Not ‘how high’ but ‘for what’?

by Tom Swann

Submission to Senate Inquiries on the Higher Education and Research Reform Bill 2014

The debate about how high fees could go under deregulation has largely missed a more important question. When students pay more, what will they be paying for? If the HELP system is a way to pay for a service, shouldn’t higher HELP debts go towards better service? 

Analysis of university budgets shows universities already overcharge students, in order to use student revenue to cover the ‘research funding shortfall’. This ‘cross-subsidy’ has increased in recent years and fee deregulation is likely to make it worse. 

Using student revenue to pay more for research is like a co-payment on going to university, or ‘profiting’ from students. The Parliament must decide if this is fair for students to pay higher fees in order to fund research, rather than increasing the quality of their education.

The higher education sector has long discussed the problems of cross-subsidy, with bad outcomes for both teaching and research. Increasingly there have been questions about its ethics. As late as October 2013, Prof. Ian Young, ANU Vice Chancellor and Chair of the Group of 8, was asking “is it appropriate for students to fund research?” 

According to national survey data from the Australia Institute, gathered before the Budget, 77 per cent of Australians think higher fees should be spent on teaching students. 

Yet deregulation advocates have focused on increasing university funding to boost research rankings. The Prime Minister defended research funding cuts by arguing “We want to get our higher education changes through because they will be good for universities, they will be good for research”. 

Analysis of publicly available historical data shows 

• Research spending grew between 2002 and 2012 (the most recent data) – from 31 per cent to 41 per cent of all university spending. 

• This was due in large part to increased cross-subsidy from non-research income – from 30-34 per cent to 39-48 per cent of all research spending. Student income provided an increasing share of this cross-subsidy. 

• The analysis estimates student income provided, at a minimum, $2.8 billion towards research in 2012 – 1 in 6 student dollars, up from a minimum of 3 per cent in 2008. Students paid 76 per cent of the research funding shortfall. 

• In total no discretionary revenue (e.g. donations, investments) went towards teaching.

International and domestic full-fee paying students provide the most substantial cross-subsidies – paying around double what it costs to teach them. Here, market pressures clearly do not drive down fees or increase quality. 

But increasingly domestic undergraduates have also contributed towards cross-subsidy. We estimate 

• in 2013 domestic undergraduate students (grants and fees) provided $0.6-1.1 billion for research, around 20-30 per cent of the research shortfall. 

• If universities didn’t cross-subsidise from student revenue, they could have reduced fees by 15- 25 per cent, or around $1,250-$2050 per student in 2013. 

• If research was funded only out of government grants, then the government’s claims about the government sharing the cost of the student’s education “50:50” must assume that universities will not fully recover cut government funding with higher fees – which seems implausible.

The Education Minister has proposed empowering the Australian Competition and Consumer Commission to prevent ‘fee-gouging’ and ‘unfair’ university fees. While the ACCC can intervene in consumer or competition matters, it has no basis to intervene simply if universities increase fees to fund research. It would need to be given new statutory powers. 

Concerns about fee-gouging should lead the Senate to reject deregulation, or to consider new regulations requiring revenue from increased fees to be spent on teaching students.

Vice chancellors and politicians who want to convince the public on deregulation should explain how much of the increased debt will go towards their student’s education.

Research funding should be increased and reorganised to remove the ‘funding shortfall’ which drives universities to cross-subsidise from students.

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