POLICY PERSPECTIVES ON HIGHER EDUCATION FINANCING
A Comprehensive Program of National Scholarships
PETER KARMEL
Over the past decade, higher education has undergone a massive expansion. Student numbers rose from 394,000 in 1987 to 631,000 in 1996 - an increase of 60 per cent, while the number of government funded institutions with the status of "university" increased from 19 to 36. As a result of this growth, and the way in which it has taken place, attention needs to be given to a whole range of issues. These include:
Scale of higher education
What proportion of the age cohort should be entitled to enrol in government-supported university places?
And of that proportion what fraction should be able to proceed to government-supported post graduate education?
If the current levels of participation in higher education are judged to be too great, in what manner should the system be scaled back?
Funding
What is the appropriate division of funding responsibility for university teaching between the students, as the private beneficiaries of university education, and the Government, in respect of the social benefits?
Should government funding be provided directly to institutions or through students by way of awards or scholarships?
How should the Government and the universities cope with the recurring problems of adjustments to salary scales?
University/government relations
Should institutions deal directly with the Minister and the Department or should there be a statutory body to act as a buffer between the institutions and the Government?
Should universities pursue centrally-determined national priorities or should they pursue their own priorities?
If universities are to pursue a mixture of their own and national priorities, what is the appropriate balance and how should it be achieved?
Research
What is the appropriate balance in Government funding between teaching and research, both in the system as a whole and in individual institutions?
Within the total of research funding, what is the appropriate balance between the support of research infrastructure, in the form of physical resources and personnel, and competitive research funding?
Should research funding be spread throughout the system or should it (and research training) be concentrated, perhaps on a disciplinary basis, in a lesser number of institutions?
Diversity
Should diversity in the missions, values, goals and strategies of universities be promoted?
And if so, how?
Quality
How should quality in higher education be defined?
What measures should be taken to enhance and monitor quality in universities?
Higher education and vocational education and training
Should the different modes of funding of, and access to, higher education and vocational education and training be maintained or should post-school education be approached in a more holistic manner?
This paper outlines an approach to the funding of universities for their teaching activities through a comprehensive program of national scholarships. Such a program would involve the universities in receiving government funds through the funding of students rather than through direct government grants to institutions. It would contribute to the resolution of many of the issues set out above.
NUMBER OF SCHOLARSHIPS
Scholarships should be available to students commencing higher education for the first time.
The number of scholarships could be related to the proportion of a cohort that is deemed appropriate for entry to higher education. For example, between 1989 and 1994 the number of Australian students enrolling for the first time hovered around 100,000. More recently the figure has risen to about 110,000. This number constitutes about 40 per cent of a cohort: i.e., at current levels of access, 40 per cent of people enrol in higher education either shortly after leaving school or at some time later in their lives - of the 40 per cent about 70 per cent enrol within several years of completing school.
Alternatively, the number of scholarships might be determined in relation to students’ tertiary entry (TE) scores. For example, scholarships could be provided for all those wishing to enter higher education with TE scores at or above, say, the 50th percentile, with an appropriate provision for mature-age students.
Access to higher education is reflected in the number of students enrolling in higher education for the first time. Thus access could be maintained, expanded or reduced by modifying appropriately the number of scholarships. The accompanying expansion or contraction of individual institutions would reflect student demand.
AWARD OF SCHOLARSHIPS
Suppose the number of scholarships was to be 110,000. How might those be awarded?
About 70 per cent of new students enrol shortly after, or within several years of, leaving school on the basis of their tertiary entrance results. Tertiary entrance is currently administered on a State basis, but from 1997 there is a capacity to convert State and Territory rankings to a national standard which could be used to allocate national scholarships. Thus some 75,000 to 80,000 of the 110,000 scholarships could be allocated to students who wish to enrol in a university course in accordance with the national rank order of their TE results. This has the incidental advantage of allocating places among States and Territories on a fair basis (i.e., in accordance with student demand) without the involvement of politics of the kind seen in recent years in the arguments over State participation rates in higher education.
The other 30,000 or so places would be available for mature-age or special entries. A portion of these could be allocated nationally on the basis of candidates’ results in the Special Tertiary Admissions Test. The STAT is a test, administered by the Australian Council for Educational Research, which is already widely used for admitting mature age entrants.
The remaining scholarships might be allocated direct to universities for award to special cases or to meet regional needs.
