Graduates and taxpayer must pay more for a world class university system

The Federal Government has announced the terms of reference for its long-awaited review of higher education base funding, fulfilling a commitment made in response to the 2008 Bradley Review of Australian Higher Education.

The funding review panel should interpret its terms of reference broadly, to ensure that fundamental questions are asked – and answered. Tinkering with the details of the current funding system would do nothing to put higher education financing on sustainable footing for the future.

Australia cannot maintain a quality higher education sector at current rates of funding per student. Both taxpayers and graduates need to pay more to fund a system that will meet Australia’s future needs. While improved indexation of funding is very welcome, it will at best compensate for years of decline. The Government has not accepted Bradley’s recommendation of a 10 per cent increase in Commonwealth funding for teaching and learning. This puts further pressure on the review panel. Whatever the panel recommends will not be implemented until the 2013 academic year. In a context of rising enrolments, this means sustained underfunding for at least the next two years, if Government does not provide relief in the 2011 Budget.

It is not clear whether the current review will consider funding for enabling courses, which prepare students for undergraduate award study (e.g. maths for engineering). Since the Government wants more Australians - including more students from disadvantaged backgrounds – to go to university, enabling funding should be included as an integral part of the proposed funding reforms.

The higher education sector has entered a period of significant expansion. Just as massification of Australian higher education in the 1990s was funded in part by the pioneering introduction of income-contingent student loans, the move to a ‘post-mass’ system will need to draw on private funding to cover increasing costs. Maximum student contributions will have to rise.

The Group of Eight has suggested a 50 per cent increase in maximum student contributions. Some believe this increase would be too much. But the argument is not only a fiscal one: a large increase in the maximum amount is needed to drive diversity and market behaviour in the higher education sector. A modest rise in the cap will lead all universities to charge the new maximum amount, as experience in both Australia and England has shown. This would be a poor outcome: it would not solve long-term financing problems and universities would still be inhibited from innovating to meet the needs of a more diverse student body. There would still be an incentive to enrol fee-paying postgraduates and international students rather than domestic undergraduates to make up the financial shortfall.

Along with more flexible student contributions, the review should consider differential rates of Commonwealth funding to further encourage diversity. The current system of uniform funding rates denies differences in costs of delivery and quality.

Differentiation in course offerings and prices would allow students to make their own trade-offs between quality, convenience and price in order to meet their varying needs, just as in markets for other goods and services. A more flexible system would make more revenue available to fund extra places, thus widening access and funding services and support for students from under-represented groups.

Government could make Commonwealth-supported places available to TAFEs at a discounted funding rate, recognising that TAFE teachers do not do research. Together with a stronger role for private higher education providers, this would prevent monopoly pricing by universities and further encourage a competitive, differentiated market.

The review panel would do well to consider the recommendations of the recent Browne Review of higher education funding in England. Browne recommended that fees (currently limited to GBP3290 per year) be uncapped, though universities would pay Government a ‘levy’ on fee income above GBP6000. The levy is intended to cover the cost to government of underwriting income-contingent student loans – which are necessary to remove up-front financial barriers to participation – and to discourage universities from raising fees arbitrarily. Fee deregulation is linked to policy settings to encourage growth in private provision and franchising arrangements with colleges of further education. A more open market is designed to promote options for students across a range of price points.

Fortunately, Australia does not face budget deficits on a British scale. A long overdue increase in real government funding per student is possible here. We have the capacity to achieve a fair balance between public and private contributions to costs.

The Australian higher education sector is entering a phase of significant change and growth. Funding arrangements need to change accordingly. The future can be a high quality system in which different institutions do different things well. Failure to act risks further decline towards an underfunded, overwhelmed system that does not meet students’ or employers’ needs and in which participation is constrained by chronic lack of funds.