Policy directions in higher education

ACPET     |     15 December 2013

ACPET_Journal_JUNE13_WEB-Cover-imageIn this commentary for the ACPET Journal for Private Education, Brendan Sheehan looks to the higher education policy horizon under the newly elected Coalition government.  On the face of it, he writes,  education generally is an area in which little immediate change would be anticipated, with the major parties going to the election on broadly bipartisan platforms.  But no sooner had the ink dried on Christopher Pyne’s commission as minister for education than he was canvassing a range of interesting propositions around concerning equity, quality and the demand driven system and the sale of HECs debt.   The simple fact of the National Commission of Audit and the Review of the Demand Driven System, both of which are to report in early 2014, portends likely far reaching changes in policies and programs for the higher education sector.   The 2014 Budget on 13 May 2014 ought to be full of interest, in the Chinese curse sense,in a range of areas of government spending.   At the time of the writing of this commentary (early November), Pyne had yet to have a go at his backflip on schools funding, an exercise which makes the observation that “Abbott intends to pursue an orderly and methodical approach to government” seem altogether wrong headed.   That’s the risk with crystal ball gazing.

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Former prime minister Paul Keating’s declaration that “when you change the government, you change the country” is like most truisms: it is difficult to argue with at a general level but it is actually a gross oversimplification. By definition, voters want to change the country, at least to the extent of changing the government. But there is an enduring, even disarming, thread of continuity in Australian public policy over the past century and more:

  •  the federation project very nearly foundered in the 1890s over the issue of water rights to the various colonies from the Murray Darling Basin
  • protection of Australian manufacturing industry was the issue that defined the first parliaments
  • the first major piece of legislation introduced into the Commonwealth parliament in 1901 was the Immigration Restriction Bill
  • Australian foreign policy has always been shaped by the need to nurture a great and powerful friend
  • one of the major social policy initiatives of the Fisher Labor government in 1912 was a baby bonus of £5 payable to mothers of European extraction – think “one for mum, one for dad and one for the country” and multiply by two.

Still, the recent election of the Abbott government portends significant changes in policy direction in a number of areas, the most notable associated with climate change issues. On the face of it, education generally is an area in which little immediate change would be anticipated, with the major parties going to the election on broadly bipartisan platforms.

In the specific area of higher education, Tony Abbott set out in February 2013  “seven policy pillars“, the first and foremost of which was “stability”. Abbott told the Universities Australia conference:

…. we will be a stable and consultative government. If we put in place a policy or a programme, we will see it through. If we have to change it, we will consult beforehand rather than impose it unilaterally and argue about it afterwards. We understand the value of stability and certainty, even to universities.

Unfortunately for universities, that stability and certainty locked in $3.8 billion in funding cuts, including a so-called “efficiency dividend”, effected by the Gillard government in its final year.

Unfortunately also for non-university higher education providers (NUHEPs), stability and certainty would mean that there is no likelihood in the foreseeable future of the policy and funding frameworks of higher education being reworked to accommodate a greater role for them through, for example, the extension of Commonwealth subsidies to private higher education students.

However, no sooner had the ink dried on Christopher Pyne’s appointment as Minister for Education than he set hares running with public musings about the need to review the demand-driven system whereby all students enrolled by a university attract a Commonwealth subsidy.  He declared that you would have to be “living in a bubble if you think that there is not an issue in universities about whether there are quality issues about the extraordinary number of students being enrolled”.

In a sense, this merely continued the bipartisan approach: Pyne’s immediate predecessor, Labor’s Kim Carr, had expressed similar public views during his short tenure.

With ministers in other portfolios exercising their newfound authority, Prime Minister Abbott brought public musings to an end and imposed a cone of silence, requiring that all interviews be “coordinated” through his office.  While it has been widely commented upon, such a degree of central coordination and control is not at all unusual in contemporary media management arrangements and shows that Abbott intends to pursue an orderly and methodical approach to government.

First things first. The Commission of Audit is to report in January and March 2014 in order to inform the development of the Coalition government’s first budget in May 2014. The commission is charged with closely scrutinising all lines of expenditure and making recommendations about priorities, savings, and efficiencies.

It is not at all helpful for that process to have ministers unilaterally ruling things in and/or out. Abbott is starting with a largely clean slate on the budget, apart from a few signature policies such as abolishing the carbon tax and introducing paid parental leave, and understandably he wants to keep it that way, leaving room to move once the commission has reported. If the government is to take contentious decisions, as it certainly will, it wants to be “impelled” by the circumstances (“there is no alternative”), with the authority and justification of the commission’s report behind it.

