Dan Tehan’s uni reforms have unpredictable outcomes

Universities with economies of scale could increase student places on the new funding rates, says Andrew Norton.

Dan Tehan’s proposed higher education reforms are not the most radical we have seen but they are the most unpredictable in their consequences. The federal Education Minister proposes big shifts in the prices paid by students and received by universities.

If the Senate approves his changes, how students and universities respond to their new incentives will shape Australian higher education in the 2020s.

Media attention has focused on student contribution changes. Humanities subjects other than languages, for example, would more than double to $14,500 a year, while nursing and teaching subjects would get a 46 per cent discount down to $3700 a year. The main intent is to steer student preferences towards courses with better employment outcomes.

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The government and its critics assume that differential fees will change student behaviour, but only for a minority of students might this be the case. Course choices are driven primarily by interests, in the course and in the student’s likely subsequent career.

More than 95 per cent of first-year students agree that “studying in a field that really interests me” is an important reason for enrolling. Three-quarters have a specific job in mind.

With student contributions deferrable through HELP, few students with clear aims would fundamentally change their life plans to save what are, as a proportion of career earnings, still modest amounts of money.

It is possible, however, that some students might take a different course within their range of interests. Applications data shows, for instance, that people who apply for health courses often list preferences for other health courses or for science degrees.

Students without clear vocational goals may be most open to financial influence. On Australian Bureau of Statistics figures, about 10 per cent of students give interest or enjoyment as their main reason for study. Increased fees would not persuade these students to take a different course but they might decide not to study at a university. A massive open online course might be better value.

One factor making this package unpredictable overall is that university financial incentives often go in the opposite direction to student incentives.

For humanities, as well as business and law, the new $14,500 annual student contribution more than offsets cuts to commonwealth contributions. Universities would have a stronger incentive to offer additional places — if the demand is there.

With a new low student contribution of $3700 students have a fin­ancial incentive to choose agriculture, nursing, psychology, teaching and maths subjects. But universities would receive a lower total funding rate than now for all these fields. Science and engineering students would pay about $2000 less a year than now but their university would receive nearly $5000 a year less.

If prices do have a significant influence, demand could increase in fields the government deems as priorities while supply slumps because it is not economical for universities to meet that demand.

As with students, however, caution is needed in drawing conclusions about university behaviour change. The new overall funding rates are based on teaching and scholarship cost data collected from universities and analysed by Deloitte Access Economics. On my analysis of median teaching and scholarship costs, of the priority fields I mentioned above only agriculture is loss-making on the proposed funding level, but by a lesser amount than now.

Universities with economies of scale could increase student places on the new funding rates, despite lacking strong monetary incentives. For domestic undergraduates, universities are mission-driven and have long offered courses from which they receive no financial gain.

The funding rates, in their origins, were never intended to precisely match costs at the discipline level. These were hard to determine and vary between universities.

The rates instead were used to calculate a block grant, with policymakers assuming swings and roundabouts, with universities using “profits” in some disciplines to offset “losses” in others.

What mattered was that the overall block grant amount was enough for the university to achieve its mission.

The danger is that the new funding rates cut about $750m of swings-and-roundabouts money from teaching funding. Although this money will be recycled back to universities via other programs, the reforms risk unsettling a delicate balance.

With uncertain student and university responses, and a complex interaction between them, it is hard to predict where the system would end up with these reforms. It might be what the government intends. But it could be something quite different.

Andrew Norton is professor in the practice of higher education policy at the Centre for Social Research and Methods, Australian National University.