Executive Summary

STAGE 1: CONTINUE TO FUND ON NEGOTIATED TARGETS, ALLOW INSTITUTIONS TO SET FEES, PROVIDE SOME SUPPORT FOR PRIVATE PROVIDERS AND STRENGTHEN CONSUMER PROTECTION ARRANGEMENTS IN THE HIGHER EDUCATION SYSTEM.

Institutions are free to set tuition fees for all students (initially to an upper limit set by the Commonwealth for students receiving Commonwealth tuition funding) and to admit full fee paying local students who are not allocated a subsidised place.

Higher education institutions continue to receive funding for tuition based on a number of student places agreed in negotiations with the Commonwealth. Where an institution enrols fewer (or more) equivalent full-time students than the agreed number, the Commonwealth reduces (or increases) the amount of funding provided to the institution, but at a proportion of the equivalent full-time student rate (similar to arrangements which currently apply to undergraduate HECS liable students).

Loans, with repayment contingent on future income, are available to all higher education students, and allow:

students at public universities to defer payment of any tuition fees set by institutions over and above the amount of funding provided by the Commonwealth;

students enrolled in approved courses at approved private universities or degree granting institutions to defer payment of all of their tuition fees; and

Australian students who are admitted to public universities to places over and above the number of places for which the universities have been publicly funded to defer the payment of all of their tuition fees.

To access public tuition funding, a student must enrol at a public university.

Equity funding, based on submissions and/or performance, is provided through targeted grants to institutions.

The higher education and vocational education and training sectors remain separately funded and administered.

Credit transfer and articulation arrangements across the higher education and VET sectors are enhanced.

All universities in receipt of public funding (or whose students can claim an income-contingent loan) are required to make publicly available a specified minimum set of information items in a format that is comparable across institutions.

Independent complaints procedures are in place to ensure that students are able to gain redress should providers not satisfactorily deliver studies or services to them. The Commonwealth is empowered to withdraw access to public funds if consistent failure to deliver is demonstrated.

STAGE 2: GOVERNMENT FUNDING MOVES WHEN SHARES OF ENROLMENTS CHANGE.

Higher education institutions continue to receive funding for tuition based on a number of student places agreed in negotiations with the Commonwealth. Within a system-wide ceiling on Commonwealth funding, where an institution enrols fewer (or more) equivalent full-time students than the agreed number, the Commonwealth reduces (or increases) the amount of funding provided to the institution at the full equivalent full-time student rate. Movements in shares of enrolments among institutions are used to determine the base number of student places allocated to the institution. Where private institutions increase their share of total enrolments they are allocated a commensurate level of Commonwealth funding.

Loans, with repayment contingent on future income, are available to all higher education students and allow:

students at public universities to defer payment of any tuition fees over and above the amount of funding provided by the Commonwealth;

students enrolled in approved courses at approved private universities or degree granting institutions to defer payment of all of their tuition fees; and

Australian students who are admitted to public universities to places over and above the number of places for which the universities have been publicly funded to defer the payment of all of their tuition fees.

To access public tuition funding, a student must enrol in an approved course at either a public or an approved private university or degree granting institution.

Equity funding, based on submissions and/or performance, is provided through targeted grants to institutions.

The higher education and vocational education and training sectors remain separately funded and administered.

Credit transfer and articulation arrangements across the higher education and VET sectors are enhanced.

All universities in receipt of public funding (or whose students can claim a loan, with repayment contingent on future income) are required to make publicly available a specified minimum set of information items, in a format that is comparable across institutions.

STAGE 3: GOVERNMENT FUNDING IS DIRECTLY DRIVEN BY STUDENT CHOICE AND PRIVATE AND PUBLIC PROVIDERS ARE TREATED EQUALLY.

The Government determines the number of student places that it will fund in total each year and allocates these on the basis of students’ choices alone. Under this model, students would apply to an individual institution (as occurs currently), and the Commonwealth would determine the number of funded places the institution receives by reference to the total amount of funding available, and the order of ranking of students who accept an offer from the institution.

Loans, with repayment contingent on future income, are available to all higher education students and allow:

students at public universities to defer payment of any tuition fees over and above the funding provided by the Commonwealth; and

Australian students who are not allocated a funded place and who enrol in an approved course at either a public or an approved private university or degree granting institution to defer the payment of all of their tuition fees.