During the election period, the Coalition argued that Australia faced a budget emergency. The problem was apparently not so much now as “going forward”. The river of gold flowing into Treasury coffers during the decade-long resources boom was spent by governments of both persuasions and was locked in, even as the river dries up and our terms of trade deteriorate. On top of that are recent big ticket areas of expenditure in the offing, including disability care, schools funding, defence capability, parental leave, and transport and other infrastructure. These commitments generally extend beyond the forward estimates period (beyond 2016, after the next election) and are therefore unfunded. The money is yet to be found for such programs. There are also the implications of an ageing population given the rising social costs of looking after the baby boomers in their retirement with fewer overall taxpayers. This will be exacerbated at the other end of the scale by the long-term trend of younger people entering the workforce later as they pursue education and training.

The former government faced these dilemmas in framing its final budget, of how to reconcile a large and growing revenue shortfall with big spending promises. As one commentator put it:

Labor … tried to pursue a sort of “low tax” social democracy. Australia has tried more than any other country to target assistance, promoting equity with very low taxes, but I think we are now seeing the limits of that strategy. We can have decent services or very low taxes — not both.  The ongoing deficit is a sign of Australia’s low tax base.

 The Abbott government has since compounded its own declared emergency with a range of revenue and expenditure measures such as scrapping taxes, changing superannuation arrangements, and bankrolling the Reserve Bank to the tune of $8.8 billion which means that the budget task (returning the budget to balance/surplus over time) has become more difficult. The Budget bottom line has deteriorated at least 30% since the election, with the 2013/14 budget deficit headed south of $40 billion rather that the $30 billion projected in the pre-election economic statement.

One can imagine what the Commission of Audit is going to say about all this – and it won’t be along the lines of proposing tax increases: revenue does not come within the scope of its terms of reference.

It could be argued, and undoubtedly will be by some, that the higher education sector — in reality, the university part of the sector — has already contributed to the budget task through the nearly $4 billion in savings that have been extracted over the current forward estimates period (the next four years).  The National Tertiary Education Union estimates that the savings measures of $2.8 billion announced earlier this year will reduce Commonwealth funding for each student place by $600 between 2012 and 2015.

However, that argument is not at all likely to insulate the sector from further “savings” and “efficiencies”.  One respected commentator, Peter van Onselen (both an academic and a journalist), expects the Coalition government to take the axe to higher education funding in the manner that the Howard government did in its first budget (over the period 1996 to 2001). In that period, Commonwealth outlays on higher education declined from 56.7% of the total to 43.8%, with a commensurate rise in student contributions and fees).

quote marks It has been clear for some time that general budget pressures, and the ballooning cost of higher education, would bring the gaze of policymakers, post-election, to the efficacy of a demand-driven system — whatever the hue of the government.   

 The post-election gaze is unlikely to stop at the demand-driven system, and will certainly take in the architecture of the entire system, including the place of non-university higher education provision, which has a small but growing role in provision.

 Over the six years of the Labor Rudd/Gillard government, there was explosive growth in higher education participation, and funding, fuelled by the phase out of enrolment caps during the period 2010–2012. In announcing its last set of funding cuts in April 2013, the Gillard government claimed that student numbers had increased by 34% or an extra 146,000 students (more recently, it has been reported as 190,000 extra students) and funding had increased by 50% since 2007.  That was on an upward trajectory, with enrolments projected to increase by another 100,000 students, and expenditure by another couple of billion dollars, by 2016.

 In order to meet the target of 40% of 25-34 year olds having a bachelor degree by 2025, it is estimated that there will need to be at least about another 300,000 students in higher education by 2025 (with some estimates suggesting up to 500,000 additional students).

 The requirements of meeting that projected growth is enough to cause any minister to contemplate the need for change.

The growth in participation in higher education has sparked a debate about entry standards, with a report by the Australian Council of Educational Research analysing university admission data Australian Tertiary Admission Rank (ATAR) entry scores — which are used to determine university placements by ranking academic performance relative to every other Year 12 student — showing that ATARs are on average are declining.

Why this should have come as a surprise to anybody is, itself, a surprise. The main aims of the higher education reforms arising out of the Bradley Review process were to:

  1.           increase higher education attainment in the general population and
  2.           increase higher participation by poorly represented population groups (primarily low SES, disadvantaged, regional, and Indigenous people).

