Commonwealth supported places
The 2011–12 higher education budget provides increased funding of $1.2 billion over four years, primarily to fund the student demand-driven system which will remove the cap on the number of Commonwealth funded university places from 2012.
The new system, a major recommendation of the Bradley review of higher education, was announced in the context of the 2009–10 Budget. In 2009 the Government allowed universities to enrol above the existing cap by ten per cent in 2010 and 2011 as a lead-in to the new system. The demand for places has been strong, particularly in 2010 during the economic downturn, and the Government has significantly revised the number of places funded under the Commonwealth Grants Scheme. In 2009 it estimated 458 000 undergraduate Commonwealth supported places would be funded by 2012 and revised the figure to 488 016 in the 2010–11 Budget. This target has almost been met in 2011 with the latest data showing over 480 000 Commonwealth supported undergraduate places. The 2011–12 Budget now estimates 517 000 places for 2013 and has adjusted funding accordingly. Stakeholders will be pleased that the Government has maintained the 2009 commitment to the student demand driven system as concern about cutbacks and savings— that the Government might reduce funding and restrict the expansion of university places—was expressed in pre-budget discussions.
Regional universities and universities with regional campuses have been awaiting the outcome of the Review of Regional Loading. The Government has released the Review’s final report in the context of the Budget and has accepted its recommendations to increase funding by $109.9 million to a total of $249.4 million over four years. The formula for the regional loading will be revised and take effect from 2012. The revised formula will use the Australian Bureau of Statistics remoteness categories which will increase the loading to remote and outer regional campuses (such as Charles Sturt University and James Cook University) and reduce the loading to inner regional campuses (such as the University of Tasmania).
Regional universities and campuses will also benefit from infrastructure funding of up to $500 million from a regional priority round from the Education Investment Fund in 2011–12.
However, there are also savings and redirections of funding that affect the higher education sector. These include:
- The redirection from the Australian Learning and Teaching Council of $87.7 million over four years. Initially all this funding was to go to the National Disaster Recovery and Rebuilding measure; but the Government has reduced this to $37.7 million and will redirect $50.0 million to grants and awards for excellence in university teaching.
- The cessation of the Capital Development Pool with savings of $298.0 million over four years to be used for the National Disaster Recovery and Rebuilding measure. The primary source of infrastructure funding will now be the Education Investment Fund.
- The delay of $95.0 million over two years (2011–12 and 2012–13) in reward funding from the Higher Education Performance Funding. The Government states savings will be ‘redirected to support other Government priorities’ but gives no details.
- Reducing discounts for up-front payments (from 20 to 10 per cent) and voluntary repayments (from 10 to 5 per cent) made under the Higher Education Contribution Scheme (HECS). This measure is expected to ‘provide savings of $479.5 million over four years in terms of underlying cash, and savings of $293.4 million in terms of the fiscal balance’. 
Under present arrangements students receive a 20 per cent discount on their HECS liability if they pay up-front rather than deferring their loan. By reducing the discount the Government estimates savings of $229.5 million over four years will be made from reductions in the amount the Government will need to pay universities for the equivalent amount of the up-front discount. This amount counts as an expense to the Government and appears as expenditure in the Budget. Savings will also be made by reducing the discount for any early repayment of HECS debt. The Government estimates that $63.9 million will come through increased revenue from reducing the voluntary repayment discount from 10 per cent to 5 per cent.
The Government has justified this measure on equity grounds claiming that ‘discounts advantage those with the capacity to pay their fees upfront. Analysis of the upfront discounts provided in 2009 showed that only around 12 per cent of these students came from low-SES postcodes’. This might therefore be seen, like other budget measures, as targeting those who are wealthier. However, the measure is primarily aimed at making savings to the budget bottom line as the discounts are an expense to the Budget whereas the deferring of a HECS liability is not. Savings will depend on the number of students who continue to pay up-front with the discount halved to 10 per cent: the fewer numbers who pay up-front, the greater the savings as their HECS liability will be deferred and not counted as an expense. In 2009 the Government paid $107 million to universities for the discount. Budget figures predict a saving of $29.4 million in 2011–12 rising to $62.5 million in 2012–13; but there is no indication of the total HECS liability for those years or the expected up-front payment to universities.
The discount on up-front payments was a feature of HECS when it was introduced in 1989 and it was set at 15 per cent. It was increased to 25 per cent in 1993 and the percentage of students paying up-front rose from 20.3 per cent in 1990 to 28.5 per cent in 1997. Part-time students, external students and those aged over 30 are those most likely to pay up-front. Analysis of HECS liability by the Higher Education Council in 1997 revealed low rates of up-front payments by equity groups: for example, of all students paying up-front with a discount in the first semester of 1997, 10.5 per cent were low SES students and 16.6 per cent were rural students.
The percentage of students paying all their HECS liability up-front gradually declined after 1998 to about 21 per cent and the reduction in the bonus from 25 per cent to the current 20 per cent in 2005 did not further reduce the percentage. However, data for equivalent full-time student places, rather than for all students, shows a decline from 21.0 per cent in 2005 to 17.5 per cent in 2009. The total amount paid by the Government to higher education providers on behalf of students paying up-front also declined from $112 million in 2004 to $89 million in 2005 and, despite increases in total student liabilities, was still at $107 million in 2009.
The measure may increase the number of students who defer their HECS liability. However, while it may lead to a reduction in expenditure, we may see HECS debt taking longer to be repaid and the amount of doubtful debt increase. In the view of Professor Bruce Chapman who was instrumental in the establishment of HECS:
while the measure would probably raise money for the government in the short term, it was poor economics ... the 20 per cent discount represented the right "implied" interest rate cost on HECS loans, and that reducing it effectively increased the taxpayer subsidy to students.