TENURE OF SCHOLARSHIPS
The scholarships should be for a limited tenure, say, for a maximum of five or six years of successful full-time university study or the equivalent of part-time study. Beyond these, students would be expected to pay for their studies. Six years would cover all bachelor degrees (including double degrees and most graduate study); five years would be less generous but would cover all bachelor degrees (including some double degrees and some graduate study)except medicine.
VALUE OF SCHOLARSHIPS
At present the government subsidy to higher education courses amounts to, on average, some 60 to 65 per cent of the cost of offering the courses - the balance being covered by the HECS arrangements. The average amount per enrolment involved is approximately $6,500 per equivalent full time student per annum. In valuing the scholarships, account would need to be taken of the differential costs of university courses in order to promote an efficient allocation of resources. According to the Relative Funding Formula, which was used to influence recurrent grants to the universities after 1990, the cost of undergraduate courses varies in the ratio of 1:2.7 from the least to the most expensive. It would be necessary for the Commonwealth Government to classify courses (or components of courses) into several categories according to cost. The value of a scholarship would vary according to the course (or components) in which a student enrolled, and at current cost levels would average about $6500, ranging from about $5000 to $13,500.
FEES
In an arrangement for scholarships of the kind outlined above, the individual universities should be free to determine tuition fees to be charged for their various courses (against which the scholarships would be an offset) and to admit full fee paying local students who have not received scholarships.
Fees might be expected to reflect relative costs of courses as do the values of the scholarships, although cross-subsidisation of less popular or more expensive courses would be for individual universities to determine.
The current HECS arrangements (which do not prejudice access and are equitable in their impact) should continue to stand for a level of fees at least up to a specified margin above the value of the scholarship - on the basis of current HECS arrangements this margin would be about 60 per cent. If an institution charged fees beyond this margin, the excess would need to be the student’s responsibility, either to pay up-front or by way of a loan.
Students would apply for admission to institutions in exactly the same way as at present. Universities would decide which students would receive an offer of a place.
Full fee paying local students should be eligible to receive a later year scholarship on the basis of successful university performance.
TRANSITIONAL ARRANGEMENTS
Since scholarships would be awarded to students commencing higher education for the first time, it would take some years before university students in all years of their courses were covered by the new scholarship program. In the interim, either institutions would need to be directly funded by the Commonwealth for those students (within an approved student load) who were continuing their courses or continuing students would need to be provided, in the year in which the program was introduced, with transitional scholarships for the uncompleted years of their courses.
ADMINISTRATION
The program should be managed by an independent statutory body (a Higher Education Commission), with appropriate membership and adequate staff and at arms length from the Government, to advise the Commonwealth Government on the number and value of scholarships and on broad Government policies for higher education, and to report regularly on the condition of higher education in Australia. Given the nature of its responsibilities the Commission and its secretariat would not need to be large.
The number and value of the scholarships would require up-dating from time to time. Triennial revisions to numbers and the value of the scholarships would be appropriate. These would involve agreement between the Government and the universities through the Commission.
UNIVERSITY FUNDING
The universities would derive all their government funding for teaching, including funds to meet continuing capital needs (i.e. the capital roll-in), through the scholarships. The funding of research constitutes a separate issue.
The Government would need to continue direct funding of institutions for research by way of research quantum grants and other grants for research infra-structure. The Institute of Advanced Studies in The Australian National University would continue to require direct funding.
The question arises whether the balance of government funding for teaching and for research is appropriate, that is, whether the number and value of scholarships is appropriate in relation to the investment in research facilities in the institutions. There are also the issues relating to whether there ought to be concentration of research and research training in a limited number of universities, possibly on a disciplinary basis. The case for the concentration of research and research training (at least on a disciplinary basis), related to periodic evaluations of performance, is persuasive. The Higher Education Commission would be expected to advise on these matters.
Competitive research funding would be expected to continue under the aegis of the Australian Research Council and of the National Health and Medical Research Council. The balance between competitive funding and infra-structure funding would need to be kept under review.
New institutions might require special Commonwealth capital funds, although this could be left to State Governments or private initiatives.
Postgraduate awards for research would need to be administered separately from the national scholarship program.
AUSTUDY need not be affected.
ADVANTAGES
University/government relations
Higher education would be largely deregulated. Political and bureaucratic intervention would be greatly reduced as would bilateral dealing between institutions and government officials. The grant assessment and profile negotiation functions of DEET would be removed; the number of enrolments would be a matter for each institution to determine. The universities would become patently responsible for their affairs; they would not be underwritten by the Government. The Commonwealth Government would not be directly involved in assessing/monitoring the quality of institutions, except, perhaps, in relation to research. There would be economies in public administration.