The overall effect must be that, on average, a lower ATAR than had hitherto been necessary (or no ATAR at all) will get more applicants into a university course than had previously been the case (though not into any university course at any university).

However, Christopher Pyne has declared that he will not be bound by the former government’s higher education policies, including its targets.

Pyne’s concerns are widely, although nowhere near universally, shared in the sector. There are no definitive data as to whether the average decline in ATARs for university entry has been accompanied by a decline in quality.

Nevertheless, there is a direct correlation between ATAR and risk of dropping out, with analysis by Andrew Norton at the Grattan Institute showing that school leavers who enter university with an ATAR of 90 or above have a 90% chance of completing their degree, and completion rates fall in a corresponding line with lower ATARs. On average, students with ATARs below 60 drop out at a rate of one in three, and those with ATARs below 50 drop out at the rate of 50%.  Norton strongly supports retention of the demand-driven system on the grounds of both equity and efficiency, as do vice-chancellors of universities that have significantly grown their student numbers (and Universities Australia has urged caution on this).

The quality argument has been led by the Group of Eight (Go8) universities, the research-intensive universities at the elite end of the spectrum. They have argued that direct entry to university for school leavers should be restricted to those with an ATAR of 60 or more, with a minimum 70 for teaching According to the Go8, this would save $750 million over four years, and that amount could be used to partially offset recent cuts and be partiallyreinvested in an improved system of pathway courses to provide access to higher education for students who do not meet the academic preparation benchmark straight from school.

Greg Craven, Vice-Chancellor of Australian Catholic University, has said that “it is an endearing eccentricity of the ‘university quality’ debate that it is about the quality of the students, not the universities. In fact, it’s about money.”

Craven’s correct: of course, it’s about money. His own university has doubled in enrolments since 2009 and, under current settings, is set to grow about another 25% by 2015.  Inevitably, that results in less money going to the older universities — which are growing at nowhere near that rate — and, in a budget constrained environment, it has served to divert public funding from other university activities such as research.  The negative impact of budget savings has fallen on research funding, and, so the research intensive universities claim, disproportionately on them.

However, the Go8 has now moved away from a rather crude, self-serving formulation of “what about us?”, to one of equity. There is a point to that perspective.

Sue Willis and Catharine Burnheim of Monash University have suggested that some of the money being spent on enrolling more low-ATAR students into degrees would be better spent on pathway programs and vocational education and training.  Data show that low-ATAR students, who are selected on the basis of their performance in pathway programs, perform strongly and in a wider range of fields than they would otherwise be able to access:

 Admitting under-prepared students with low ATARs not only increases their risk of non-completion, it restricts their choices.  Lower ATAR students admitted directly to bachelor degrees are being selected on the basis of their current preparation, rather than their potential for university study, while graduates of pathway programs have a chance to prepare for a wider range of disciplines, and demonstrate their aptitude for tertiary study.

The Coalition government will not simply restore the caps and return to the highly centralised student place allocation system of the past. Both the Minister for Education and the Prime Minister have ruled that out. Rather, the approach is most likely to be what is obliquely referred to as a “re-calibration” — the caps you have when you don’t have caps. It will most likely be around some form of minimum ATAR.

A recent proposal by Glyn Davis, vice-chancellor of the University of Melbourne (one of the Go8) is that the appropriate cap is on funding rather than on student places, with the universities being broadly free to set their own goals and their student profile, allocating funding between postgraduate and pre-degree places, as well as undergraduate places (only undergraduate places are uncapped). However, as Curtin University (not a G08 member) academic ,Tim Pitman, observed “ ‘(deciding) student profiles’ sounds better than ‘restricting access’ and ‘within the funding envelope’ certainly sounds more agreeable than ‘cutting higher education funding’ but they amount to the same thing.” Quite.

Still, it is one of the options, and it accords with the sentiment of Abbott’s seven pillars, which include not seeking to “micro-manage universities” (although the Howard government most certainly did as much micro-managing as the Rudd/Gillard governments).

It appears almost certain that the form and level of fees — both the government subsidy for students in Commonwealth supported places and the student contribution (what is usually referred to as the Higher Education Contribution Scheme, or HECS) — will come into the Commission of Audit’s considerations.

Minister Pyne himself briefly emerged from the cone of silence to indicate that the Commission of Audit should consider “securitising” HECS debt — that is, selling off the debt to investors, in one form or another.

