Informing the Australian University Accord

In 2022, the Australian Government launched an ambitious process to develop the Australian Universities Accord for transformative reform of the higher education system. The Minister for Education, the Hon Jason Clare MP, announced details of the Accord in November 2022 and the Australian University Accord Panel, chaired by Professor Mary O’Kane AC, was established to propose recommendations and priority actions to address the fundamental challenges facing the sector. APPI was commissioned by the Accord Panel in Spring 2023 to help design a new funding model for teaching and scholarship in higher education in Australia. Subsequently, as part of the 2024–25 Budget, the Government has outlined how it plans to take forward recommendations contained in the Australian Universities Accord Final Report.

At the time of publication the Institute was known as the James Martin Institute for Public Policy (JMI).

A collaborative approach to reform

Through this Collaborative Project, APPI outlined a system architecture for a proposed new funding model for teaching and scholarship in higher education in Australia. These proposals were developed through a unique collaborative model of engagement that identified and tested options through a rigorous process with experts from across the sector. We applied this process in support of the Accord Panel, to enable them to identify their preferred options. This report to the Panel reflects the calibrated outcomes of the process.

This report captures the preferred options of the Panel in general terms. Independent advice and options were presented to the AUA Panel, informed by experts, but the outcomes do not necessarily reflect the views of any individuals or organisations involved.

A funding model to support Vision 2050

In July 2023, the AUA Panel’s Interim Report set out a strong vision for the future of Australia’s higher education system based on growth for skills through greater equity.

This means developing a higher education system that enables more students to attend university and to gain the skills they need to thrive in the Australian economy of the future. This requires 900,000 extra students to attend university with support from the Commonwealth Government by 2050, and for this growth to be driven by underrepresented groups, including First Nations Australians, people from low socio-economic status (SES) backgrounds, people with disability, and people from regional, remote and outer suburban communities. To deliver this outcome, Australia needs to reform its funding model for teaching and scholarship.

Following in-depth engagement with the AUA Panel and a range of other experts, the goal of this project was to set out the system architecture of a proposed new funding model that supports the delivery of this vision.

Pathway to 2050

This report suggests a new system architecture for implementation in line with the new Tertiary Education Commission (TEC). The primary objectives are:

(1) to remedy perverse outcomes from the Job-ready Graduates Package (JRG) and

(2) establish a funding architecture that supports growth, equity and enables change over time, overseen by the Tertiary Education Commission (TEC).

By pursuing these objectives, the model aims to put the funding system on the right track to work towards the Panel’s vision for 2050 and allow the system to evolve over time.

Freedom within a framework

The new Teaching Funding Model has been designed based on the following principles:

Growth

The funding model must enable the higher education sector to grow in size. Growth in provision must be flexible and high-quality, and responsive to student choices and industry needs.

Equity and access

The funding system should support all people who wish to study in higher education, with no up-front cost and additional support tailored to student need. To drive future participation, collaborative initiatives should be funded outside of the funding model to raise aspirations.

Fairness

There should be a balance of student and Commonwealth Government contributions across the system as a whole, recognising both the private and public benefits of higher education in broad terms.

Coherence

There should be one higher education funding model for Australia. It should be simple to navigate and understand, accountable and transparent. It should follow an evidence-based logic, where cost, need and policy priorities drive change and ‘price’ is not used to influence student choices. The balance of public and private investment should be intentional, and public investment across the system as a whole, should be broadly in line with public value and Government priorities, such as equity and growth.

Responsible stewardship

An independent organisation (such as the idea of a ‘Tertiary Education Commission’) should be established to steward the system towards the Accord’s objectives through a clear set of funding incentives and controls. This would ensure a stable and transparent funding environment with clear accountabilities. The system stewardship role would include monitoring system dynamics such as competition and collaboration, the balance of public and private contributions, as well as driving efficiency, public value and quality.

Mission

The funding model should support a diverse range of providers to respond to national skills needs and student demand in different ways, whilst driving equity, access, quality and efficiency.

Quality

A funding system that seeks to appropriately fund high-quality provision of teaching and scholarship, supporting autonomous higher education providers to flourish and deliver strong outcomes for students.

Progress towards a tertiary sector

As outlined in the Accord’s Interim Report, a significant proportion of the future skills needs and growth is projected to happen at the higher education and vocational education and training (VET) interface. This is an area of significant innovation and increasing diversity of provider models, with growth in the provision of higher education from both VET providers and new providers. Potential students and industry partners are agnostic about the differences in the underlying systems – they just want to be able to access the right learning and skills. The role of microcredentials is part of this.

The new Teaching Funding Model needs to account for this diversity of provision and be flexible enough to take account of ongoing reform in the Australian Qualifications Framework (AQF) and VET funding environments.

More work needs to be done to align these systems, particularly at the interface and overlap between VET and higher education.

The Tertiary Education Commission (see below) would be well placed to take a system-level approach to the tertiary sector, with the aim of better aligning and integrating these systems over time, and to ensure that more flexible forms of provision are supported.

Approach to funding teaching and scholarship

There are two core components of the higher education funding system for teaching and scholarship in Australia: (a) pricing and (b) volume and distribution. This is in line with the vast majority of public funding models across other countries and in other areas of public policy. The new Teaching Funding Model would maintain this underpinning logic in its design.