At the same time, the Commonwealth would be in a position to control its expenditure on higher education teaching through the three dimensions of the quantum, value and length of tenure of scholarships and through the conditions under which HECS operates. The Commonwealth could still influence the development of higher education through the quantum of scholarships and their value, and through the provision of capital to establish and foster new institutions. The quantum of scholarships and entry standards would be clearly linked. Governments could also influence access for special groups by the quantum and distribution of special scholarship schemes. It would remain open to the Commonwealth to provide funding to particular institutions for specific purposes under contractual arrangements.
Accountability would be assured through the statutory reporting requirements of the institutions and the periodic reports of the Higher Education Commission as well as through the market mechanisms provided by the scholarships program.
A comprehensive scholarship program of this kind would enable universities to set their own priorities rather than be required to conform to national priorities laid down centrally. Universities are involved in preparing students for a lifetime’s activities in a future which is unknown and uncertain. There is a powerful argument that the pluralist approach of institutions’ determining priorities in relation to their particular strengths and their perceptions of the future is more in the long term interests of society than forcing conformity to a single set of priorities laid down by the central government. It is a case of decentralised decision making versus central planning.
Market orientation
Higher education would become market oriented. Effective market orientation of the provision of higher education services would be introduced by empowering institutions to offer services at prices and in quantities determined by them having regard to costs, and by allowing students to weigh services offered against fees charged - a shift from a producer dominated system to a consumer sensitive market. The power of students as consumers would almost certainly lead to some reorientation of university priorities towards teaching and would impose a discipline that would promote the quality of the courses offered. The relative costs of courses would probably reduce the relative weight of higher degree enrolments which have increased markedly since 1987 (higher degree enrolments increased by 181 per cent between 1987 and 1996, compared with 51 per cent for other enrolments).
The proposed arrangements would also have positive results from the point of view of equity. The cost of higher education would be shared explicitly between the two beneficiaries - society and the individual student. The student would be able to balance the benefit received from enrolment against the cost incurred, including the cost of enrolling in institutions charging higher fees.
Diversity among universities would be promoted as each strove to find a market for its services. Product differentiation would occur in the nature of courses, the levels at which they are pitched, the size of the institutions, the facilities available, the emphasis and ethos of the institution.
All courses would be treated similarly with respect to fees: different categories of courses would be unnecessary. To the extent that graduate study can be encompassed within the five or six year tenure of the scholarships, problems with access to courses currently subject to graduate tuition fees would be avoided. Invidious distinctions between full fee paying overseas students and other students would be eliminated. Public and private universities could be treated on an equal footing. Full fee paying (non-scholarship) domestic students could be catered for. On the assumption that institutions would determine a maximum level of enrolments for entry to each course and a minimum tertiary entrance score, such students would normally be able to gain entry to courses only with entry levels below the minimum level gained by students with scholarships - unless, of course, institutions were willing to set entry standards at lower levels for full fee paying students than for students with scholarships.
The establishment of a market in higher education services would accord with the emphasis currently being given to a competitive market orientation of the Australian economy.
Financial Viability of Institutions
Institutional efficiency and effectiveness would be improved by avoiding the rigidities imposed on university management through the present publicly known, and thus unavoidably determinative, relative funding formula. Institutions would have greater control over budgets through fee structures.
Universities would be able to balance costs against revenues. Having greater control over their budgets through the level of fees, they would be able to adjust the educational services they provide to the revenues they are able to earn. Financial responsibility would be promoted. Some institutions, but probably not all, would be able to allocate part of their revenue to supporting scholarly activities and research infrastructure.
The greater control over revenues would enable institutions to respond to labour market conditions in employing staff. It would facilitate moves to enterprise bargaining in the determination of salaries and conditions - indeed, it is difficult to conceive of successful enterprise bargaining in universities without their having greater control over their revenues. The present dilemma of how to fund salary increases would be resolved.
Universities would be free to reorganise themselves in any way they chose. Undoubtedly, there would be some splitting of institutions, but there might also be combining and collaborating.
