The rhetoric and reality of Job-ready Graduates

By Mark Warburton

Executive Summary

One year ago, the Government legislated major changes to higher education funding arrangements, marketed as Job-ready Graduates (JRG). At the time, it was believed there were slightly more than 626,000 Commonwealth supported student places (CSPs) in Australia’s higher education system.

The public and the Parliament were told that there would be 27,000 extra domestic student places this year and 49,000 by 2023. They were told the changes should be implemented to support Australia’s economic recovery following the COVID-19 induced economic downturn and that, if this didn’t occur, it would risk scarring a generation.

The reality of JRG is that the Government hasn’t provided the level of subsidy over the next several years to create the promised extra student places to support Australia’s economic recovery. The rhetoric of JRG has proven to be hollow.

An increase in student places was one of the major reasons for stakeholders to accept that the average student contribution for a place should increase and the average government subsidy should decrease. If the rhetoric about the number of student places to be created was real, then every year of the current decade there should be more opportunities for working age Australians to undertake a higher education than had ever been the case.

Under JRG, the Government doesn’t fund a set number of student places. It sets a maximum amount of subsidy that it will pay to a university for student places. Each student place attracts a set amount of subsidy specified in legislation and which varies depending on its discipline. Each university is free to decide the number and mix of student places it is prepared to provide, but it is paid the subsidy for student places only up to the maximum amount set for it by the Government. If it provides student places beyond its subsidy cap, it receives only the student contribution and this would usually be insufficient to cover costs.

At the time JRG was announced, the Government did not provide details on how it had produced its estimate of the number of student places to be created. It remains a mystery, but the argument is now academic. University funding agreements are publicly available, and we know the maximum level of subsidy that may be paid to each university from 2021 to 2023. We also know how its maximum subsidy level is proposed to increase each year to 2030. Using average subsidy rates across the system, we can estimate how many student places might be provided. It reveals a very different picture from the rhetoric of JRG.

JRG appeared to radically change the Government’s attitude to funding student places from that which it adopted during the previous three years. In 2018 and 2019, the Government imposed a funding freeze and, in 2020, subsidies didn’t increase by enough to compensate for inflation. This effectively reduced the number of student places that the Government subsidised. By 2019, there were 27,800 places in the system from which the Government was withholding over $322 million in subsidy. Universities were bearing that cost when the pandemic hit in 2020 and started to adversely affect their international students and revenue.

Hidden in the detail of the transition to JRG is a further source of subsidy shortfall that will adversely affect universities’ ability to provide student places into the future. ‘Grandfathered students’ are students who commenced their courses before JRG started in 2021. Those who would otherwise pay higher student contributions do not have to do so. To ensure funding for their student place is not severely cut, the old, higher Government subsidy rate continues for them. In reality, there is inadequate allowance for grandfathered students in university subsidy limits. The shortfall is likely to be in the order of $300 million over the period these students take to complete their courses, with around $200 million relating to the period from 2023 to 2025.

The amount of subsidy made available by the Government in 2021 is not sufficient to provide subsidies for any additional student places. The combined effect of the Government’s changes since 2018 is that, in 2021, the Government has under-delivered on its promised subsidy level by the equivalent of 39,000 student places. There is no additional subsidy for the 27,000 additional student places promised under JRG and 12,000 student places in the system since 2019 remain unsubsidized.

While the subsidy shortfall reduces over time, in 2024 the government is still subsidising around 14,000 fewer student places than it promised. The Government would need to provide in the order of $1.1 billion more in subsidy from 2021 to 2024 to honour the claims it made to the public and the Parliament.

JRG promised to grow the amount of subsidy for student places over time, recognizing the additional demand for higher education that would arise in areas of high population growth and from the Costello Baby Boom generation reaching university age.

One measure of the opportunity to undertake higher education is the number of student places compared to the size of the working age population. From 2014 to 2017, prior to the Commonwealth Grant Scheme (CGS) freeze, there were around 38.5 student places for every 1,000 people in the working age population. The additional student places promised by the Government should have resulted in this benchmark being exceeded every year of the decade. The actual amount of subsidy being provided by the Government will not result in the number of student places reaching this benchmark until 2025.

These assessments are optimistic. If the Government is successful in encouraging students into the ‘jobready’ disciplines for which it is paying higher than average subsidy levels, it will take longer for subsidies to grow to the extent required to achieve the 2014 to 2017 benchmark level for student places and even longer to achieve the Government’s promised number of student places.

The Government explicitly set different student contribution amounts to influence student course choices. It was trying to encourage students into disciplines that it considered would make them job ready. If students respond as the Government wishes, they will shift from disciplines with generally low Government subsidy levels into disciplines with higher Government subsidy levels. If successful, this policy would increase the average cost of subsidy per place and reduce the number of subsidised student places that universities could provide within their maximum subsidy level.

The pandemic was creating major challenges for universities, affecting the financing of their teaching courses and research programs. JRG created further challenges, by reducing overall financing of domestic students by over 5 per cent. Government subsidies were reduced by nearly 15 per cent and student contributions increased by nearly 8 per cent.

If the Government was genuinely concerned to ensure that universities were able to support Australia’s economic recovery, it could have put in place a policy that was both more effective and simpler than JRG. As a first step, it could have ensured that it provided the subsidies to support the student load already in the system in 2019.

A further step could have been to increase subsidy levels so that from 2021 to 2023 working age Australians have the same opportunity to undertake higher education that they had from 2014 to 2017. Long term, the rate of growth in subsidies may restore these opportunities, but that time is two elections away. By then, the Government of the day may be giving priority to debt reduction. It will not require any legislative change if the Government decides to abandon its growth funding policy.

The Government has not delivered on its JRG rhetoric.

Mark Warburton is an Honorary Senior Fellow of the LH Martin Institute at The University of Melbourne.

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Mark Warburton

mwarburton@phillipskpa.com.au

+61 412 783 666