To access public tuition funding students must enrol in approved courses at either a public or an approved private university or degree granting institution.

The Government reserves a number of funded student places which include supplementary funding for targeted equity or other identified groups (such as Indigenous students).

The higher education and vocational education and training sectors remain separately funded and administered.

Credit transfer and articulation arrangements across the higher education and VET sectors are enhanced.

All universities in receipt of public funding (or whose students can claim a loan with repayment contingent on future income) are required to make publicly available a specified minimum set of information items in a format that is comparable across institutions.

Special-purpose support is available through competitive tendering mechanisms to support disciplines deemed to be in the national interest, and for which all provider-based options for preserving those disciplines have been exhausted.

STAGE 4: A LIFELONG LEARNING ENTITLEMENT TO POSTSECONDARY EDUCATION AND TRAINING.

All school leavers receive a lifelong learning entitlement. An entitlement to funding is also provided to all mature age students seeking access to postsecondary education and training for the first time.

Students are able to use their entitlement to meet the costs of approved studies or services leading to a postsecondary award at an approved private or public postsecondary education provider in either the vocational education and training or higher education sectors.

Institutions are free to set tuition fees for all students (initially to an upper limit set by the Commonwealth for students receiving Commonwealth tuition funding) and to admit students who have expended, or do not have access to, funds from an entitlement.

All students have access to a loan with repayment contingent on future income to assist them to meet the costs of any studies or services leading to a postsecondary award from an approved private or public postsecondary education provider.

Students may also use their entitlement to purchase tuition from approved overseas providers, where equivalent reciprocal arrangements are in place to enable overseas students to use government support from their countries to purchase tuition from approved Australian providers.

Equity funding is provided through supplementary grants targeted to members of equity groups.

All providers in receipt of public funding (or whose students can claim a loan with repayment contingent on future income) are required to make publicly available a specified minimum set of information items in a format that is comparable across institutions.

Independent complaints procedures are in place to ensure that students are able to gain redress in the event that providers do not satisfactorily deliver studies or services to them. The Commonwealth is empowered to withdraw access to public funds if consistent failure to deliver is demonstrated.

	*Designing the parameters of a student centred funding system*
Under all stages there are key decisions to be made by the Government.	The stages outlined above show that several key decisions need to be made by the Government in implementing a student centred approach to funding higher education. How to set the rate of public funding for courses—The Review Committee believes that the average level of public funding per undergraduate student should be maintained and that, in recognition of the inherently more expensive nature of some courses, public tuition funding should be provided as a flat amount within three broad categories—for example, basic, clinical and laboratory based. What conditions should apply to the setting of fees by institutions—It no longer makes sense for the Government to set the level of fees that students must pay. Allowing institutions to set their own fees will create incentives for universities to provide lower cost study options to students, because cost savings can be passed on to students. However, the extent to which this operates in practice will depend on the extent to which reforms to funding arrangements and regulatory structures increase competition within the industry. We believe that fee deregulation should be limited in the first instance, its effects monitored closely and any further deregulation contemplated only if adverse impacts do not arise. What conditions would apply to loans for student fees—All students, whether enrolled at public or private institutions, must have access to loans with repayment contingent on future income to finance the payment of fees. We see this as a vital tool for enabling universal access to higher education. How to control government outlays on tuition—We consider that, prima facie, the budgetary impact of a lifelong learning entitlement would be manageable. However, further detailed work remains to be done. If priority setting is needed, we believe that the Government should make first time access to postsecondary education and training by school leavers and mature age people its highest priority. Top *Risks*
The risks of moving to a student centred funding framework can be managed.	The changes to the funding of teaching that we are advocating in Stages 3 and 4 go well beyond what has been done before, and therefore may have the potential to generate some unexpected outcomes. We therefore make a series of recommendations aimed at the management of these risks. A targeted approach to increasing access to higher education for equity groups—including for Indigenous students, whom the Review Committee regards as a special responsibility of universities—will continue to be necessary. Significant but low demand disciplines may require special-purpose assistance where it is clear that a critical mass will not be supported by student demand alone, and the public interest requires the preservation of scholarly activity in the discipline. Innovation and excellence in teaching will continue to require support. The effect of a student centred approach to funding on regional institutions was raised with us by many who responded to the Discussion Paper. We do not believe that regional universities will be disadvantaged by student centred funding arrangements. Indeed, their close proximity to regionally based students, and their comparatively low land values—provided that these can be reflected in their fee structures—are competitive advantages. RESEARCH
The needs of those who use higher education research must be emphasised.	The growing importance of new knowledge to economic development is widely recognised—the growth of high technology industries and the growing demand for highly skilled people are evidence of this. Research and development (R&D), education and training, and industrial innovation are key inputs to economic growth. The benefits of direct links between the users of university teaching and learning services also apply to the users of higher education’s research effort. Top *Research training*
Support for research training should be student centred.	Consistent with our view that funding should be provided through arrangements which increase student choice and mobility at the undergraduate level, we believe that a student centred approach should be adopted for research training. Research training is the single largest element of the Commonwealth’s support for higher education research. Research training represents a substantial investment by the Commonwealth in individual students—around $135,000 over a three and a half year period for a full-time HECS exempt PhD student with an Australian Postgraduate Award. Research training depends on the provision of a quality training environment, and the careful matching of students and projects. However, under current arrangements, funding is effectively locked into particular institutions. We believe that enhancing student mobility and choice at the postgraduate level would have the following benefits. Institutions would compete for research students on the basis of the quality of the research environment, supervision and outcomes. Arrangements that increase student choice and mobility are also likely to result in research training outcomes that are closer to employer needs. Greater competition between institutions, resulting from enhanced student choice and mobility, would also lead to improved research training services for students. The mobility of research students would enhance knowledge transfer, innovation and competitiveness. As is the case for student centred funding at the undergraduate level, we propose a staged approach to the development of student choice based funding arrangements for research training.