Although Pyne referred to the sale of student debt in England as some sort of a precedent, he did not mention that it had not exactly been a booming success there.  Two previous attempts have realised relatively small proceeds (a couple of billion pounds against a book value in excess of 40 billion pounds). To be attractive to investors, whatever the short-term boost to the balance sheet, it would have to be on such conditions (involving discounts, higher interest rates, guarantees, and the like) as to impose significant medium- to long-term costs to individuals and government.

The same conditions would apply in Australia. To be attractive to investors, the sale of the debt would have to be at a discount — say $12-15 billion for the $23 billion book value of the debt — and involve other sweeteners, such as an increase in the HECS interest rate to something approximating market rates. As economist Joshua Gans explains it, such a sale would be a mere accounting trick that does not make sense in terms of prudent financial management.

Whether as an alternative to securitisation or as part of a securitisation package, significant changes to HECS (HELP) seem certain. These could include the introduction of a real interest rate (perhaps something higher than CPI but lower than market rates), a lower repayment threshold (currently HECS debtors begin repaying when their income exceeds $51,000), methods to collect repayments from expatriates (bilateral agreements with the UK and New Zealand, to start with), and recovery of HECS debts from deceased estates.  A proponent of such reforms in the past has been former education minister, Amanda Vanstone — a member of the Commission of Audit.

The Business Council of Australia (BCA) has also set out its own proposals for higher education reform. The BCA’s agenda includes deregulating university fees, an issue that is strongly championed by the Go8 universities and largely (though not universally) opposed by the rest.

Indeed, Go8 chair Fred Hilmer, perhaps the strongest champion of fee deregulation, has taken it a step further, proposing that the public subsidy be withdrawn altogether for some high demand disciplines such as law and business in return for universities being able to charge higher fees. This has been done elsewhere. Although when in opposition the British Conservative Party promised not to interfere with fees, in government they promptly trebled them and withdrew the public subsidies from all but the STEM fields of study (science, technology, engineering, and mathematics, regarded as core disciplines). Hilmer’s proposal could be taken to its logical extension by “privatising” the student loan as well, supporting it by a public subsidy along US lines. Doing so would fix the growing public HECS burden, albeit at the cost of creating a hybrid system difficult to administer.

Withdrawing the public subsidy for non-STEM disciplines would at least “correct”, in what I would call a perverse sort of way, an inequity in Australian higher education where, with a couple of minor exceptions, only university undergraduate courses attract a public subsidy.  The increasing number of students taking higher education courses at NUHEPs — public and private — get nothing. This places the latter at a distinct competitive disadvantage relative to universities. It significantly disadvantages students undertaking unsubsidised higher education at NUHEPs, many of whom have had an unconventional pathway to higher education as against students undertaking subsidised higher education at a university.

The better way of correcting this inequity would be to extend at least some public subsidy for non-university degree and pre-degree courses. Over the past 18 months or so, collaborative arrangements have been established between universities and NUHEPs, resulting in the tentative emergence of a new style of integrated (or comprehensive) tertiary provider, with a strong orientation towards teaching and scholarship (the “polytechnic”, however described), using Commonwealth Supported Places, such as the Australian Polytechnic Network (APN). It remains tentative because former education minister Chris Evans, vetoed such arrangements while his successor, Chris Bowen, subsequently approved them, at least in the case of the APN. There is no indication of Minister Pyne’s attitude, but, in the current budget environment, it might be supposed that he would not be favourably disposed to see an extension of Commonwealth funding, particularly where it might be seen to support forms of education that in effect substitute for state funded VET activity (which was ostensibly Evans’ reasoning).

In areas of shared funding in Australia’s federal system, particularly concerning health education and training, issues of maintenance of effort, substitution and cost shifting often loom large and hamper service delivery. The Commission of Audit might be expected to pay some attention to them (despite its tight timelines). If the BCA’s reform agenda is any pointer to Tony Shepherd’s, thinking, as it probably does, in tertiary education there would be some strengthening of the Commonwealth’s role to create a more national approach and a more connected tertiary (higher education and VET) system. However, we live in a federation and an ambitious reform agenda of this sort will founder, in the short term, on state sensitivities. States do, after all, constitutionally “own” education and training (even higher education, including universities — but that’s another story). As a sometime state official, I am sympathetic to the argument that “if you give away everything, sooner or later you have nothing left” — and the states end up as mere agencies of the Commonwealth, but that seems to be the ineluctable trend of constitutional evolution in Australia.