Vocational education and training
The comprehensive scholarships program set out in this paper is designed for higher education students and the institutions they attend. However it could be generalised to cover vocational education and training (VET) students pursuing award courses (usually of one to three years duration) in approved VET institutions. The criteria for the award of scholarships might need to be different for some categories of VET students, as would the value of the scholarships. However, there would be advantages in putting access to higher education and VET institutions and their financing on a more equal footing, and in establishing a market for post-school education with a wide range of institutions aiming to meet the diverse needs of the community. A comprehensive scholarships program for all post-school students would assist in sorting out the balance between university studies and those embraced under the rubric of vocational education and training.
OTHER CONSIDERATIONS
Deregulation of the kind proposed might result in some universities growing at the expense of weaker institutions. No doubt there would be shifts in enrolments among institutions. However, the possibility of substantial growth of one institution at the expense of their neighbours is fairly limited. The scarcity of land and capital and the high cost of servicing capital would be inhibiting factors. Moreover, it can be assumed that institutions will not wish to grow without limit. Nevertheless, deregulation may mean that some weaker institutions would not survive, especially if the Government were to reduce the number of scholarships in the face of a declining demand for university places or as a matter of policy. But should such institutions be protected? If protection is judged desirable, the Commonwealth Government could, through its Higher Education Commission, seek agreement with expanding institutions to limit their size. It would also be possible for the Commonwealth to assist the survival of an institution (for example, a regional university) by the payment of lump sum subsidies on the recommendation of the Higher Education Commission.
The proposed arrangements do not envisage any formal coordination of the activities of the various institutions. Indeed, the essence of deregulated arrangements, such as those implied in a comprehensive program of scholarships, is that there should be no central coordination. Some might fear that in these circumstances there would be a proliferation of specialised courses involving "unnecessary duplication". It seems unlikely, however, that in a market situation institutions would rush into new courses unless there was a clear demand for them at fees which covered costs. Medicine might be a special case, but the creation of a new medical school or the expansion of an existing one would require commitments from State and hospital authorities and could not occur without their approval and support. It might be noted in passing that, although the Commonwealth Department of Employment, Education and Youth Affairs (and its predecessor Department) has been involved in detailed discussions with institutions on course offerings and student numbers, it has not exercised the coordinating role that had been excised by the Commonwealth Tertiary Education Commission and its predecessors up to 1987: the doubling of the number of law schools since 1988, the proliferation of MBA courses and the spread of PhD programs in the post 1987 universities testify to this. The present system of higher education is a regulated but uncoordinated system.
A comprehensive program of national scholarships implies that the distribution of enrolments among the various cost categories of courses would be determined by the interaction of student preference with institutional provision. In these circumstances the Commonwealth Government might fear that relatively more scholarships would be directed to the more expensive courses. This is unlikely since the more expensive courses tend to be those with strict quotas. Moreover they would probably impose a larger HECS liability on students.
There is also the possibility (perhaps, likelihood) that some universities, which are high in the pecking order, might raise fees for some courses above the levels for which HECS would be available. On the other hand, other institutions might decide to charge relatively low fees to attract students. If a university were to charge fees beyond the HECS level, it should be required to implement a scholarship scheme in order to maintain access for less affluent students.
That fees should reflect costs is sometimes disputed on the grounds that it would discriminate against students wishing to enter expensive courses like science and engineering and reduce the output of graduates in these fields. However, a shortage of such graduates would be reflected in their remuneration; this would make the fields attractive in spite of their higher fees. But quite apart from this, universities could always cross subsidise expensive courses if they wished (higher fees for law, lower fees for science); or, if need be, the Commonwealth could provide direct subsidies, preferably higher value scholarships, for particular courses.
Conclusion
Confrontation of the issues set out at the beginning of this paper is a matter of urgency. The universities, after the amalgamations and conversions of 1988 and 1989 and having expanded rapidly for a decade, are now facing contracting real resources and some decline in student demand. The future appears uncertain. Questions relating to the diversity among, and the quality of, the 36 publicly-funded universities need to be addressed.
The implementation of a comprehensive program of national scholarships, and the deregulation of higher education and the establishment of a market for educational services that would go with it, will not provide a solution to all the problems universities are at present facing, but it will make a major contribution to addressing many of them. The alternatives are to do nothing, in which case most of the institutions will fall into deeper disrepair, or to return to the pre-1987 situation which is simply not feasible. The approach outlined in this paper offers the greatest hope for maintaining and enhancing the quality of Australian higher education as a diverse system capable of meeting the multifarious needs of the community. The approach may also be able to be extended to cover all post-school education.