STAGE 1: RESEARCH TRAINING PLACES ARE CONTESTABLE.

Allocations of research training places are consistent with priorities for the balance of disciplines based on industry and community needs.

Research training places are allocated in two funding cycles.

In the first cycle, research training places are allocated to institutions on basis of the Research Training Index (RTI)—a measure of the research and research training performance of institutions.

Students are encouraged to apply to several institutions. Each institution makes a first round of offers to students in December/January for the following academic year, not exceeding in number its RTI based allocation, on the basis of merit criteria and in a manner that does not restrict student choice and mobility.

In order to introduce student choice, the second cycle for the allocation of research training places to institutions is based on the number of first round acceptances at each institution.

Institutions are free to fill the research training places allocated in the second cycle during the course of the academic year on the basis of further rounds of offers and acceptances as they see fit.

In the second and subsequent years of operation, an appropriate mix of weightings for the RTI and the previous year’s aggregate student acceptances in first cycle allocations of research training places to institutions is chosen in consultation with stakeholders.

Research students are free to transfer between institutions with funding following them, and up to a limited period of time transferring students would be eligible for full funding.

The duration of research training places varies, depending on whether students are enrolled in masters or PhD degrees. Students moving between institutions are given limited extra time to undertake their research training, provided they are able to justify such extensions on the basis of delays attributable to moving.

The monetary value of research training places:

varies by broad discipline group; and
is increased to compensate for the increased costs students incur in moving between institutions.

The Government initiates measures to ensure that comparative information on all aspects of research training, including its institutional environment, is available to prospective students.

