June 16, 2014

The Higher Education reforms: Recovering the lost Government subsidy from students

The Department has released the proposed clusters and funding rates from 2016, which simplify the clusters into five groups but also achieve a 20% reduction overall in funding.

The proposed clusters are based on a 0.6:2:3:4:6 relative distribution across disciplines as shown in Table One. This will finally remove the remnants of the 1990s relative funding model.

The reduction in the funding available per students of 20% is significant, spreading Government support over a large number of students at lower rates. IRU does not support the reduction but foresaw it as a probable Government savings measures and an inevitable consequence of any move to remove controls over student fees. Those who advocated for removing controls over fees can hardly be surprised, albeit some are.

For universities to recover the reduction through increases to student charges requires an overall increase of 25% to 30% across all students at an average fee per student of around $10,500.

Comment to date has focused on how to preserve total revenue at the level of each particular discipline. This is clinging to the existing clusters, whose failings the Lomax-Smith report well documented. As the starting point for future planning each university need to determine a simple set of charges that will raise total revenue from student and Government equal to the current revenue. They could use these charges in 2016 knowing that revenue per student would be stable or use them as the basis to set fees that raise additional or lesser revenue.

Table Two shows how universities could offset the lost Government revenue, with options for:

  • a single common charge;
  • increases to the current three bands; and
  • a four band system to match the proposed five clusters, with the same charge for clusters 1 and 5 similar to the current arrangements.

These are calculated at the national level based in 2012 load data. Replacing the national figures by university level figures will allow charges relevant to each university to be estimated.