Our Universities: Backing Australia's Future - Setting Firm Foundations: Financing Australian Higher Education

7 Currently about 64 per cent of funding (including Higher Education Contribution Scheme funding) for higher education comes from the Commonwealth Government (Figure 1). The remainder comes from Australian students, international students and a range of other funding sources. In this section of the paper a description of the different sources of funding for higher education is presented.

figure 1. sources of revenue, 2000

a. commonwealth funding

8 Total Commonwealth funding for higher education in 2002 is $6.4 billion. The majority of this funding is provided through the Education, Science and Training portfolio. In 1992 funding through the porfolio amounted to $4.2 billion. In 2002 the figure is $6.1 billion and is broken up as follows:

9 Commonwealth funds for operating purposes are provided to universities as a single block operating grant for a specified number of student places on the basis of an educational profile that covers a higher education institution’s teaching and research activities. Resources are allocated on a rolling triennium basis to give institutions a reasonable planning horizon.

10 These general operating resources consist of a base operating grant and a range of other grants provided for specific purposes including equity, workplace reform, teaching hospital grants, superannuation grants and special capital funding. Universities also receive additional marginal funding of $2 699 (equivalent to the minimum discounted rate of HECS) for additional undergraduate non fee-paying domestic places provided above the agreed number of fully funded places.

funding for teaching and learning

base operating grant

11 Base operating grant funding includes a teaching, capital (capital ‘roll-in’), and Indigenous support component. The teaching component is allocated as an agreed level of total non-research fully subsidised places in equivalent full-time student units (EFTSU) including an agreed level of undergraduate fully subsidised places, which defines the minimum places to be dedicated to undergraduate teaching activity in a given year.

12 The teaching component is largely historically based. A 1990 review of cost relativities of disciplines established the funding base for universities. The relative teaching costs matrix (Relative Funding Model) which was developed at that time, established the appropriate share of total operating grant funding for each institution based on the particular mix of disciplines and levels of study. The model was designed for use at the system-wide level as a one-off application only. Institutions’ existing funding was assessed against this model. A tolerance band of ±3 per cent was applied when determining whether to adjust funding under the original relative funding process. Where institutions were considered to be over- or under-funded, adjustments were made to total funded load and operating grant funding.

13 Since the relative funding model adjustments were made, the amount of operating grant each institution receives in any given year has been based on the level of funds it receives in the previous year, plus or minus any growth or downward adjustment in its Commonwealth funded load. Growth places provided to universities in recent years have generally been funded at the system average funding rate for undergraduate places. Unless targeted to particular areas universities are free to allocate these places to high cost or low cost disciplines. Examples of the former include agriculture, dentistry and medicine and examples of the latter include accounting, law and economics.

14 A capital roll-in component has formed part of the base operating grant since 1994. The capital roll-in component gives universities responsibility for resource management decisions and enables institutions to plan how best to meet the expansion, maintenance, refurbishment and replacement of their capital stock. The capital roll-in component constitutes about $282 million in 2002.

15 Indigenous Support Funding Programme funds are provided within the operating grant to assist institutions to meet the special needs of Indigenous Australian students and advance the goals of the National Aboriginal and Torres Strait Islander Education Policy. Funds are allocated using a performance-based formula comprising: student participation (50 per cent), student progress (35 per cent) and number of award courses completed (15 per cent).

other operating resources

16 The Higher Education Equity Programme (HEEP) ($5.9 million) provides seed funding to encourage universities to undertake strategies aimed at increasing the participation of higher education students from equity groups – people with disabilities, people from low socio-economic backgrounds, people from rural areas, people from isolated areas, people from non-English speaking backgrounds and women in non-traditional areas of study. Institutions receive a core grant plus additional funding determined through the use of a performance-based formula. A further component from HEEP funds ten full-time staff positions through the Regional Disability Liaison Officer Initiative.

17 Funds of $1.8 million in 2002 ($7.8 million over 2002-2004) are provided through the Additional Support for Students with Disabilities Programme to assist universities that are supporting students with disabilities who have high cost support needs. The allocations are a partial reimbursement of the funds expended in the previous semester on students with disabilities with high cost needs.

18 The Workplace Reform Programme provides up to $259 million over three years in supplementary funding to universities upon the adoption of flexible and more efficient governance and management structures, and to enable universities to respond to emerging student, employer and community demands. Grants are provided in two stages, with institutions applying separately for each stage.

19 Teaching Hospital Grants provide additional funds of $5.3 million (in 2002) to institutions that offer medicine as a course of study (except in the case of James Cook University where these costs are included in its base operating grant). The funds are a contribution towards maintenance and service charges relating to areas used by medical students and staff of universities, and for the acquisition of books and journals for the medical library of the hospital to assist in meeting the requirements of clinical students and academic staff.

20 Supplementary financial assistance of $112.6 million (in 2002) is provided through the Superannuation Programme in relation to approved State emerging cost superannuation schemes. The programme meets superannuation expenses which are above the standard level of funding provided for this purpose in institutions’ base operating grants (17 per cent of the notional salary component).

