Update on Accord student funding policies

With a break between jobs and other things going on I did not comment in December on the Accord-related MYEFO student funding announcements. Compared to last year's consultation papers, the announcements included a policy change on over-enrolments, more detail on how under-enrolments will be handled, and funding amounts.

Over-enrolments

One of the worst ideas in the June 2024 managed growth consultation paper was a hard cap on Commonwealth supported places. Currently the main CSP category has a soft cap - once a university enrols CSPs valued at its maximum basic grant amount it gets only the student contribution for additional students. These student contribution-only places are known as 'over-enrolments'. Under a hard capped system over-enrolments would receive zero funding. I explained why hard caps are a bad idea in this post.

In its MYEFO summary the government backed off a little from the hard cap idea. Now universities 'will continue to receive student contribution amounts for a small proportion of additional students'. The reason given was the practical difficulty of hitting a precise enrolment target.

In the short-term, the incentive is to over-enrol. A 'staged implementation' plan says that 'from 1 January 2026, the transition to the Managed Growth Funding System will begin. Universities’ Maximum Basic Grant Amounts for Higher Education Courses (HEC MBGAs) will be adjusted in line with student demand ensuring that funding for teaching better matches student demand'.

It is not clear how 'student demand' will be measured, but it would be hard to argue that the number of students actually enrolled is not some baseline figure. That is good news for universities that are currently over-enrolled. Sadly it is now heading to four years since the Department of Education last published applications data, an important demand indicator.

Fully-funded increased enrolments

Beyond their small over-enrolment buffer, universities risk unfunded students in the new system. However the government is promising additional fully-funded places - i.e. places for which universities receive both Commonwealth and student contributions.

In the general MYEFO papers the additional places are costed at $780 million over the four financial years from 2024-25 (this is the Commonwealth contribution only). With the transition to the new system set to begin in 2026 presumably nothing will flow until 2025-26. On my calculations $780 million over the three relevant financial years is 2.9% more than was allocated to the Commonwealth Grant Scheme (CGS) at the May 2024 Budget.

Some of this additional money will presumably be used to convert over-enrolments to within-quota enrolments. I expect other funding will build-up slowly via allocations of commencing places.

Over a longer time horizon, the number of fully-funded CSPs is expected to grow by 82,000 'compared to current settings' by 2035. This vague baseline makes it hard to know how many places to expect in 2035. If we take the most recent information on the practical consequences of 'current settings' - 2023 actual CSPs - that would be a 13.4% increase. But as seen in the chart below other benchmarks would produce different results.

The 2023 actual CSPs highlight the limits of supply-side interventions as mechanisms for increasing enrolments. The 10,000 additional equity/skills shortage places allocated for 2023 did not stop total CSPs delivered falling by 14,303 between 2022 and 2023. Similarly, the additional student places predicted by the Job-ready Graduates policy have not eventuated.

Under-enrolments

As the CSP actuals suggest, some universities have under-enrolled in recent years. While the Year 12 market is recovering (e.g. these VTAC figures, probably driven by demographic growth), I expect that the mature-age market remains soft. Universities that rely on mature-age students could still be under-enrolling.

In 2026 a new transition loading will 'ensure that Commonwealth Grant Scheme (CGS) and demand-driven needs-based funding [discussed below] received by universities for 2026 is not lower than the amount of CGS funding plus other selected teaching and learning grants received for 2025.'

From 2027 to 2031 universities will have a funding floor of 97.5% of their previous year's CGS funding.

This funding floor could interact with the over-enrolment cap. It creates a situation where universities could be paid for student places they did not deliver but would not be paid for some student places they did deliver. For universities with complex student load management issues it could create an incentive to err on the side of fewer offers. This could mean a lower share of applicants getting their first preference course and total enrolments falling below the system's funded capacity.

Perhaps with broader scope than under-enrolments, there will also be a $50 million 'structural adjustment' fund 'should any university experience unforeseen financial difficulties in their transition to the new system and can demonstrate exceptional circumstances that would require additional Government support.'

'Effectively demand driven funding' for equity students

The most confusing part of the June 2024 policy papers was the proposal for 'managed demand driven funding for equity students'. I struggled to understand how this proposal to bureaucratically replicate demand driven funding outcomes would work. Nobody I spoke to subsequently thought that it was feasible.

In the MYEFO papers the oxymoronic language of 'managed demand driven funding' has sensibly been dropped, with the policy now appearing using Accord final report language of 'effectively' demand driven.

A core problem, however, remains how to create a new funding category - students from equity backgrounds, other than Indigenous bachelor degree students who have real demand driven funding - who are 'eligible' for a CSP but do not have one.

As before, these students will have to meet 'university entry requirements'. But the way the system works now applicants who meet these requirements will generally receive an offer anyway. The system will need a new category of applicants who would receive an offer but for a university's load management strategy in a capped system.

From the perspective of finding a feasible way to maximise opportunities for equity applicants, the most significant improvement between the consultation paper and MYEFO is to allow some over-enrolments. Don't bother with a convoluted system that could take weeks to find funding, just make the equity applicant an offer as part of the normal offer rounds. It does not matter if the university overshoots its EFTSL cap by small numbers.

Needs-based funding

I don't see any significant MYEFO changes to how the so-called needs-based funding policy will work. This remains a good idea with poor implementation. As I argued last year, the policy errs in using equity group categories as proxies for need, when we have much more direct indicators of likely needs, such as prior academic performance. Needs-based funding remains too focused on niche interventions, rather than larger-scale initiatives which benefit all students but may be of greater value to equity students, such as new teaching methods or improved university services.

There is however one important new policy detail, the proposed funding amount. This is described in the general MYEFO papers as $1.7 billion over four years from 2024-25. The 2026 start date means that it is in effect $1.7 billion over three financial years, starting in 2025-26.

This amount means that needs-based funding is much more than just the HEPPP funding rebadged, as some had feared.

Separately, the government has increased disability funding, starting this year, and will create a dedicated $44 million a year outreach support program from 2026.

Non-university higher education providers

TAFEs and some private higher education providers will receive 365 additional commencing places a year from 2026. This is to increase 'diversity of higher education provision'. While helpful for students who can get a CSP instead of paying full fees, this is equivalent to only 1% of 2023 NUHEP and private university domestic EFTSL. It will make no difference to the diversity of higher education provision.