Whatever the Commission of Audit recommends in this area (if it recommends anything at all) Minister Pyne would be well advised to take a longer view about the development of Australia’s tertiary sector and eschew short term budget fixes that lock out NUHEPs.

If “quality” and “standards” are the drivers of the review of the demand driven system, a reasonable approach would be to take up the proposition put by Willis and Burnheim that more resources be put into pathway, enabling, and foundation programs.

Government-supported opportunities for access to higher education at the sub-Bachelor Degree level (including Associate Degree and Other Undergraduate programs, and Enabling courses) totalled 25,482 places in 2012. This allocation of places represented just 6% of commencing undergraduate students. Enabling courses comprised two thirds (16,428) of all these government-supported access places.

The purpose of enabling courses, where participation is free and universities are paid a top-up in lieu of the student contribution, originally was stated as being “to provide a pathway to higher education for students from disadvantaged groups who do not yet have the academic preparation to enroll directly in award courses”. In 2013 the enabling loading was increased from an estimated $1,833 to $2,500 per place, and from 2014 it will increase to $3,068 per place (with the rate indexed in later years). The distribution of enabling and sub-bachelor allocated places among universities appears rather haphazard and not necessarily related to low-SES and Indigenous student enrolment shares.  Similarly, the allocation of Associate Degree places appears arbitrary. Of course, it becomes difficult to increase the number of sub-Bachelor allocated places with the cost of uncapped Bachelor places continuing to rise and with students who might benefit from such pathways being accepted directly into university undergraduate courses.

As far as I know, no Commonwealth money flows directly to NUHEPs (though some might flow through indirectly).

It turns out that there is a potential pot of money to fund an expansion of enabling/foundation programs in both the university and NUHEP sectors. The Higher Education Participation and Partnerships Program (HEPPP), aimed at assisting universities to improve access to undergraduate courses for people from low SES backgrounds, expires at the end of 2013.  The former government allocated new funding of nearly $600 million over four years, to the end of 2017, subject to passage of legislation containing the efficiency dividend.  Given the rhetoric around standards, it would be incongruous to allow the program to just expire.  The program might be redesigned somewhat to direct more funding into enabling/foundation programs, available to NUHEPs as well as universities.

In line with the recommendations of theReview of Higher Education Regulation Report, Minister Pyne has already moved to lighten the “regulatory burden” on universities. Pyne might usefully go further and initiate a reconsideration of higher education providers and institutional types.

 A concept that has some currency is that of a university college which is used in a number of countries to denote institutions that provide higher education but do not have full or independent university status, with the university college often being part of a larger university or university system.  A number of NUHEPs, have expressed interest in this concept (sometimes also referred to as a “polytechnic university”).

The rules that govern the accreditation of higher education institutions — the Higher Education Threshold Standards — carefully protect the title of “university” in any form of use — more tightly than anywhere else in the world.  Since 2007, in Australia, a “university college” is specifically defined as an institution seeking ultimate registration as a full university (within five years).  Among other things, a university college is required to provide AQF qualifications up to Masters coursework degrees in at least three broad fields of study and Research Masters and PhD or equivalent Research Doctorates in one field. It has five years to satisfy the requirements of becoming a comprehensive university (research and research training in at least three broad fields).

Ultimately, the rules that govern our system ought to reflect reality and the reality is a continuum of institutional types from “teaching intensive” to “research intensive”.

Dropping the research requirement, a university college would be a higher education teaching institution, perhaps affiliated with a comprehensive university, with its focus on scholarship rather than research in the style of a US Baccalaureate university.  Such an institution would be a convenient vehicle for collaborations and partnerships between universities, TAFEs, and private higher education providers and it would facilitate greater differentiation and diversity within the system in a number of ways.

The existence of these institutions would provide students with a wider choice of institutions — and in thin markets, perhaps provide a local choice, which is vital in terms of providing reasonable accessibility to higher education opportunities.  These institutions could also provide some relief to the Commonwealth Budget and provide students with some choice in terms of price.

The logic of the demand-driven system, as suggested by Bradley, is that Commonwealth funding follows the student regardless of the type of institution, public or private, university or NUHEP, as long as the institution satisfies accreditation and ongoing quality requirements.

Is that going to happen?  Probably not any time soon, but it is an idea whose time must surely come.



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