Applying the 40:60 ratio

Most submissions to the Panel argued for simplicity in the determination of public and private contributions towards the cost of higher education. The Panel considered three possible approaches:

• a fixed government contribution amount to the funding for all units of study calculated as 60 per cent of the average total base funding, around $10,000 in 2010, with students making up the difference between the government contribution and total resourcing. However, it was found that this would result in some students paying around $1,000 for their course (less than 10 per cent of the funded rate for their discipline) while others would pay $20,000 (around 66 per cent of the 2010 funded rate)

of the average total funding, around $6,500 in 2010, with government making up the difference between student contributions and total resourcing. As with a fixed government contribution, this system would result in significant variation in the proportion of total resourcing contributed by students (for example, some would pay 60 per cent of the funding for their courses while others would pay only 20 per cent)

• fixed proportions of student (40 per cent) and government (60 per cent) contributions towards the base funding for a unit of study within each funding category.

While the costs of different disciplines of study appear to be converging, as discussed in

Chapter 3, there remains a significant difference between the funding levels for the lowest- and highest-cost courses. While the imposition of either a fixed student contribution or a fixed government contribution might have benefits in terms of simplicity, both options create issues of equity because they lead to some students paying either very low or very high proportions of the funding for their degree. In the Panel’s view, such differences cannot be justified.

There was strong support in submissions for a consistent student contribution, either as a flat dollar amount or as a consistent proportion across all funding categories. The Panel considered that the objectives of simplicity and equity would be best achieved through applying a fixed proportion of student (40 per cent) and government (60 per cent) contributions towards the funding for a unit of study within each funding category.

Under this model, the balance of contributions would be determined on a proportional basis that applies across all funding groups. Although this would lead to a variation in the dollar values of contributions, both students and government would be required to contribute a consistent proportion of total base funding towards the total funding for their courses that reflected, as far as possible, the real costs of course delivery.

The total funding of expensive courses would thus be borne more equitably by both students and government, rather than one party having a disproportionately large burden. It would also remove the unequal distribution of public subsidies, with students subject to the same proportional subsidy regardless of their choice of course of study.

5.6.1 Phased implementation

The Panel recommends that the current split between government and student contributions be modified to be 40:60 for every course, instead of the current range that has students making a contribution of between 19 and 84 per cent of the total funding per unit of study depending on its funding category. Although on average students contribute around 40 per cent of total funding for all disciplines, moving to a ratio of 40:60 suddenly would involve considerable increases for students in some courses. The Panel therefore recommends that the new ratio be introduced for new students only, and that existing students continue to have their fees ‘grandfathered’, or charged at the levels that currently apply, until they graduate from their degree.

In courses of study such as science, where the student contribution is 19 per cent in 2011, the Panel notes that a move to 40 per cent would be a very significant change in one year. Although the Panel has observed that labour market shortages are not necessarily addressed by modifying student contribution amounts, the Panel is concerned that sudden large changes might have a short-term deterrent effect on enrolments. This potential effect could be mitigated by introducing the 40:60 ratio in a sequence of smaller steps with ongoing monitoring for impacts on demand.

Based on 2011 contributions, students currently contribute at a proportion higher than 40 per cent for several disciplines. These are clusters 1 (law, accounting, commerce, economics, for which students pay 84 per cent), 2 (humanities, 52 per cent), part of cluster 3 (computing, built

environment, other health only, 47 per cent) and allied health from cluster 5 (for which students pay 42 per cent). These disciplines accounted for 42 per cent of student load in 2010. The cost pressures that a dramatic change would impose on government, coupled with the imminent transition to a demand driven system, should be taken into consideration in phasing in the 40:60 ratio. The Panel therefore proposes that in disciplines where the student percentage contribution is currently above 40 per cent of the funding for their course, the student contribution should be frozen until the indexation of other contributions brings them in line with the targeted 40:60 ratio.

5.7 summary and recommendations

The Panel considers that the Australian income-contingent loan scheme is highly effective because it enables students to make a contribution towards the cost of their higher education course while minimising any disincentives to participation posed by upfront tuition fees.

income-contingent loan scheme arrangements should remain

Australia’s income-contingent loan scheme is more effective and equitable than alternative models of collecting student contributions such as graduate taxes and commercial loans. It provides a fair and progressive means of recouping the student’s contribution under its current repayment thresholds.

