Dubious ideas submitted to the higher education funding review, part 3

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.

That however is the message of the higher funding review submission of the Innovative Research Universities lobby group.

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.

5 thoughts on “Dubious ideas submitted to the higher education funding review, part 3

  1. “The other big flaw of flat prices in a demand-driven system is that it leaves the lower prestige unis in a difficult position.”
    I would think that the most likely outcome of more prestigious universities expanding is that the lower tier ones will simply go down the quality chain, not the price chain. The only ones that will need to compete on price are those already at the bottom of the chain, and it’s not clear how much cheaper those universities could actually run courses for (it’s not like, for example, ACU, VUT, UWA, etc. are rolling in money at present).


  2. Conrad – They may be able to deliver at lower than current costs – effectively some are already discounting, as they are taking students on the student contribution rate only. With teaching only staff, the current rates are sufficient on average.

    But I was more thinking that they would be cheap compared to other unis that would increase their fees.

    The international student market is the best guide we have to what will happen.


  3. “The international student market is the best guide we have to what will happen.”
    Given the different opportunity costs that OS students have, as well as just cultural and demographic differences, that’s not a very good guide! Where, I work, the general strategy to try and make money is to target low cost areas. Given this, I’m not so enthusiastic that uncapping fees is going to lead to great gains, especially since Australians don’t tend to like spending their own money on higher education, don’t like letting other people spend their money on higher education, and because many of the so called “shortage” areas are all ones that are expensive to teach (e.g., engineering, all clinical areas). Being high on anti-intellectualism, authoritarianism, and cheap is not a good combination (perhaps I’m being unfair to half the population here as, looking at the gender division in universities now, at least the anti-intellecutalism is probably very male biased). That’s not to say that there arn’t reasonable low cost areas that could be expanded, but just that I don’t think it is going to do a lot for many areas, including those where there are shortages.


  4. The internationals are less geography constrained, but the fees they pay are the best indicator we have of the relative market value of the various u/g degrees.

    Where there are full-fee domestic and internationals, the pattern has been that the domestics pay a little less.

    People aren’t used to thinking of higher ed as a market, but I don’t think there is any fundamental cultural obstacle to doing so, eg private schools.


  5. Good article Andrew. I like how you point out that HELP loan limits could act as a disincentive to fee increases. But it’s bound to be met by the usual resistance from those who resent private resources having any direct influence on ‘access’ to even prestigious universities. Of course, if other G8 universities moved towards a ‘Melbourne Model’ arrangement, there could be a de facto liberalisation of fees. Now that Melbourne has gone down that path, Monash must be experiencing tremendous financial pressure and temptation to do the same, especially since the drop in international students.


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