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Farrago analyses higher ed: where should funding go?

Wednesday, 21 May, 2014

Words by Christine Li

 

Reform to the higher education sector will have an effect in two main ways if the legislation passes successfully in July: the way different disciplines are funded, and the amount students have to pay for their courses. Here Farrago will talk you through how governments set funding rates for disciplines, and also how universities set prices against costs of tuition.

 

Rising tuition costs

Costs are the starting point for universities to decide how much income they will need to collect from students and the public. They are also the starting point for governments to assess how much they will need to spend on minimum funding for universities.

Base funding is the amount of funding allocated for a discipline to universities under the Commonwealth Grant Scheme. It’s essentially a direct subsidy to the cost of tuition for students. It doesn’t include additional funding for research, Asialink study scholarships or work-integrated placements for example, hence the use of the word ‘base’.

The 2011 Higher Education Base Funding Review found that overall costs are rising. The review showed that 58 per cent of all costs go to paying university employees as of 2010. The remainder of costs goes to covering infrastructure, as well as information and communications technology needs.

The main pressures pushing costs up for the past 20 years have been rising staff wages (up 30 per cent since 2000), efficient wireless networks for e-learning teaching, student demand for bigger study areas, libraries, facilities, and extended hours access. In the four years leading up to 2010, 26 Australian universities reported $448 million worth of library projects. Health and sciences also face high costs of replacing expensive (and constantly evolving) laboratory equipment, most of which has a life cycle of three to 10 years.

Universities have been coping well with rising staff costs. They have introduced administrative staff to do work previously done by academic staff. They’ve introduced computer technology to do work done previously by administrative staff. And they have converted as many staff as possible from ongoing to casual.

The other growing costs, however, need to be paid for in some way. This money comes from either more government funding for higher education, or higher student contributions to tuition fees.

 

Before

Until the Federal Budget was announced, government expenditure on students’ tuition fees, or ‘direct subsidies’, varied depending on which discipline they did. Because costs vary across disciplines and universities, the government would set a maximum amount that you would have to pay (‘student contribution level’). It would then pay the remainder.

Universities usually charged students the full amount anyway, as Commonwealth supported places (CSPs) were capped. This meant university revenue was limited to taking on a certain number of students. The CSP funding mix was loosely based on a student’s expected graduate earnings, depending on their discipline, as well as the costs of the course.

As you’d guess, medicine and the allied health disciplines cost the most and produce the highest-earning graduates. They also attracted the highest level of government funding (83 per cent of the tuition costs, if you really want to calculate it). The table below of eight different funding ‘clusters’ shows how funding rates varied with 13 classified disciplines.

Eight funding ‘clusters’, Higher Base Funding Review 2011

Eight funding ‘clusters’, Higher Base Funding Review 2011

 

…And after

If the Budget is passed, from 1 January 2016, the 13 different funding rates will be streamlined into just five funding rates. They won’t be ‘clusters’ anymore, they’ll be ‘tiers’ (see below). This will make fees simpler to calculate. It also means funding rates will go up for some disciplines, and down for others.

Five funding ‘tiers’, from 1 Jan 2016, Department of Education

Five funding ‘tiers’, from 1 Jan 2016, Department of Education

On average, government contributions to courses will be reduced by 20 per cent. The other big change is the maximum amount that universities can charge students (‘contribution level’) will be removed. Universities will then be free to set their own fees—what’s called fee deregulation.

Fees are likely to vary between institutions even more as universities compete on price and prestige. This means government contributions will be a fixed amount, not a percentage of the total.

 

Points of interest (and importance)

In 2010, Deloitte Access Economics found that on average, the total costs of providing higher education made up 94 per cent of base funding university-wide. This means that at that particular point in time, government funding was enough to support university costs with six per cent left over for research. However, including research costs, total costs made up 122 per cent of base funding (that is, they exceed base funding by 22 per cent). This picture more closely resembles the University of Melbourne.

Across Australian universities (and fees are still comparable in 2010 by being regulated), the average cost per student place is $15,000. Including research costs, it’s $19,600.

It’s important to keep in mind that the university’s research costs are bundled into all students’ tuition fees. A university that conducts significant research (like Melbourne) incurs higher costs per academic teaching on top of her or his own research load. In effect, it becomes academics teaching within a research environment.

Does this mean funding should be increased to cover those excess funding costs? Not really. Most universities receive significant packets of endowment money and grants specifically for research. A case for more funding can, however, be made from the rising cost situation.

One could argue that universities have not been underfunded up until now in any way that affects teaching—costs are fully covered with more to spare. Research shouldn’t be included in base funding cost considerations, because teaching and research should be funded separately.

 

It’s always good to hear students’ perspectives on higher education. We’re giving them a slightly louder voice with ‘Farrago analyses higher education’—a spin-off of our higher ed series. You can read more analysis here