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Two steps forward, one step back: price flexibility with rigid quotas

By Andrew Norton - posted Wednesday, 25 June 2003

Commonwealth Education Minister Brendan Nelson's higher education reform package is a radical evolution in policy, preserving and even tightening many elements of the old centrally controlled system, but also creating new price signals and giving students enrolled at private higher education institutions access to a loans scheme.

Under Dr Nelson's package, student charges in government-subsidised places would be set by the university, within limits imposed by the Commonwealth, and these would go to the university.

This is a very important change to the current system of all HECS payments going to the Commonwealth, because it means universities will respond to price signals.


Universities will have a financial incentive to focus on student concerns, evening up a funding system currently rigged in favour of research.

The scope for fee increases on subsidised students will bring the total investment in higher education closer to optimal levels, though still artificially constrained by a price cap.

Loans will be made available for full-fee paying students in public universities, meaning more students will be able to enrol in their first-preference course.

Loans will be made available for students in private universities and colleges, which should eventually create competition with the public system.

The evidence suggests that the higher fees are affordable and will not affect access by low-income groups.

The quota system of allocating subsidised student places will be tightened by adding discipline targets and by penalising universities enrolling more than 2 per cent above their quota of non-full fee paying students.


Rigid quotas are undesirable because they reduce competition and responsiveness to student demand. The 2 per cent limit is impractical, because universities cannot target numbers that accurately.

The current funding system

For universities: There are 38 universities entitled to receive Commonwealth subsidies for undergraduate students, plus four other higher-education providers that receive financial assistance. Entitlement is a political decision, and not based on objective criteria. Institutions within the subsidy system receive funding from the Commonwealth for set numbers of Australian HECS-liable (Higher Education Contribution Scheme) undergraduate students. Though historically this funding was based on nominal costs per student in each discipline, it is now effectively an average subsidy with no relationship to actual costs.

Universities cannot receive any money from HECS-liable students for tuition, but they can charge for non-academic services, commonly known as the union or amenities fee. If universities enroll less than their quota number of HECS-liable students they can be penalised; if they enroll more they receive about $2,700 each. This is less than 25 per cent of average funding.

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This is an edited extract from an Issues Brief published by the Centre for Independent Studies. Click here to download the full text (pdf, 132kb)

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About the Author

Andrew Norton is a research fellow at the Centre for Independent Studies and Director of the CIS' Liberalising Learning research programme.

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