Last week the University of Melbourne’s Centre for Vocational and Educational Policy invited me to present on this topic to a group of 46 students, studying Education Policy and Reform.

Our session was off-campus: a meeting of minds via Zoom, on a cool Saturday afternoon (here in Melbourne, at least).

Dr Stanley Koh, the CVEP Research Fellow who convenes this program, welcomed the class and made introductions. Having framed the topic with Game of Thrones imagery, I confessed that the next hour would not be quite so exciting. (That said, I’ve since learned that medical students at the Australian National University see Canberra in just this light.)

Then on we Zoomed, charting the tertiary policy landscape and “following the money”. From a student learning point of view, the challenge for lecturers and tutors is how much time to spend on context, and how far to drill into the details of the case at hand.

I took a 50/50 approach. Before outlining the government plans announced last month for future student fees and course funding, I briefly mapped how Australian tertiary education spending compares with other systems in the OECD, and how our university funding has developed over the decades to reach its current state.

Many charts later, in the final part of the session, students offered thoughtful questions and suggestions about how to interpret the aims and implications of the government’s plan. In the space of an hour, they were making sense of a complex policy reform attempt that’s still unfolding in Australia. Like most, this is a higher education system with many moving parts.

In this CVEP subject many students have prior experience with other systems in very different settings. A feature of Education Policy and Reform is that system comparisons help to highlight the strengths and weaknesses of one’s own system. This kind of learning is likely to challenge different preconceptions about what’s possible, what’s “normal” and what’s “fair” in education.

For CVEP students (and anyone else interested), below are my main presentation slides and working notes.

In OECD comparisons, Australian tertiary education often looks sadly under-funded compared to most other systems, as a share of GDP.

But this is due in part to our financing mix – more like the UK approach than that of Germany or the Nordic countries.

Another factor to consider is strong GDP growth in Australia since the 2008 financial crisis. When spending comparisons rely on percentages of GDP, it makes little sense to compare Australia with (say) Portugal, Italy or Greece.

In real terms, total tertiary spending in Australia has grown strongly in recent years – more so than in most other OECD countries over 2010-2016.

This reflects strong tertiary enrolment growth in Australia. Many other systems have seen flat or falling enrolments.

However, as enrolments grew faster than real spending, Australian total spending per student has fallen in recent years, along with that of Germany and others.

These trends illustrate a key question for policy makers: how much growth in participation does a country need? How do governments finance wider access? The policy dilemma (trilemma) is how to make this affordable for government spending (too high?) and sustainable for institutional resourcing (too low?) and affordable/equitable for students (accessible in terms of upfront costs? worth the final cost?).

How has university funding evolved over time in Australia? From State government funding and domestic fees in the 1930s, to the Commonwealth government taking over funding in the 1970s to make it fee-free, to co-funding with domestic fees and government loans in the early 1990s, and with strong international student growth in the 2000s.

While the share of total revenue from direct government grants has fallen lower since the 1990s, the context since the early 2000s is one of strong public and private spending growth.

Public spending growth was outpaced by private spending growth (if we treat HELP loans as simply private) for universities, particularly from international students. But this growth also reflects market risk, as seen now in 2020 due to COVID 19.

Part of the context for the goverment’s planned funding changes in 2020 is a university sector budget shortfall, due to lower international revenue. But the June package does not aim to offer any “funding bailout” to offset those losses. Rather, its focus is on reforming the funding model for course costs while meeting future domestic enrolment growth, now expected to be higher in an economy facing higher unemployment.

The core of the new policy is to change teaching grant and domestic student fee levels to match average delivery costs per course in different fields of study. The changes include lower fees in some fields and higher fees in others – in some cases, dramatically. Grant funding levels also rise or fall – in some cases, dramatically. (Details are outlined in my previous blog post.)

The political context and broad aims of the package were outlined by Michelle Grattan:

the shake up will reduce student fees for courses in areas the government identifies as potentially job-rich and increase them for … other courses to produce a result that’s funding-neutral for the government. The first driver of the policy is the surge in demand for places …Secondly, the changes reflect [Prime Minister] Scott Morrison’s overwhelming preoccupation with jobs …Finally, there does seem to be an ideological tinge to the policy, notably in the treatment of the humanities…

Michelle Grattan, The Conversation, 21 June

The mechanics are complex. The existing settings match one of 8 levels of direct funding with one of 3 fee bands. These are paired in many ways, to finance student places in courses with a wide range of delivery costs.