21 The Capital Development Pool (CDP) provides additional funds of $41 million (in 2002) to assist higher education institutions with special capital projects. The CDP supports two types of capital projects:

22 The Higher Education Innovations Programme (HEIP) provides additional funds ($16.2 million in 2002) to strengthen the higher education system’s capacity for quality services through innovative projects.

funding for research and research training

23 Funds for research and research training are allocated either through performance-based block funding programmes administered by the Department of Education, Science and Training (DEST) or peer-reviewed competitive grants administered by the Australian Research Council (ARC). In addition, universities receive competitive and non-competitive research funding from a range of other agencies and programmes such as the National Health and Medical Research Council (NHMRC) and Cooperative Research Centres.

block funding grants

24 Funds to support the general fabric of universities’ research activities are provided through three programmes. The Institutional Grants Scheme (IGS), ($271.3 million in 2002), supports higher education institutions’ research and research training activities, and allows them to fund their research activities in accordance with their own strategic judgements. Funds are allocated on the basis of a performance-based formula. Research Infrastructure Block Grants ($113.7 million in 2002) are provided to enhance the development and maintenance of research infrastructure in higher education institutions, and to support high quality research. The Systemic Infrastructure Initiative ($246 million over five years from 2002) provides funding for strategic, sector-wide initiatives to achieve measurable improvements in research infrastructure for the sector as a whole and in some instances support for specialised requirements of national importance in particular institutions. It also funds individual institutions or consortia, to support research infrastructure.

25 Funds to develop quality research training in Australian universities are provided through three programmes. The Research Training Scheme (RTS) provides funds ($516 million in 2002) to support higher degree by research places. Funding is allocated to institutions according to a performance-based formula. The Australian Postgraduate Awards (APA) provide financial support ($85 million in 2002) to Australian postgraduate students of exceptional research promise who undertake their higher degree by research at an Australian higher education institution. The International Postgraduate Research Scholarships (IPRS) ($17 million in 2002) provide opportunities to international students to obtain a postgraduate qualification and to gain experience with leading Australian researchers.

26 Regional universities are also eligible for the Regional Protection Funds (RPF) ($2 million in 2002). The RPF ensures that no regional institution will suffer deterioration in its research funding, from its starting position, in the first three years of the new research funding arrangements announced in the 1999 Research White Paper Knowledge and Innovation.

competitive research funding

27 The ARC provides research funding to universities on a competitive basis through the National Competitive Grants Programme ($272.1 million in 2002). This consists of Federation Fellowships, Discovery grants which support fundamental or basic research and Linkage grants which support collaboration with other universities, research agencies and industry.

b. funding from other sources

higher education contribution scheme

28 From 1989, the majority of students holding a Commonwealth-funded place at Australian universities started contributing towards the cost of their education through the higher education contribution scheme (HECS). HECS is an income-contingent loan scheme. Students have a choice of paying their contribution up front and receiving a 25 per cent discount or repaying through the taxation system once their income reaches a threshold amount, which in 2002 is $23 242. The loan from the Commonwealth is interest free but adjusted for inflation using the Consumer Price Index (CPI).

29 Under HECS arrangements the average student contribution is about one quarter of the cost of the course. The Government’s subsidy is about 75 per cent once adjustments are made to allow for discounts if fees are paid up-front or early, death write-downs, special remissions and doubtful debt provisions. However, the subsidy is much larger than this once the interest fee arrangements are factored in and over time this subsidy grows. Chapman (Submission 317) presents some examples of this implicit subsidy.

30 As at 30 June, 2002 the accumulated HECS debt stood at an estimated $8.7 billion. From the student perspective about 91 per cent of graduates owe less than $16 000. The average debt is $7 817.

table 1. distribution of HECS debts as at 30 June 2002

range of loan balances	number of cases	%	cumulative %
$1 000 and under	65 549	5.88	5.88
$1 000.01 to $2 000	116 263	10.42	16.30
$2 000.01 to $4 000	183 213	16.43	32.73
$4 000.01 to $6 000	144 083	12.92	45.65
$6 000.01 to $8 000	136 315	12.22	57.87
$8 000.01 to $10 000	118 607	10.63	68.50
$10 000.01 to $12 000	104 015	9.33	77.83
$12 000.01 to $14 000	83 899	7.52	85.35
$14 000.01 to $16 000	60 423	5.42	90.77
$16 000.01 to $18 000	38 886	3.49	94.26
$18 000.01 to $20 000	25 249	2.26	96.52
$20 000.01 to $30 000	36 564	3.28	99.80
$30 000.01 to $40 000	2 182	0.20	99.99
$40 000.01 to $50 000	64	0.01	100.00
Over $50 000	5	0.00	100.00
total borrowers	1 115 317	100.00

Source: ATO Monthly Certification of the HECS Financial Statement as at 30 June 2002; ATO Management Information System for HECS (HECSMIS07), June 2002.

