Demand-driven funding ‘better than the alternatives’

Increased uptake of higher education is inevitable in developed countries, and demand-driven funding offers the best means of achieving it, a Melbourne forum has heard.

Grattan Institute higher education expert Andrew Norton said that, while demand-driven funding – as pioneered in Australia – was not perfect, it outperformed other approaches in its capacity “to quickly adapt to underlying needs”.

Mr Norton said that compared to fixed funding arrangements, the demand-driven system offered considerable institutional autonomy and student choice, and low levels of government direction.

“This produces a smoother relationship between underlying demand and university participation,” said Mr Norton, who was on a government-appointed panel that reviewed the demand-driven system in 2014.

He said that this mattered during periods of elevated youth population, such as the late 1970s in Australia – and again from 2022, thanks to an early 2000s government policy to encourage more births. During such periods, participation could plunge even when student numbers were rising.

“Unless some kind of system [provides] the capacity to increase the number of student places, and encourages universities to do so, there will be a big drop in the participation rate,” Mr Norton warned.

He said that this would run counter to trends in the developed economies of East Asia, Europe, North America and Australasia. “I don’t believe we can go back to another low participation system,” he said. “I don’t think it’s desirable [or] politically possible.”

The forum was convened by the Productivity Commission to mark the 17 June release of its review of the DDS. The analysis combed administrative, population and longitudinal data to build a picture of the “additional” students – those who would have missed out under capped arrangements – and how they had fared.

The inquiry found that, under demand-driven funding, university participation by Australians aged under 23 had risen 7 percentage points to 60 per cent. But dropout rates had soared, with 21 per cent of the additional students failing to qualify by the age of 23, compared with 12 per cent of traditional students.

Commission chairman Michael Brennan said that the additional students who managed to graduate also tended to experience a “less smooth transition” into work, with fewer obtaining professional jobs or jobs of any type, although these differences faded as graduates grew older.

“A DDS works best when the viable alternatives are strong,” Mr Brennan said. “When the labour market for school leavers is robust, and when the vocational education and training system is working well, demand-driven higher education systems can work effectively. But in the absence of those things there is the risk that more students are going into higher education than perhaps would be desirable.”

Mr Norton said that despite the “mixed report card” from the commission, his “number one policy item” was to resurrect demand-driven funding. He said freezing universities at 2017 funding levels, as the Australian government has done, was “not a way to run a higher education system”.

He said that higher education was becoming a “default option” for school leavers across the world, even among people without firm career plans, and young people from the upper middle class and some ethnic communities needed “a very good reason” not to go to university.

“Over time, these preferences are morphing into personal, parental, school [and] broader social expectations. The pressure this creates in the political system means you will see increased participation regardless of the funding system,” he said.

Mr Norton said that, as in any mass higher education system, students risked not achieving positive outcomes compared to those in elite systems. “This is something we need to work on regardless of whether we stick to capped government funding or go back to a DDS sometime in the future.”

He estimated that one in five commencing students was more likely to drop out than complete, and said that universities could be forced to remove such people before they amassed large tuition debts. “But people have different appetites for risk,” he noted.

Curtin University educationalist Sue Trinidad said that the appetite was low among some groups. “People may choose not to attend university based on their assessment of the perceived risks, rather than a lack of aspiration or ability,” said Professor Trinidad, who directs the National Centre for Student Equity in Higher Education.

“Navigating career pathways is often daunting, and this is amplified for students from disadvantaged backgrounds.”

Innovative Research Universities executive director Conor King said that universities were packed with students from wealthy suburbs. “No one’s advocating a policy to constrain their access to higher education, but it’s the logical answer if you’re worried about people overconsuming higher education,” he said.

john.ross@timeshighereducation.com