The new settings combine one of 4 levels of funding with one of 4 student fee bands.

This creates “winners and losers” for student groups in many fields, as fees rise or fall. And also for university Faculties, as course place income levels rise or fall.

Many responses express concern and alarm about large fee rises for Humanities and Social Science students:

…fees for courses like creative arts, communications, history, economics, politics, society and culture will in some cases more than double. Not surprisingly, humanities academics are aghast … Striking at the humanities strikes at the heart of university education…

Ben Eltham, The Guardian, 19 June

Many university sector responses express concern about lower income levels in fields such as Science and Engineering, where the government aims to expand enrolments by offering lower fee levels.

Sector leaders and commentators note that there are “perverse financial incentives” here:

Last week 73 professors wrote to the Education Minister to argue that the proposal should be shelved, and an alternative designed in consultation with experts from within the sector. During the month since Minister Tehan’s announcement, most critics have not suggested any alternative funding model for policy makers to consider.

The 73 professors provide an outline which suggests keeping it simple with a single fee level; increasing university funding in real (i.e. direct grant) terms; and integrating the wider tertiary funding system so that school leavers have ready access to the level of training they need – whether in vocational or university degree education. They note that Australia could learn from Germany’s strong vocational training system.

One question raised by the open letter proposal is whether a single fee can work in the Australian system, given the existing model and the diversity of course delivery costs. (What would that fee be? The middle one of the existing range at $9700 would be higher than for current Humanities students, and lower than for current Law or Medicine students.)

For governments, the temptation is to lift fees ever higher to minimise direct grant spending, since HELP loans enable access without upfront payments, even at higher prices. For universities the same applies, to maximise revenue via public HELP spending, where grant spending is limited.

A second question with the 73 professors’ proposal is whether reforms designed to adopt aspects of the German system could lead to lower spending on universities, in favour of vocational education and training providers. In the most recent OECD report (2019, with data for 2016), Australian tertiary spending as a share of GDP (1.9%) looked stronger than Germany’s 1.2%. This suggests a more cost-efficient tertiary sector.

In OECD reporting the strong vocational focus in Germany is also reflected in its upper secondary schooling settings. What other implications might there be for Australian post-secondary pathways into the workforce?

During the session I suggested there were four “Game of Codes” issues with this kind of policy reform. One is a political question about the main role of universities: to what extent is it about meeting industry and labour market needs?

A second political question is about the social contract between the state and its citizens, on the question of who should pay what to finance a university course. If students pay 50% of course costs or more on average, does this matter?

The third “Game of Codes” issue is a technical question. From a system design point of view is the government’s Job Ready Graduates policy internally consistent; and likely to achieve its aims in practice? And a fourth question is, given the funding model’s complexity, will the system be open to “gaming” by institutions, and difficult to regulate?

In the class discussion at the end of the session we touched briefly on possible alternatives to the Job Ready Graduates funding model. Could some of the criticisms be addressed by replacing the current 8/3 model with 6 funding clusters and 5 fee levels, instead of the proposed 4/4 model? If policy makers want to offer fee discounts to widen participation, is this something that universities could apply to online versus campus-based delivery?

There wasn’t time to explore the strengths and weaknesses of this idea. Nor to explore the wider questions raised by the government’s proposal. However, further details about those questions, and this loose sketch of an alternative model, are outlined here, in a previous post.

Notes

In Times Higher Education (14 July) John Ross reports on my sketch of an alternative model

In The Guardian (26 July) Anne Davies outlines a range of implications for universities arising from the impact of COVID 19

In The Australian (28 July) Australian Catholic University vice-chancellor Greg Craven endorses the government’s proposal as “a commonsense approach to real problems. As well as the only plan in town.”

Update (20 August). The Innovative Research Universities have posted two alternative options to the Job Ready proposed funding model. See the chart below (with my heading to explain how Option 2 affects funding, fees and revenue).