Forecasting for our universities

Though the precise rationale has changed, the situation is essentially the same as when the last government came to power in 1996: in a contest between university funding and overall macroeconomic policy, university funding loses every time.

To ensure adequate funding, universities have to be able to set their own prices in the market. Unfortunately, deregulating fees is politically difficult for Labor. It requires a revolution in thinking as well as a revolution in policy. From the Prime Minister down, there are many in the ALP whose nostalgia for the free university education introduced by Gough Whitlam guides their current thinking. Kevin Rudd has said that he would like to reduce the cost of university education to students, and one of the few ALP higher education promises in the 2007 election was to reduce HECS for maths and science.

Yet research has consistently failed to find any evidence that these policies have their desired effects. Steadily rising higher education costs since HECS was introduced in 1989 have not reduced working class university attendance; to the contrary it has increased. The distribution of applications between disciplines has changed little over time, despite the costs of some increasing by much more than others.

What explains these contrary-to-theory results? The main factor determining whether or not school leavers go on to university is school results. A paper published in 2006 (PDF 361KB) found that socioeconomic background made no difference: for a given tertiary entrance score, low and high SES (socio-economic status) school leavers went to university at the same rates. The reason for class differences in university attendance is that low SES school students are disproportionately represented among those who never finish school, or get poor results if they do complete Year 12.

An “education revolution” needs to occur long before Year 12 to make a difference. Low SES teenagers who finish school are not, as commonly assumed, incapable of comparing the costs and benefits of further study, or prone to irrational “debt aversion”. They make sensible decisions, given their prior academic performance.

For those who do go on to university, course choices are driven mainly by their interests and aptitudes. Financial incentives through tuition costs have only limited influence. Who would condemn themselves to a course that bored them followed by a career without job satisfaction, for the sake of a few thousand dollars reduction in course fees?

Astute marketing and perhaps discounting may make some courses more attractive to those who already hold the relevant subject interests. But all this is very much at the margin. Perhaps fortunately, there is little evidence that demand for maths and science courses is too low. The claimed shortages of graduates in these fields are hard to find in the labour market statistics.

The good news about a higher education revolution is that, compared to other areas, it would be relatively easy to get results. The really tough access problem, improving Year 12 performance, is mostly an issue for the schools education revolution. In higher education policy itself, a few changes to funding and regulation could deliver significant improvements within a few years. The most difficult, the most revolutionary, task will be overturning the conventional wisdom about university funding and access.