One of the slightly embarrassing things about working for a university, at least for those of us brought up to believe that big-noting yourself is bad form, is the academic obsession with status. The Jiao Tong rankings and the Times Higher Education Supplement rankings are the most anxiously awaited, though any vaguely credible assessment will grab the attention of academics and university administrators (here is a list of various rankings of Australian universities). At the micro level, all the indicators that help make up these rankings – research grants, publications in journals of varying prestige, awards received by staff etc – are the subject of much personal academic angst.

Universities regularly tell us how well they have done. ‘ANU ranks first among Australian universities’, its marketing and communications department tells us. ‘Melbourne moves up key world ranking’ says Melbourne University’s UniNews. La Trobe University’s trumpeting of its performance was pure spin. According to its press release:

La Trobe University has been ranked among Victoria

The Department of Education’s annual report is out today, and with it more information on student loan doubtful debt. For 2005-06, they estimate that 19.3% of the debt is doubtful, down from the 20.6% estimate for 2004-05. It may not sound like a big change, but it is equivalent to more than $170 million.

I wish they would tell us more about how these figures are calculated. Since they started calculating the doubtful debt figure it has ranged from a low of 13.5% in 1996-97 to a high of 28.3% in 2003-04. All this suggests that there are going through some fairly major changes in actuarial assumptions, especially as the downward trend in estimates has occurred at the same time as the income threshold for making any repayment increased by more than $10,000, effectively excusing some lower-income people from their debt. My best guess for the cause is higher labour force participation rates, especially for women. But the variability suggests that all the estimates should be viewed sceptically.

Of course, if they took my advice and made more effort to collect from people living overseas and from deceased estates the financial position of the loans scheme would improve still further.

According to commenter Derrida Derrider, on my reporting of research showing that socioeconomic background does not affect willingness to attend university:

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Yesterday the Department of Education released the 2005 financial reports (pdf) for publicly-funded universities. According to Catherine Armitage’s report in this morning’s Higher Education Supplement:

THE so-called Nelson reforms appear to have undershot their potential to fill university coffers, with local undergraduate fee-paying places earning universities just $103.7 million, or 0.7 per cent of revenue, in 2005, the first year in which looser regulation of local fee places took effect.

I’m not so sure that this is the right take on 2005’s finances. On my calculations, up-front revenue from Australian full-fee undergraduates is up a healthy 9.8%, but this is not counting the people who deferred their payments through the FEE-HELP loans scheme, which was the most important element of the Nelson reforms. This is where it gets hard to work out what is going on, because FEE-HELP covers both undergraduate and postgraduate fee-payers.

However, we can take an educated guess. FEE-HELP’s predecessor, PELS, was available only to postgraduates. FEE-HELP lending in 2005 was 21.7% higher than PELS lending in 2004. We already know from aggregate enrolment data (pdf) that postgraduate enrolments overall were stable. This suggests that most of that lending growth was in the undergraduate market. It’s possible that undergraduate full-fee revenue is in fact up by 40% or more.

Another aspect of the financial data pointing to growth in the undergraduate full-fee market is the surprisingly low growth in revenue from Commonwealth-supported students. On my calculations, it is only 3.1%. Given that this was the first year of the 25% increase in student contributions that many universities imposed (though only to commencing students), and that there was normal indexation (about 2%) on students from previous years, it should have been more.

The only ways I can think of to explain this are that the total number of Commonwealth-supported students was down and/or there was some shift in the discipline mix toward lower-revenue places. I think the former explanation is likely to be the main one as we know that total undergraduate enrolments increased by just .9%.

My interpretation: Commonwealth-supported undergraduate enrolments actually went down for the third year in a row, and all the growth was generated in the full-fee market. As has been the case for a number of years, the private education market is propping up the dysfunctional public higher education system. Little wonder the government seems to be endlessly stalling releasing the full student enrolment data that would tell us what is really going on.

One of Brendan Nelson’s few achievements in higher education was to extend the FEE-HELP scheme, which offers income-contingent loans to full-fee paying higher education students of any education provider that meets objective criteria. This replaced the previous PELS scheme, which was available only to postgraduates, and only at public universities and a small number of private institutions that were favourites of the government.

So far more than 40 new institutions have been approved, and lending is increasing quickly from a small base. However, the private higher education industry still largely reflects its circumstances of the last few decades. Since it was difficult for private universities and private higher education providers to compete directly against the free or very cheap public universities, most of them are in niche areas that don’t interest public universities – religious training institutions or institutions with a religious perspective, specialised professional training institutions, natural medicine colleges, and sundry others.

