Tertiary education—where to for reform?

Dr Hazel Ferguson, Social Policy

Key issue
Since 2012, government-supported vocational education and training enrolments have declined, and Commonwealth supported higher education enrolment growth has slowed. Yet, jobs growth is concentrated in roles requiring a tertiary education.
This article provides an overview of the last decade of efforts to increase tertiary attainment, and sets out key considerations for future reform in terms of the relationships between increased participation, funding, and quality.

Snapshot of tertiary education

The tertiary education sector comprises vocational education and training (VET) and higher education.

VET includes skills training from employer-specific courses to apprenticeships and year-long certificates and diplomas. An estimated 4.2 million students were enrolled in VET in 2017. Of these, approximately 1.2 million were government-funded. The Australian Government and state and territory governments share responsibility for VET policy and funding.

Higher education includes Associate Degrees through to Doctoral Degrees. An estimated 1.5 million students were enrolled in higher education in 2017, 90.5 per cent at public universities. The Australian Government subsidises tuition fees for eligible (predominantly domestic undergraduate) students through the Commonwealth Grant Scheme (CGS).

Eligible students in VET and higher education can defer approved course fees through the Higher Education Loan Program (HELP).

Although the Australian Qualifications Framework (AQF) aims to provide a cohesive structure for regulated qualifications, there is overlap between VET and higher education, with Diploma (AQF level 5) and Advanced Diploma (AQF level 6) qualifications offered in both sectors. (The AQF is being reviewed.)

Data from the Australian Bureau of Statistics (ABS) show that at May 2018, 62.3 per cent of the Australian population aged between 20 and 64 had attained a Certificate III or above, compared with 51.9 per cent in 2008. However, after a period of rapid growth to 2012, Commonwealth supported higher education enrolment growth has slowed, and government-supported VET enrolments have declined (see Figure 1).

Figure 1: Tertiary education students, 2006–2017

Tertiary education students, 2006–2017

Source: Parliamentary Library based on Department of Education and Training Higher Education Statistics Collection; National Centre for Vocational Education Research, VOCSTATS.

Vocational education and training reform

The expansion of government-supported VET from 2009 shown in Figure 1 is largely attributable to the availability of VET FEE-HELP from 2008, which allowed VET students to defer their course costs through HELP for the first time. In 2012, a requirement that VET students could only access HELP if their course was a pathway to higher education was removed, further increasing access.

However, as shown in Figure 1, government-supported VET student numbers peaked in 2012, and began to decline from 2013. According to the Mitchell Institute, the sector has also experienced declining government funding since 2011–12, compared with funding increases in the higher education sector (see Figure 2).

In 2012 and 2013, eligibility for the Australian Apprenticeships Incentives Programme was scaled back, in response to concerns that employer incentives to take on apprentices were being misused. Apprenticeship commencements have since declined, especially among non-trade apprentices.

Risks ‘to integrity, quality and sustainability’ of VET FEE-HELP were also identified from 2012. According to the Department of Education and Training (DET), between 2009 and 2015, the number of students accessing the scheme increased from 5,262 to 272,000, average course costs increased from $4,000 to $14,000, and the value of the loans increased from $26 million to $2.9 billion.

While increases partly resulted from improved access among genuine students, growth also reflected unscrupulous providers attracting students with inducements like laptops and misinformation that VET FEE-HELP courses were free. Estimates show $1.2 billion of VET FEE-HELP debt was issued inappropriately in 2014 and 2015.

Recent changes in VET

From 2015, a number of changes were legislated to improve VET quality regulation, including banning inducements, limiting allowable marketing and recruitment practices, clarifying student rights and obligations, and introducing stricter provider eligibility and charging requirements, and a civil penalty regime. Most recently, the Parliament passed legislation to forgive the loans of some VET students and split the administration of VET Student Loans from HELP from 1 July 2019.

This regulatory reform has been coupled with targeted investments, predominantly in apprenticeships, announced in the 2017–18, 2018–19, and 2019–20 budgets. However, the National Partnership on the Skilling Australians Fund, which was the vehicle for apprenticeship investment in the 2017–18 and 2018–19 budgets, was not signed by the Victoria and Queensland governments.

Figure 2: Australian Government estimated expenditure on higher education and VET, 2006–07 to 2022–23 (real prices)

Australian Government estimated expenditure on higher education and VET, 2006–07 to 2022–23 (real prices)

Source: Parliamentary Library based on Australian Government, Budget strategy and outlook: budget paper no. 1: 2019–20; Australian Government, Final budget outcome, various years.

Notes: VET includes vocational and other education and industry training (predominantly apprenticeships). 2018–19 to 2020–21 is estimated expenditure. 2021–22 and 2022–23 is projected expenditure.

