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		Funding Higher Education Performance and Diversity
		97/19 Paul W. Miller Jonathan J. Pincus December 1997
		Evaluations and Investigations Program Higher Education Division Department of Employment, Education, Training and Youth Affairs

©Commonwealth of Australia 1998

ISBN 0 642 23748 4

This work is copyright. Apart from any use as permitted under the Copyright Act 1968, no part may be reproduced by any process without prior written permission from the Australian Government Publishing Service. Requests and inquiries concerning reproduction and rights should be addressed to the manager, Commonwealth Information Services, Australian Government Publishing Service, GPO Box 84, Canberra ACT 2601.

Executive Summary

The Australian Government established a Review of Higher Education Financing and Policy (the West Committee) to report early in 1998. In the context of its review of the sector’s effectiveness, and of likely developments, the West Committee is to suggest a policy framework which will allow universities to respond creatively and flexibly to meet the needs of students, industry and society in general.

The present work reports the proceedings of a conference held to discuss the policy area—university financing—that is central to the debate, and pivotal to the West Committee. Funding arrangements for the Australian Unified National System—for the 38 campuses of ‘The University of Australia’ system, as it was memorably called at the conference—limit flexibility and confine creativity.

Almost exclusive emphasis is given in this volume to undergraduate and coursework degrees. Experiences in two countries, the United States of America and the United Kingdom, are used as guides to what is possible and what is likely in Australia.

The common background includes an economic environment with two significant forces impinging on universities. The first is a rise in the financial return to those who have undertaken higher education, which has caused an increase in the demand for higher education. Relevant to the supply of university places has been a climate of fiscal stringency, of downward pressure on tax rates, of concerns about fiscal deficits and about the increasing costs of welfare entitlements.

In what follows, it is taken for granted that a rise in the extent of reliance on contributions from the student, or family, is more likely than a fall. Such a rise has occurred in a number of western countries, Australia included. The alternative is a gradual and eventually very damaging reduction in funding per student, as in the United Kingdom (where the Dearing Committee’s recommendations are for greater reliance on non-government contributions).

From an increased dependence on fees, a number of questions flow and it is around these that the current volume is organised. The first set concerns the effects of fees on the size and composition of the student body.

Rises in fees have occurred in a period of rising returns to higher education, as measured by the size of the income differential favouring workers with university education. In these circumstances, rising fees have not yet caused overall enrolments to fall.

Analysts dispute the etiology of the income differentials. One possibility is that education is mostly a filter—those who succeed at school or university are providing evidence that they have certain affective characteristics and, on this basis, they are sorted into higher paying jobs. An alternative is that the income differentials are primarily a consequence of the demand for, and supply of, workers with particular high-level learning (e.g. in the field of medicine) or high-level intellectual skills (e.g. information processing and decision-making). In the United States at least, the recent rise in the differential is mostly due to a fall in the incomes of the less educated, a fact that seems easier to reconcile with an emphasis on technological change (on ‘learning’ and ‘skill’) than with the ‘filtering’ theory.

Whatever the cause, the increase in demand has provided scope for rises in tuition fees. What have been the effects on student composition?

A significant distinction is between up-front fees and deferred fees and, particularly, deferred fees that are payable according to future income rather than the effusion of time. In the very diverse US system, fee rises have pushed students with low socioeconomic backgrounds disproportionately into two-year and community colleges.

The ‘University of Australia’ is much less diverse, and so the effects have been different. They have also been less pronounced: under Australia’s generous tuition loan arrangements, and without a means test and with income-contingent repayments, re-introduction and subsequent increases in tuition fees have had some, but more minor, effect on the socioeconomic composition of new enrolments.

What uses are made of increases in fee incomes? For public universities, the first division is between the public purse—relief for taxpayers—and the universities’ budgets.

In the foreseeable future, student fees and private endowments cannot fully replace public funds in public universities. However, greater use should be made in Australia of private sector funding of student loans, through the securitisation and sale of loan assets.

Once at the university, extra fee income goes to scholarships (especially at private universities), to improve teaching, to fund more research and to pay faculty internationally competitive salaries.

Where universities are permitted to set fee levels and to retain fee income, there are some technical issues to resolve concerning the best fee structure. Chapter 6 suggests how universities could take account of costs, of student queues and other relevant matters.

For public universities and for many private ones, a vital question is the extent and conditions of support from the public purse. Arguments are put in this volume for public funding by actual enrolments (not by ‘profile’); and for public funding according to standardised course costs. Also discussed is the case for a more neutral tax treatment of fees paid.

The Introduction provides a longer, thematic summary of the chapters that follow.

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