage. Its all very cynical.

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  8. Charles is suggesting that unis do know what they are doing; historically most of them definitely don’t due to a lack of financial information. There is a genuinely difficult problem here, because most academics and facilities are performing multiple functions and so isolating the teaching element of that is difficult. Improved accounting systems mean that many unis now have a much better idea of at least average cost of teaching at various levels. This is why there has been a push to reduce the number of small enrolment subjects and courses – they are very expensive. But whether they understand the consequences of the additional offers they are making this week is another matter.

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  9. “Things can keep going like this for a while – look at any communist country for an example”
    .
    Actually, having worked in China, I think you’ll find their top universities are in far better shape than here, especially in hard sciences and engineering. Their main problem now is getting and retaining good staff, since, not surprisingly, everyone good wants to move to the US.

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  10. I’m interested to know how the commonwealth place funding translates to latter years.

    e.g. Do the government say to Unimelb we will fund 1000 first year places this year and 1000 second year places next?

    Do Uni’s over enrol first years knowing that the attrition rate is 25-40%, so they can claim most of the available cash on offer for latter year places?

    Or is it simply fund 3000 science places across all 3/4 years?

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  11. I have found many (but not all) VC’s to be viciously ambitious and constantly maneuvering for the jump to lead a more prestigious university. One of the boxes they always seek to tick is securing for their CVs, a track record of growth in student numbers. Holding or reducing student numbers to improve average costs etc is a more complex message to sell in a CV.
    It sounds overly simplistic and cynical but my years of experience in the sector tell me it’s true. Finding VCs that build long term futures for their institutions and education in general is an important challenge for the sector.

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  12. M – Places are not differentiated by year level. However, when new places are allocated it is standard to assume an attrition rate of 25%, so 100 places in the first year would be 75 places in the second year. However these would be the places allocated so if attrition was lower unis could even out between the years, eg offering fewer commencing places in subsequent years.

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  13. Thanks for that clarification Andrew. I guess that means the number of first year offers is dependent on the number of later year students still around.

    Eric I think thats a good point on the constant drive for growth. One easily publishable metric is student number growth and course number growth. The idea being that a growing institution must be a successful one. Is UniMelb heading the other direction by cutting course numbers and reducing undergrad places??

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  14. “Is UniMelb heading the other direction by cutting course numbers and reducing undergrad places??”

    It is, but media stories about the U of M’s declining applications market share as it cuts courses highlight Eric’s point.

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