Recommendation 20: income-contingent loan scheme

arrangements should remain

The current income-contingent loan system should remain in place and its repayment threshold should be set at a level that does not deter participation.

Contribution amounts to remain regulated

The Panel notes that attempts to introduce price competition between eligible institutions by raising the cap on student contribution amounts that institutions may charge does not lead to price differentiation between courses or lower costs for students. Recent experiences in England and Australia suggest that higher education institutions tend to raise tuition fees across the board to the maximum permissible level.

Recommendation 21: Contribution amounts to remain regulated

The Australian Government should uphold the current policy of capping student contribution amounts at maximum levels, recognising that universities have the autonomy to set lower student contribution amounts if they choose.

Measures to address skill shortages

While it is important to ensure that the higher education funding system does not deter students from enrolling in courses leading to employment in areas with skill shortages, the Panel considers that strategic objectives such as alleviating skill shortages would be better pursued through measures other than adjustments to base funding.

Recommendation 22: Measures to address skill shortages

The Australian Government should phase out existing measures that aim to increase student demand in areas of skill shortages using student contribution reductions and should consider more targeted measures to address skill shortages. In some cases, this could be in partnership with employers and state governments to provide information and incentives for students to undertake courses in priority areas and seek employment in relevant industries on graduation.

appropriate balance of contributions

The level of private benefits from higher education courses varies considerably according to discipline. However, the Panel considers that such variations are acknowledged by the progressive repayment schedules of the income-contingent loan scheme. This system adequately compensates individuals who receive lower rates of private return from their qualifications. It is therefore appropriate for policymakers to only use aggregate measures of private benefits in determining the appropriate balance of public and private contributions to the cost of higher education.

There is no doubt that post-secondary qualifications lift the lifetime earnings of individuals and also bestow benefits on society as a whole. The presence of extensive public and private benefits was confirmed by the Panel’s commissioned research, and the Panel considers it appropriate that both students and the Government should make a contribution in recognition of these benefits.

is 40 per cent by students and 60 per cent by the Government. However, across disciplines there is significant variation, with students contributing as little as 19 per cent of total resourcing for their discipline and as much as 84 per cent. There is no rational basis for these wide variations. Therefore, the Panel considers that it would be fair for all students to contribute at a consistent proportion of total resourcing for their discipline.

The Panel recommends that the appropriate balance of contributions for both undergraduate and approved postgraduate courses should be for students to contribute 40 per cent of the funding for a unit of study while the Government contributes 60 per cent.

Recommendation 23: appropriate balance of contributions

The balance of student and government contributions should be set at a fixed proportion with students contributing 40 per cent and the Government contributing 60 per cent of the funding for each Commonwealth supported place.

Phased implementation of the new balance of contributions

The Panel recognises that under the current funding system, students are expected to contribute towards the total funding for their courses in a range from 19 to 84 per cent of the total funding for units of study depending on the funding category. While overall students have historically contributed 40 per cent of the average funding for all disciplines, moving to a ratio of 40:60 suddenly would involve dramatic changes for many courses of study and this should be taken into account in phasing in the new arrangements.

Existing students should continue to be charged the contribution levels that currently apply, in real terms, until they graduate from their degree. In courses of study where the student contributions are currently very low, the changes may need to be introduced in a sequence of smaller steps with ongoing monitoring for impacts on demand. In disciplines where the student percentage contribution is currently above 40 per cent of the total funding for their course, it should be frozen until the indexation of other contributions brings it in line with the targeted 40 per cent student amount.

Recommendation 24: Phased implementation of the new balance

of contributions

The new 40:60 ratio applying to student and government contributions of the total base funding should be phased in as follows:

• existing students should continue to be charged the contribution levels that currently apply until they graduate from their degree

• in disciplines where the student contributions are currently considerably lower than 40 per cent, the changes may need to be introduced in a sequence of smaller steps with ongoing monitoring for impacts on demand

• in disciplines where the student contributions are currently above 40 per cent of the base funding amount, the student contribution should be frozen at the current dollar amount until indexation of the government contribution produces the 40:60 ratio.