	The effectiveness of a student choice based, contestable funding model that facilitates the mobility of research students between institutions depends on a number of factors. In chapter 6 we make a number of recommendations to support this model, covering the following issues: students’ access to information comparing all aspects of research training including attributes of potential supervisors and host institutions; the elimination of financial disincentives to moving between institutions and cities; the development of a research training index for Stage 1 and a national merit list for Stage 2 (progression from Stage 1 to Stage 2 is dependent on the development of a methodology for determining a national merit list of candidates); and self-regulation of research training through a code of practice for maintaining academic standards for higher degrees. *Research priority setting and knowledge diffusion*
Priority setting in research must be emphasised.	Governments around the world are experiencing a rapidly increasing gap between the demand for research funding by university academics and the public capacity to fund that research. The gap is increasing pressure on funding agencies as well as on research performers and creating a shift away from the notion of grant giving based on excellence alone to one of investment in excellence, which also requires a consideration of outcomes and expected returns. These developments demand strategic planning, the ordering of priorities and coordination of the national research effort, and they highlight the fact that all funding decisions involve trade-offs. Priority setting cannot be avoided: if priorities are not set explicitly, they will be implicit in the decisions of funding bodies. We therefore make a series of recommendations designed to strengthen the capacity of the Australian Research Council (ARC) to set priorities for its programs, and to improve linkages between its programs and those of other Commonwealth agencies. One explicit objective of the ARC’s priority setting mechanisms should be a focus on knowledge and skills transfer and technology diffusion. We have recommended accordingly. Top *Research infrastructure*
We must invest in research infrastructure…	Adequate research infrastructure is a key requirement for a competitive national research system. However, the capacity of Australia’s higher education research infrastructure to support research and research training has been diminished in the past 10 years by: the escalation of research activity since the end of the binary divide; the expansion of the research training function in response to doubling of research student load since 1991; increases in funding for research infrastructure that have not kept pace with those for programs supporting the direct costs of research; and the growing costs and decreasing obsolescence time of research equipment and facilities, including library and information systems. Responses to the Discussion Paper consistently pointed out that research infrastructure and support are inadequate, and furthermore they are unstable because additional funding provided in recent budgets is for limited periods. We recommend that the Government should invest in research infrastructure at least to the current level for direct project costs, and look to raising the level over the next three years.
…and we must target research infrastructure funding better.	In addition, there is a pressing need to reshape the Commonwealth’s higher education research infrastructure programs to address the following issues: the absence of a system-wide strategic approach to research infrastructure by Australian governments, funding agencies, universities and other research institutions; funding arrangements under which support for direct costs of research are disconnected from support for infrastructure funding; and the need for coherent and transparent costing of research. To complement its role in determining priorities for the funding of university research, the ARC should develop a strategy for investing in higher education research infrastructure. Such a strategy will need coordination and collaboration with DEETYA and other departments and agencies concerned with funding and performing R&D. We believe that it is necessary, as a correlate of this strategy, to attach project-related infrastructure to individual project grants. This would focus the relationship between infrastructure capacity and overall levels of research activity funded by granting agencies, and would improve accountability. The integration of project-related infrastructure to individual project grants will require some discipline on the part of granting bodies and universities. The key principle involved in attaching project-related infrastructure to individual project grants is the need to fund projects adequately to cover both direct costs and project-related infrastructure costs, even if this means that the number of projects being supported is reduced. This puts a premium on sound, transparent costing practices in research. Top MAKING THE COMMITMENT The Discussion Paper suggested that the nation should make a commitment to a ‘decade of managed reform’. This process would involve extensive consultation, planning, adjustment, consolidation and the strengthening of the postsecondary education industry.
We must make a long-term commitment to reform.	In chapter 7 we discuss the task of implementing the Review Committee’s recommendations. Recommendations to be implemented in the short term relate to matters that require urgent attention, are relatively straightforward or must be undertaken before a more substantial change can be implemented. Medium and long term tasks are more complex or require the completion of other steps before implementation. The full elaboration of a student centred funding framework, and the re-engineering of the regulatory framework that we propose will require a long term approach. The tasks involved are complex. For example, intergovernmental issues concerning the financing of postsecondary education in a fully developed student centred funding arrangement are significant and not easily resolved. Institutions will require time to prepare to manage in a more open and competitive environment. They will require access to mechanisms traditionally used in freeing up industry sectors. Staff will need to acquire new skills and develop new procedures. Finally, we note that some respondents to the Discussion Paper expressed concern that if a student centred funding model were introduced students would make poor choices regarding courses and institutions and be guided by tradition or fashion rather than an objective understanding of the benefits of different options. This view underestimates the capacity of students to make appropriate decisions about their education. As a community we accept that young adults should exercise choice as voters, as borrowers of finance and as participants in the labour market, and we accept that they can marry, sign contracts, join the armed forces and even die for their country. Students are capable of assuming the responsibility for making choices about their higher education; what is needed is a commitment by governments and institutions to trust their choices.