Published by Sydney Morning Herald, Saturday 12 May
For universities, budget week brought bigger news from the opposition than the government. Bill Shorten committed Labor to restoring the demand-driven funding system. If Labor wins the next election, public universities could again enrol unlimited numbers of domestic bachelor degree students.
The demand-driven system, introduced by Labor during its last term in office, ended in December 2017. For financial reasons, the Coalition froze funding for bachelor degree students for two years, and linked subsequent funding increases to population growth.
Labor’s main rationale for reversing the Coalition’s decision is to provide more opportunities for higher education, and to increase the number of graduates by 200,000, over 12 years. But right now this isn’t the most compelling argument for demand-driven funding, or the most interesting part of Labor’s policy direction.
Under demand-driven funding, the number of people starting a bachelor degree grew quickly, by more than 40 per cent in just eight years. Some students who might otherwise have taken a vocational education course went to university instead.
TAFEs were left struggling, hit at the same time with funding cuts from state governments and the chaos caused by the scandal-ridden VET FEE-HELP student loan scheme. Some vocational students now pay up-front fees, while university students defer all tuition fees via HECS-HELP.
Without strong competition from vocational education, demand-driven funding in its first phase sent too many students into higher education.
A recent Grattan Institute report, based on statistical analysis of university enrolment and completion data, found that one-in-five recent commencing students have a less than 50 per cent chance of completing any university course in the next eight years.
The biggest risk factors are studying part-time and having a low ATAR. Both increased their share of commencing student enrolments during demand-driven funding, although with a moderation of part-time student numbers in 2016.
Most students who don’t complete leave within a year. While these students have found at moderate cost that university isn’t the right choice, with more-attractive vocational options they might have skipped this step. Almost half the people with an incomplete bachelor degree have a vocational education Certificate III/IV or diploma.
For young men at least, these vocational alternatives can pay quite well. They can earn more than they would if they had a bachelor degree. Under demand-driven funding, the number of people with bachelor degrees grew more quickly than the number of suitable jobs. As a result, an increasing share of graduates take jobs that do not require a degree, and which pay less than a skilled trades occupation.
Before the freeze, the demand-driven system was already adapting to weak outcomes. The number of students commencing a bachelor degree for the first time dropped in 2016, with overall numbers held stable by previous students changing courses or starting another degree. Enrolment numbers for 2017 have not yet been released, but demand was flat. Demand may have declined in 2018 for older applicants. Because of this, freezing demand-driven funding will probably not have a major short-term effect on total student numbers.
The strength of demand-driven funding isn’t that student numbers always increase. It is that the system adapts as circumstances change. Slightly fewer university students is a sensible response to recent weak outcomes, but when a baby-boom generation reaches university age in the mid-2020s enrolments will need to expand. With demand-driven funding universities can plan for this years ahead.
In every year, demand-driven funding encourages universities to adapt to student and labour market demand. That’s why we have seen a big shift in favour of health-related courses since demand-driven funding began. Student preferences and differences in regional population growth mean that some universities expanded much more than others under demand-driven funding. These shifts won’t happen if funding for each university is set at historical levels under the freeze.
But for the tertiary education system to respond effectively, it must adapt between as well as within the higher education and vocational education sectors. If Labor wins office, it will conduct a major review of post-secondary education, to look at the two systems together. Bill Shorten has promised to cover all up-front fees for 100,000 TAFE places in high-priority industry sectors. This would remove a financial disincentive for choosing TAFE.
Demand-driven funding in its second phase would have the benefits of its first phase. But rebalancing the tertiary education system in favour of vocational education would create a less costly, and more efficient, way of meeting the needs of students and employers.