SETTING FIRM FOUNDATIONS: FINANCING AUSTRALIAN HIGHER EDUCATION SUMMARY

The financing of higher education has engendered very strong interest in the great majority of submissions received in response to the Review. While there is a wide variety of positions proposed in relation to the best way forward, there is near unanimity on the need for change to the current arrangements.

Total Commonwealth funding for higher education in 2002 is $6.4 billion. The majority of this funding ($6.1 billion) comes from the education portfolio and, excluding schemes of the Australian Research Council (ARC), is provided under 22 separate programmes.

Currently about 64 per cent of funding [including Higher Education Contribution Scheme (HECS) funding] for higher education comes from the Commonwealth Government.

The bulk of the funding is provided to universities as a single block operating grant for a specified number of student places on the basis of an educational profile that covers a higher education institution’s teaching and research activities.

The remainder of funding for higher education comes from Australian students, international students and a range of other sources.

HECS is an income contingent loan scheme with students repaying their contribution through the tax system once their income reaches a minimum repayment threshold which this year is $23,242. Under HECS the student contributes around a quarter of the cost of the course with the Commonwealth paying the remainder. Around 91% of graduates owe less than $16,000 with the average HECS debt at around $7,800.

Funds for research and research training are allocated either through performance-based block funding programmes administered by the education portfolio or peer-reviewed competitive grants administered by the ARC. In addition, universities receive competitive and non-competitive research funding from a range of other agencies and programmes.

Higher education institutions continue to earn additional revenue from non-government sources.

Compared to large private enterprises, universities continue to have low levels of borrowings even though the level of borrowings has been increasing in recent years. In 2000, the borrowings for the sector were $426 million – 2 per cent of asset value.

The sector’s net assets increased from $18.8 billion in 1999 to almost $20 billion at the end of 2000, an increase of 6 per cent. However there is considerable variation across the sector in the value of net assets, reflecting such factors as the age of the institution and the size of its operations.

The cash and investments of the sector totalled $4.4 billion at the end of 2000.

Sector revenue in 2000 reached $9.3 billion, an increase of 5.6 per cent over 1999. This is estimated to be $10.4 billion in 2002.

While the sector is in a sound financial position, challenges remain.

Since the mid 1980s the higher education sector has grown at a rate faster than the level of Commonwealth funding for the sector, reflecting in part improved operational efficiencies.

All institutions have been looking at alternative revenue sources to complement public resources. However, some institutions are better placed than others to attract such funding, as are some disciplines.

Universities have only limited control over their greatest source of income: undergraduate students.

The current ‘one-size-fits-all’ model imposes a lack of flexibility with universities receiving the same amount for students in particular disciplines regardless of the number of students studying in that discipline, where they are studying and their mode of study.

Universities are not rewarded for high progression and completion rates or particular learning outcomes. Nor are they rewarded for teaching particular disciplines that may be of local or national significance.

Rigidities in university staffing structures also impede the timely shift of resources required to make the necessary changes to address changing community, student and staff needs and aspirations.

Students at public institutions holding a Commonwealth-funded place in an approved award course can access HECS. However, Australian students at these institutions who are enrolled on a full fee-paying basis can only access a student loan to cover their tuition fees if they are enrolled for a postgraduate coursework award.

In considering possible future directions for the financing of Australian higher education, there are a number of fundamental questions and key issues that need to be considered.

The size of the higher education sector is central to the overall level of funding required and the capacity of the nation (through both public and private sources) to pay. A number of factors impact on the debate about the size of the sector, including:

• levels of unmet demand;
• levels of participation;
• the private higher education sector; and
• the needs of the economy and community.

The national benefits of higher education are significant. Its total economic impact annually has been estimated to be $22 billion. The average rate of return to the Government on its investment in higher education has been estimated at about 11 per cent. However, the greatest national benefits are those more difficult to measure and include the impact of graduates on productivity in the workplace, the impact of research outcomes on productivity and innovation and the social impacts of a more highly educated population.

The private benefits of higher education are also significant. Graduates overall have a greater annual and lifetime income than non-graduates. Graduates are more likely to obtain professional or managerial jobs, are relatively protected from unemployment and experience greater stability in employment.

It has been estimated that the gross lifetime earnings of someone with a bachelor degree are around $622,000 more for males than those who left education at the age of 18 years and for females around $412,000 more.

The public benefits of higher education are not only those that have broad economic, fiscal, or labour market effects but also include substantial social benefits.

The challenge will be determining the appropriate balance between public and private investment.

Issues raised in the context of any future funding models

Some submissions argue for an increase in funding for higher education through a variety of mechanisms. These include increased public investment, increased flexibility for universities to generate income, increased State government contributions, greater industry investment and increased non-government contributions, for example by students to their education and alumni.

To optimise outcomes from higher education, access needs to be based on academic ability, not ability to pay.

A majority of submissions to the Review highlight the need for any future funding model to maximise flexibility for institutions that frequently face differing demands.

Several submissions have argued for a different approach whereby universities are given greater flexibility in setting student load targets and in shifting load between disciplines.

Many submissions to the Review support the deregulation of fees arguing from the perspective of the need for more flexibility for universities to pursue their institutional goals.

Others support fee deregulation but suggest that it be limited.

Several submissions argue against fee deregulation.

Many submissions to the Review argue for targeted mechanisms to ensure socially equitable access to higher education.

Some submissions also argue for revised indexation arrangements.

The paper proposes a number of possible models though these options are not exhaustive, nor are they preferred options of the Government or reflective of government policy.

Research undertaken by Australia’s universities is recognised internationally with many researchers holding world standing in their field of research.

Given recent reforms to research funding arrangements (in 1999), some submissions argue that it would be premature to introduce further change. Others argue that there is a need for further changes to maximise publicly funded research outcomes.

Some submissions call for measures to encourage greater investment by industry in university R&D.

Options raised in submissions range from incentives to encourage greater cooperation through to a more radical opening up of all Commonwealth research funding to increased competition.

Issues relating to the promotion of models of greater collaboration between universities and other public research agencies have also been raised in submissions.

Several submissions argue that State and Territory governments should look at a higher level of funding involvement in higher education.

A number of submissions point to the need for greater cooperation between business and universities in the commercialisation of research.

The internationalisation of staff, curriculum and students and international benchmarking has generated significant income and this is expected to continue.

One area of particular growth has been in customised teaching and learning. Universities have the potential to provide enterprises with a range of services and programmes that will assist the enterprise in developing and maintaining the skills and capabilities of their employees.

A number of submissions argue the importance of a supportive taxation regime to encourage philanthropy both for infrastructure and teaching.

Some submissions argue that universities should undertake a review of their alumni support functions, with the view to improving the ongoing relationships between Australian universities and their graduates, both domestic and international. There may be a role for the Government in facilitating such a process.

Copyright  |  Disclaimer  |  Privacy Statement