31 Under the existing HECS arrangements the level of student contribution is transparent whereas the extent of the public subsidy is hidden. Most of those who attend university, or indeed their parents, would not be aware of the fact that on average the Commonwealth is contributing more than three quarters of the cost of university education.

32 The initial full-time full year HECS contribution was set at $1800 and only one payment band was used. From 1997, three HECS bands were introduced to reflect more appropriately the balance of public and private returns to higher education, the relative costs of courses and the earning potential of graduates in particular fields. The bands rates, representing the full-time full year contribution, were initially set at $3 300, $4 700 and $5 500 and allowing for indexation are currently $3 598, $5 125 and $5 999.

postgraduate education loans scheme

33 The Postgraduate Education Loans Scheme (PELS) enables eligible students to obtain a loan from the Commonwealth Government to pay all or part of their tuition fees incurred from 2002 onwards. PELS is an interest-free loan facility for eligible students enrolled in fee-paying, postgraduate non-research courses. PELS differs from HECS in that it applies to fee levels that are set by institutions. The deferred payment arrangements are similar to those under HECS but there are no up-front payment provisions.

fee-paying domestic students

34 In 2000, tuition fees from domestic fee-paying students (including continuing education and non-award courses) generated just over $300 million in revenue for Australia’s public universities (DEST, 2002a). This represents about 3.2 per cent of operating revenue. The bulk of this revenue ($192 million) was provided through postgraduate programmes, with the majority from postgraduate coursework programmes.

35 Government restrictions apply to a limited number of postgraduate courses. Institutions are not able to charge fees for courses that offer initial training in nursing and teaching and those that provide provisional registration as a medical practitioner.

36 Tuition revenue from postgraduate domestic fee-paying students has steadily increased. In 1995 it represented one per cent of operating revenue compared to 2.1 per cent in 2000, reflecting the 48 per cent growth in postgraduate numbers over the period 1992 to 2001. This trend is expected to continue following the introduction of the Postgraduate Education Loans Scheme in 2002.

37 For domestic undergraduate fee-paying students universities are subject to a range of conditions. These include:

38 Tuition revenue from domestic undergraduate students represents just 0.4 per cent of universities operating revenue (DEST 2002a). In 1998 only ten institutions offered undergraduate courses to domestic students on a fee-paying basis increasing to 16 institutions in 2001, with fee paying domestic undergraduate students constituting less than one per cent of the student population.

international students

39 In 2001, international students (including those undertaking distance education) numbered 112 342 and represented almost 15.5 per cent of the total number of students enrolled at Australia’s public higher education institutions (DEST 2002b). This compares with just 24 354 and 4.9 per cent in 1991. In 2000, a total of $947 million was derived from international student fees (DEST 2002a), representing about 10 per cent of revenue.

state governments

40 Since 1974, when the Commonwealth assumed responsibility for funding higher education, universities have received only a small proportion of their income from State governments. In 2000, this amounted to 1.5 per cent of universities’ total operating revenue (DEST 2002a). However, a number of State government submissions note that they also contribute in other ways. For example, the Queensland Government (Submission 298) provides land for new campuses and has established learning centres that universities can access in regional communities.

41 State government funding is normally targeted, directed mainly towards regional initiatives, capital development or to specific research activities. Some examples are outlined below.

queensland

42 The Queensland Government recently announced a $100 million Smart State Research Facilities Fund over a period of five years. The purpose of this Fund is to stimulate innovation in Queensland. In another funding initiative, the Queensland Government contributed $4 million towards the purchase of a supercomputer by a consortium of six Queensland universities. A further $2.25 million was allocated under the State’s Higher Education Capital Program for the relocations of the Central Queensland Conservatorium of Music and the Australian Catholic University, and the refurbishment of Learning Network Centres throughout Queensland.

western australia

43 The Western Australian Government has provided funding in the form of direct grants and loans to improve university access in regional areas. A $500 000 low-cost loan was provided to the University of Western Australia to establish a centre in Albany with a further $800 000 over four years for initial infrastructure and operating costs. The University Centre in Geraldton, which delivers courses from three of the State’s universities, will also receive $592 000 over four years to assure its future. In 2002, a number of university health and medical researchers received about $1.8 million in infrastructure funding from the State’s Medical and Health Insurance Council.

victoria

44 During 1993, the Victorian Government introduced its ‘Making Places’ initiative to reduce the level of unmet demand for higher education in Victoria. Under the initiative, the Victorian Government funded an additional 4 475 new higher education places over 1993 and 1994, providing pipeline funding until the end of 1997 at an estimated cost of $126.8 million. Under an agreement with the Commonwealth, Victorian universities also received a HECS reimbursement for all students holding a State funded place in addition to the funds provided by the State for those places.

other sources

45 Commercialisation activities, philanthropy and fund-raising activities combined contributed about 17 per cent to higher education funding in 2000. A brief discussion on the potential for increasing funding from these sources is presented later in this paper.

Higher Education Review Process

Setting Firm Foundations: Financing Australian Higher Education

2. current financing arrangements