Published by The Australian Financial Review, Monday 12 August 2013
The demand-driven higher education funding system is a bold public policy experiment. Yet at barely 18 months of age its existence is in question.
Encouraged by university leaders, the government is considering re-controlling Commonwealth- supported student numbers.
This re-evaluation is not occurring because the demand-driven system is failing. Rather, it is too successful in its goal of increasing student numbers.
There are 150,000 more Commonwealth-supported student places (CSPs) this year than in 2007.
With expenditure on higher education rising while anticipated tax revenues fell, in April the government announced a $300 million a year cut in university funding. The Higher Education Minister, Kim Carr, has said he is willing to consider budget-neutral trade-offs.
Some university leaders suggest that the $300 million could be saved by reducing student numbers instead.
They want to protect per-student funding for the remaining students, and restore previous funding growth rates for other programs.
To achieve this, 25,000 full-time equivalent (FTE) student places would need to be abolished, given average public funding per Commonwealth- supported student.
It would be very difficult to cut expected growth by 25,000 places without ending the demand-driven system. Some universities could voluntarily reduce enrolments or curb growth, but the students they reject would find other universities willing to take them. In a flexible system, all universities need restrictions to limit total student numbers.
If CSPs were re-capped, the university applicants who miss out would pay the highest individual price. But there are less obvious costs to other students in going back to the old bureaucratic system of allocating student places.
The previous system had no reliable way of adjusting to shifts in student or labour market demand. Without new student places and a proactive minister it just drifted.
The same universities offered much the same number of places in the same courses year after year. The result was that some fields of education, such as science, were chronically over-supplied with student places, while other fields, such as health, were chronically under- supplied.
The applications and offers statistics since enrolment controls, started being eased a few years ago, show that when allowed to do so universities move to align supply and demand. New places were concentrated in areas of demand growth but, since 2009, applicants in almost all fields of education have improved their chances of an offer.
Large numbers of students benefit from a more efficient system of allocating student places.
For some, it is a career-changing opportunity to do the course they most want to do. For others, it saves them spending a year taking another course and then transferring in to their original target degree.
In the past, some employer groups have worried that a demand-driven system would not give enough priority to their needs. But university applications statistics going back 20 years show that labour market opportunities flow through into increased student demand.
The past few years have been no exception. Health and engineering occupations have both experienced labour market shortages, and they are two of the three areas that have seen strong demand growth.
The concern with our particular demand-driven system was that it was introduced without any reform of the pricing system. This creates a danger that universities have no financial incentive to increase supply.
So far at least, this has not been a widespread problem. But we are seeing no supply response to demand in dentistry and veterinary science, probably because their funding rates are too low.
Medicine, which is outside the demand-driven system, has also seen no improvement in offer rates.
Under the old, centrally controlled system, new initiatives for Commonwealth-supported students were difficult.
New student places were hard to get, and few universities wanted to cut existing courses. The stagnation in the domestic Commonwealth- supported market was striking compared to the dynamism in international student markets.
With the caps lifted, new entrepreneurial ventures have started.
This has been particularly true in online education, with Swinburne Online, Curtin Online, and new full- degree courses through Open Universities Australia.
After slow or even negative growth until 2008, this is now a boom area.
In 2012, off-campus domestic undergraduate enrolments grew by 14 per cent, compared to 3 per cent growth for domestic on-campus students.
We need to think about what we would be giving up to save just $300 million. Deals through compacts between universities and government could never produce the positive results we are seeing so soon in the demand-driven system.
Compact negotiations would just be more of the red tape that universities claim to oppose.