Tertiary Education Commission to provide responsible system stewardship

One of the major reform proposals in the Accord’s Interim Report is the recognition of the need for an independent, system steward in the form of a Tertiary Education Commission (TEC). In designing a new Teaching Funding Model, this report outlines the role for TEC in setting the framework and boundaries for actors in the system – it sets the ‘rules of the game’. TEC would be responsible for determining and varying the level and type of system incentives and controls for different parts of the higher education system, as appropriate, and manage any “market failure”. As responsible system stewards, it would seek to drive system objectives such as increased equity, growth, quality, responsiveness, efficiency and access to provision in areas of growing population, in order to steer the system towards the Panel’s vision for 2050.

This is not about introducing a bureaucratic, centrally-controlled or planned approach to higher education in Australia, but neither is a free market approach appropriate – or possible – in a system where there is considerable public investment and public interest.

The new Teaching Funding Model recognises the independence and autonomy of higher education providers in Australia. Indeed, part of the role of TEC would be to ensure these providers are given as much freedom as possible within a clear framework for higher education funding, supporting them to flourish and deliver against their own missions and public good objectives.

“The Institute was delighted to be part of this ambitious reform agenda to ensure the full power of our world-leading higher education system is harnessed for the good of Australia and its people. Indeed, our future international competitiveness as a nation depends on it. We recognise the complexities involved in the system architecture of higher education teaching and scholarship, and the critical importance of research and innovation funding working alongside that model”

- Libby Hackett, CEO, APPI

The symbiotic relationship between research and teaching

Universities are not schools. Alongside teaching and scholarly activity, they undertake world-leading research and actively engage with industry, community and Government partners to deliver economic growth, social impact and environmental goals, both in Australia and internationally. Indeed, research and discovery across our universities makes a major contribution to Australian Research & Development, driving economic growth and productivity – contributing to the wealth, prosperity, and public good of our nation.

We must also consider how research informs teaching, beyond scholarly activity. Academics undertake a range of interdependent activities across research, teaching and business/community engagement – all of which inform their teaching.

The teaching funding model has historically carried a contribution towards research costs, and this will continue in the new Teaching Funding Model. Given the strategic importance of research in Australia – and in achieving the Accord’s vision for 2050 – we recommend that, over time, the TEC develop a method of core funding for research run in parallel with core funding for teaching. To be clear, this would go beyond the existing block grant funding for research in Australia. This would remove the need for the contribution to research in the teaching funding model.

The wider funding system needs to recognise the cost of research in addition to the cost of teaching, based on different measures such as quality, impact and volume. As the Interim Report highlights, delivery of high-quality, impactful research – in contribution to the broader research and development (R&D) and innovation agenda– is essential to economic growth and productivity, alongside the equity and skills goals supported through the teaching funding model. One half of the system cannot deliver on the vision for 2050 without the other half of the system also being funded and supported to do so.

Domestic Student Journey

The following proposed funding model, tailored to student need, has the potential to drive equity, meet future skills needs, and increase diversity and quality in the sector

Access course students

As people aspire to enter university from different backgrounds, it is simple and cost-free for them to develop key skills and get on track for an undergraduate degree.

There is no cost or Student Contribution for non-accredited fee-free Access Courses.

There is Government funding available for Access Courses.

Needs-based Funding is available for the provider to support underrepresented students, and to meet the additional costs of delivering these courses in regional areas.

Undergraduate students

Subject to receiving an offer of a place, students can select the course and university of their choice, sharing the cost of study with Government.

Undergraduate course costs are shared between Government and student.

Students contribute in line with one of three ‘Bands’, based on their future earnings potential. HECS- HELP loans are available to ensure there is no upfront cost.

Government makes a contribution to ensure teaching costs are fully funded.

Needs-based Funding is available for the provider to support underrepresented students to succeed.

Extra funding available to providers to cover the cost of supporting those studying in regional areas and on high-skill, high- priority courses.

National priority and professional postgraduate students

When postgraduate training is needed for entry into a profession or to build a national priority workforce, Government shares the cost of further education with the student.

1-2 year postgraduate course costs are shared between government and student.

Students contribute in line with one of three ‘Bands’, based on their future earnings potential. HECS- HELP loans are available to ensure there is no upfront cost.

Government makes a contribution to ensure that the estimated cost of teaching is fully met.

Specialised postgraduate students

When graduates and professionals would like to continue developing other specialised skills, they can choose from a wide range of programs. They pay the course fee and are supported with a Government loan or equity scholarship.

1-2 year postgraduate course costs are paid by the student.

FEE-HELP loans are available to help cover the cost of the course, up to a maximum HELP loan amount.

Bursaries and scholarships are available for the small number of high fee courses that exist – directly from the higher education provider - to ensure underrepresented students can access and benefit from these courses.

About APPI

The Australian Public Policy Institute (APPI) is an independent, non-partisan policy institute. Our mission is to bring government together with a range of experts to develop practical solutions that address societal challenges and improve lives across Australia. APPI was launched in 2021 as a joint-venture between the NSW Government and a group of universities. Our growing list of university partners now includes the University of Sydney, Western Sydney University, the University of Technology Sydney, the University of New South Wales, Charles Sturt University and the University of Wollongong.

APPI Collaborative Projects

APPI Collaborative Projects are unique. They are delivered by joint project teams, comprising of Institute staff, policymakers, and academic experts.
APPI Collaborative Projects:

• Tackle the big, multidimensional policy challenges facing governments;

• Leverage expertise from academics, policymakers, practitioners and the wider community to deliver innovative and pragmatic solutions;

• Forge dynamic collaborations between research experts and government policymakers that enable ongoing relationships.