There is an expectation around the sector that this won’t last. As fees have increased at public institutions the price gap has narrowed substantially, and with FEE-HELP students no longer need worry about having to pay up-front. There has been some streamlining of accreditation rules that should make it easier for foreign institutions to enter the Australian market, and we are already seeing some activity there. The conditions exist for public universities to face competition in their core teaching activities.

This has bastions of conservatism such as the National Tertiary Education Union worried. As reported in the SMH this morning:

The National Tertiary Education Union said universities would respond to the competition by slashing unprofitable courses and concentrate on those that made money through full-fee paying students. The University of Sydney had already done so by ending undergraduate nursing, said the union’s policy and research co-ordinator, Andrew Nette.

Public universities do rely on complex cross-subsidies from those disciplines and students that generate surpluses to those that do not. But the problem here is not competition, it is the absurd system of subsidy and price control.

In a well-designed system, the government would support those disciplines that the market would probably under-supply, such as nursing, where the costs of the course are high relative to the subsequent labour market returns. But because the subsidies provided by the Commonwealth are only marginally better than numbers picked out of the air, universities have trouble financing many of the courses subject to ‘market failure’ from government-authorised or supplied revenues.

To fix this ‘market failure’, universities have turned to…the market. They use the profits from full-fee students in courses leading to lucrative professions to support Commonwealth-supported students in other fields. Yet HECS students in those same disciplines do receive Commonwealth support. So the market pays for things the goverment should pay for, and the government pays for things the market should pay for.

It has dawned on both the Minister and her Shadow that something is deeply wrong here – though neither yet have credible alternatives. But at least they don’t think, like the NTEU, that the problem is competition.

In a speech she gave yesterday, Education Minister Julie Bishop says:

Today for every $1 a student contributes to their education, the Australian Government contributes $3. Students pay 25% of the cost of their fees, the taxpayer picks up 75%.

Her predecessor was fond of that argument too, but repetition does not make it right. Insofar as a defence can be made of it, in 2004 for every $1 HECS charged to Commonwealth-subsidised students about $3 was spent by the Commonwealth, but on all university activities, including research. Money spent on researchers who never step foot inside a classroom is not a contribution to a students’ education, which the Minister’s statement specifies: ‘their education’, ‘their fees’. A government that insists on unbundling university finances when it comes to student unions cannot rebundle to suit a different argument. Moreoever, student contributions were increased in 2005, which will alter the relativities.

Since the Commonwealth now specifies its exact contribution per student and the exact maximum fee payable it is possible to work out the student contribution as a percentage of the total. The lowest percentage – 27.8% for nursing – is higher than the typical percentage claimed by the Minister, and the highest – law at 83.85% – is more than three times as high.

Using data I collated from the funding ‘agreements’ signed between the universities and the Commonwealth, I have calculated the likely weighted average student contribution for 2005 and after enrolments, ie taking into account that some courses are taken by more students than others. This figure is 44%. (‘Likely’, in that I am assuming that the courses taken by 2005 and after students, who mostly pay a 25% premium, closely resemble those taken by pre-2005 students).

However, the government argues that there is doubtful debt associated with HECS lending. Once we adjust for that, the average student contribution comes down to about 38%.

So the government is still picking up most of the cost, but not as large a share as it claims.

On Monday, Jenny Macklin explained the University of Ballarat’s failure to meet its enrolment quota this way:

Opposition education spokeswoman Jenny Macklin said it suggested HECS rates were turning potential students away from study in regional areas. Maximum annual HECS rates this year ranged from $3920 to $8170, depending on the course. “For students in country areas these fees are very high,” Ms Macklin said.

But today comes the news that both universities in affluent Canberra have also failed to meet their targets, the ANU by 175 and the University of Canberra by 300. The ANU is a particularly interesting case, because its experience contradicts most of the ad hoc explanations for what’s happening to university demand – that regional universities are disadvantaged, that there is rush to prestige brands (the ANU is part of the Group of Eight ‘sandstone’ universities, and the highest-ranked Australian university in the global research rankings), and that the 2005 increases in HECS have put students off. The ANU kept its HECS charges at pre-2005 rates.

ANU Vice-Chancellor Ian Chubb is putting it down to ” higher-than-usual deferral and graduation rates”. I can’t see that graduation rates have anything to do with it, since generally these increase student ‘load’ (as it is called) as students stick around to finish rather than dropping out. But deferrals or delayed applications could at least partly explain it. I have noted before that commencing students are getting older, and if the Department would release its 2005 statistics in a timely manner I’d be able to check whether indeed this trend is continuing. My hunch is that with a strong labour market more kids are taking time off after Year 12 to get a break from study, earn some money and create an ‘independent’ Youth Allowance entitlement for themselves, and perhaps do a little travelling. But without more data it is hard to be sure.