Eight logics of higher education funding in Australia

In 2023, a panel appointed by the federal government will be conducting a much-needed review of Australia’s higher education system. The recommendations of the panel, led by Professor Mary O’Kane, will feed into the Australian Universities Accord that the federal government has committed to implementing.

It is timely, then, that Sydney University Press has just published a book titled Australian Universities: A Conversation About Public Good. The book is edited by Julia Horne and Matthew A.M. Thomas and features essays by over 20 authors reflecting on different aspects of the role of public universities in Australia’s economy and society. The book is full of ideas about how Australian universities can better advance the public good, and should be compulsory reading for Accord panel members.

One of the key areas for review outlined in the terms of reference for the Accord panel is “Investment and Affordability”. Here the panel has been asked to “Explore funding and contribution arrangements that deliver equity, access, quality and longer-term investments to meet priorities in teaching, research, workforce and infrastructure” and will explicitly review the controversial Job-ready Graduates Package instituted by the previous federal government.

My contribution to the conversation in the book focuses directly on funding arrangements for Australian university students. I take a political economy approach that places university funding within changing economic, budgetary and policy contexts. The main contribution of the chapter is to identify eight distinct logics that are bundled together in the architecture of fees, loans and grants that finance the education of Australian university students:

1. Fiscal austerity: The logic of fiscal austerity is a near permanent feature of university funding because universities are an expanding part of the modern economy. Without regular efforts to rein in costs, public spending on universities would outpace political goals of “budget discipline”. Fiscal austerity logics sit behind the long-term trend towards increasing student fees and reducing the share of government contributions.
2. Human capital: Understanding higher education as human capital emphasises higher education as a “private good”. Human capital theory reframed higher education in distinctly economic terms, encouraging students to engage with their education as a process of appreciating their own “capital”. Human capital logics were evident in the introduction of student fees, and have been used to justify differential fee levels between courses with different earnings potentials.
3. Cost recovery: Cost recovery logics have been implemented as part of the pursuit of “efficiency” in public services. Whereas human capital logics focus on returns on investment for individuals, cost recovery logics are concerned with charging fees to recoup the costs of service delivery. In higher education, this has been translated into efforts to match funding and fees to the efficient “unit cost” of delivering education.
4. Workforce planning: Workforce planning logics respond to and seek to influence Australia’s labour market requirements. They are applied when differential fee levels and the allocation of places between courses are used to shape the skills profile of graduates. It has been common for governments to selectively decrease fees in areas of study that align with certain “priority” professional pathways, irrespective of their teaching costs or earnings potential.
5. Status maximisation: Universities primarily compete for students based on institutional status, rather than the price or quality of education. They seek to maximise their positions within status hierarchies, measured by things like international rankings. Status maximising logics are strongest where universities have autonomy over student enrolment patterns and fee levels.
6. Income-contingency: The design of the Higher Education Contribution Scheme (HECS), the public loan system introduced in 1989 to cover the up-front cost of domestic student fees, is underpinned by a logic of income-contingency. While HECS is presented as a debt, the repayment structure reflects many aspects of the income taxation system. The logic of income-contingency can be applied with different levels of progressivity, depending on the level at which the income threshold is set, and the extent to which repayments reflect ability to pay.
7. Financial asset: HECS is accounted for as a financial asset on the federal government’s balance sheet. This is highly significant in fiscal terms because, unlike direct grants, the cost of issuing HECS loans is not counted as government expenditure. Governments with fiscal austerity goals therefore have strong incentives to shift the balance of university financing from Commonwealth contributions, funded through grants, to student contributions, funded by loans.
8. Public good: There is a strong level of support in the community for a broader understanding of universities as a public good. More narrowly, the public good features of university degrees are the “spill over” economic benefits of a more educated workforce, such as higher taxes paid by graduates, as well as increasing productivity and economic growth. However, a broader understanding of universities as a public good focuses on their role in pursuing public missions and addressing inequalities, by promoting social progress, civic participation, and individual opportunity.

In the chapter, I show how the eight logics have been activated to facilitate the expansion of universities over the last 30 years, but with socially uneven outcomes. I demonstrate how they have configured successive funding regimes between 1989 and 2021, identifying turning points in how particular logics have been emphasised, bundled and applied, before reflecting on how the dominant logic of fiscal austerity might give way to that of the public good.

I argue that, as ever, the problem of paying for expansion – not arresting decline – remains the primary challenge facing Australian universities. The eight logics are intended to serve as a map, both for understanding the political economy of the existing funding system, and for navigating what might be changed to facilitate future rounds of expansion on a more equitable and sustainable basis.