Higher education reform

The 2009–10 budget paper Transforming Australia’s Higher Education System, the response to the 2008 Review of Australia’s Higher Education System chaired by Denise Bradley (the Bradley Review), announced the introduction of demand driven CGS funding for domestic bachelor students, to increase higher education attainment. Partial uncapping commenced in 2010, and the system became fully demand driven from 2012.

DET statistics show that the number of Commonwealth-supported students increased by 27.6 per cent between 2009 and 2014, from 621,875 to 793,312.

At the 2009–10 Budget, CGS spending was $4.5 billion, accounting for 56.3 per cent of the $8.0 billion spent on higher education. By the 2014–15 Budget, the CGS had reached $6.5 billion, or 70.7 per cent of the $9.2 billion higher education expenditure.

Recent changes in higher education

The 2014–15 Budget included large-scale changes to higher education funding, including an average 20 per cent reduction to the CGS, and the deregulation of undergraduate student fees. Essentially this proposal attempted to constrain Australian Government expenditure while maintaining resourcing to universities by increasing student contributions.

However, after two unsuccessful attempts to legislate the 2014–15 Budget announcements, and another unsuccessful attempt to legislate a much revised package in 2017, the Government began pursuing other options for constraining expenditure:

the Mid-Year Economic and Fiscal Outlook (MYEFO) 2017–18 announced that CGS funding would be frozen for 2018 and 2019 (a change that did not require legislation), and that increases from 2020 would be contingent on providers meeting performance targets
in August 2018, the Parliament passed legislation to reduce the repayment threshold for HELP and introduce a lifetime borrowing limit and
MYEFO 2018–19 announced reduced funding growth for the Research Block Grants (RBGs), a key component of university research funding.

As growth in Australian Government funding has contracted, overseas student fees have accounted for an increasing proportion of university revenue growth. University finance data from DET shows that from 2016 to 2017, overseas student fees accounted for 64.2 per cent of total university revenue increases.

Higher education has not experienced the same large-scale quality and regulatory issues as VET. However, the Productivity Commission’s 2017 Shifting the Dial: 5 Year Productivity Review raised concerns about declining admissions standards, increasing student attrition rates, and declining graduate outcomes in higher education under the demand driven system. Admissions data from DET shows that from 2010 to 2018, the average Australian Tertiary Admission Rank (ATAR) of those receiving an offer decreased from 79.9 to 76.5 (out of 99.95).

As a consequence, there are a number of quality and regulatory changes currently underway in higher education in addition to introducing performance funding for the CGS. These include: the response to the Final Report—Improving Retention, Completion and Success in Higher Education; the response to the Review of the Impact of the Tertiary Education Quality and Standards Agency (TEQSA) Act 2011; the review of the Higher Education Provider Category Standards; and work to legislate against contract cheating.

Medium-term demand

Despite the recent slowdown, demand for tertiary education is likely to increase over the medium term.

Data from the Department of Jobs and Small Business forecast that 90 per cent of employment growth to 2023 will be in roles requiring a tertiary education, with the largest growth in occupations requiring a Bachelor Degree or higher.

ABS projections also show that after a period of relative stability, the estimated number of 18-year-olds in Australia will grow from 2022, increase from 304,710 in 2018 to 361,691 in 2030. Parliamentary Library calculations using ABS data put the estimated number of 18-year-old Australian citizens in 2030 at approximately 309,300, compared with 273,300 in 2018.

Where to for reform?

Changes since 2017 provide a foundation for incremental improvements in tertiary education to balance cost, quality, and participation.

In higher education, caps on CGS funding can be retained or removed without legislation through CGS funding agreements, and quality initiatives pursued largely without major changes, including through TEQSA.

In VET, the 2019 Strengthening Skills: Expert Review of Australia's Vocational Education and Training System (Joyce Report) recommended a range of immediate actions, most of which formed the basis for a response in the 2019–20 Budget. Longer-term actions are, however, likely to require negotiation with the states and territories.

However, policy analysis, including from the National Centre for Vocational Education Research, the Mitchell institute, KPMG, and the Vice-Chancellors of the dual sector universities, increasingly emphasises the need to more carefully consider the relationships between the VET and higher education sectors to address issues of relative status, funding, and policy and regulatory coherence in a sustainable way.

For the higher education sector, this dates back to the 2008 Bradley Review aspiration to create ‘better connections across tertiary education and training to meet economic and social needs’.

For the VET sector, this has been a recurring issue over a long period. Most recently the Joyce Report observed a need to ‘elevate the status of VET to see it sit genuinely alongside higher education in the ambitions of young Australians and their communities.’

The 46th Parliament will likely need to weigh up the advantages of large-scale changes to address distortions created by a decade of two-track reform, against the risks in terms of cost, complexity, diversity of providers, and challenges negotiating changes to VET with the states and territories.