Of all the dubious ideas likely to be submitted to the higher education funding review, the most dangerous because most likely to be accepted is that deregulated supply – from next year, the Commonwealth is scheduled to abolish the controls that currently tell unis how many students to take and broadly what disciplines they will be in – should be combined with capped prices.
For them the price per discpline would be simplified version of the current ‘cluster’ funding model, with many disciplines given the same funding rate, and a flat maximum student price.
It would be a blunter price mechanism than now when we need a sharper one.
In a demand-driven system, prices matter in a way that they do not now. Under the current system, though there are prices by discipline these are a way of calculating what is in effect a block grant. What places universities actually deliver is set out in a funding agreement that they sign with the government. This is one reason that they keep supplying places in disciplines that lose money.
But in a demand-driven funding system there will be no funding agreement telling unis what to do (at least not in theory – as I note in today’s Age with less than nine months to go before its scheduled start there is no legislation and no policy detail). If disciplines are under-priced, this creates a strong financial incentive to exit them regardless of demand, or to ignore demand in deciding whether to set up new courses.
The other big flaw of flat prices in a demand-driven system is that it leaves the lower prestige unis in a difficult position. Many of them rely on students who take their courses as a second or lower preference (I don’t have a perfect indicator of this at the institutional level, but several Innovative Research Universities members have a higher share of acceptances than first preference applications). In a demand-driven system, more popular universities can expand their enrolments at the expense of less popular universities.
There is nothing inherently wrong with this of course, but the less prestigious universities are being denied what could be their key competitive advantage, lower fees. Some of them have done very well in the international student market targeting price sensitive students.
The Innovative Research Universities submission is very much still in the Dawkins era, where every university is deemed equally excellent and the state restricts competition so that each gets its share of the student market. But that isn’t the system the new funding system must support.