Letter from Australia: Stick or carrot – the value of performance-based funds

Performance-based funding has been on the cards for a couple of years now and, just before Christmas, a discussion paper was dropped to keep the wonks busy while the rest of the country ate BBQ sausages and burnt themselves senseless at the beach.

A working party, headed by the University of Wollongong’s vice chancellor Paul Wellings has been formed, with consultations slated for the first half of the year and a final model to be ready by the middle of 2019. Given the precarious state of the current government, it must be hard for Wellings and his working party to remain resolute and focused. After all, all their hard work might come to nought following the May election.

However, one should never assume anything in life and politics, as the merry band of performance based funders will march on regardless. The rationale behind the proposed introduction of performance-based funding arrangements is that standards have slipped under the demand-driven regime, attrition is rife, students aren’t benefiting from their degrees. Therefore, universities must be held accountable for the progress and outcomes of the students they enrol and graduate.

As the discussion paper says:

Australians expect their taxpayer funded public universities to delivery quality higher education. It is expected that universities continue to recruit from both the regional and metropolitan areas and from both low socioeconomic status and high SES areas.”

The paper goes on: attainment levels correlated to a student’s background, completion, satisfaction and successful employment following graduate are all fundamentally important. I genuinely have no schtick with any of that. But my issue is that performance-based measures always seem to come saddled with potential consequences that could be detrimental to the very students such initiatives are trying to help – the educationally, economically and geographically disadvantaged.

Linking funding to quality criteria

Fundamentally, the government is banking on the premise that by linking funding growth to performance and equity requirements, universities will lift their game. The UK’s Teaching Excellence and Student Outcomes Framework (TEF) is named as an exemplar. Based on current projections of population growth – on which additional student places will be based from 2020 onwards – the discussion paper estimates that this will equate to an additional $70 million a year. That’s an average of just less than $2m per institution – obviously more for the big ones and substantially less for the smaller ones.

The potential performance measures could, the paper says, include: first year attrition; completion rates within six years; student satisfaction; full-time employment rates; further study; participation by students from low SES, rural, remote or indigenous backgrounds. The paper also discusses holding universities accountable for unpaid student loans. No surprises here, but let’s look at some of the evidence to date as to the possible consequences of such a programme.

Is attrition so bad?

First up, overall attrition rates have barely budged over the past decade despite the introduction of the demand-driven system and the enrolling of many non-traditional students.

In 2006, the overall figure was 14.51% and in 2016 it was 14.69%. That does not account to a crisis nor provide the government with evidence that the additional costs associated with the uncapping of places – which saw enrolments boom from 814,000 in 2009 to 1.1 million in 2016 – is misplaced. In fact, the average first year attrition rate in 2016 was under 15 per cent.
No doubt higher attrition rates are closely correlated with lower entry requirements, something that has been proven beyond doubt that the Grattan Institute’s higher education guru Andrew Norton.

A Federal Department of Education cohort analysis shows that 95% students with an ATAR of 95-plus completed their degree within nine years, but 40% students with ATARs of just 50-59 left before completion. Certainly, some universities have been enrolling students with ATARs of less than 50. Former Education Minister Simon Birmingham took one giant swipe at universities last year when he claimed one student with an ATAR of 18 had been accepted into a teaching degree (how he got this information is a bit dubious since school leavers with ATARs of under 30 are not actually given a score or rank). But let’s not forget that high ATARs are also strongly correlated with wealth and therein lies a fundamental tension.

Another factor strongly correlated with a high risk of attrition is online study, with less than half completing their degree within nine years, according to a study from the Australian Council for Education Research. However, as we know, online study, including microcredentials, is seen as a low-cost, high-return alternative to campus-based learning and considered by many educationalists to offer a beacon of hope to those who live in remote and regional areas and whose jobs are disrupted by technology.

Performance-based funding has been implemented overseas, including in the UK, with mixed success and the jury is still out on the overall impact and benefits of the TEF. A report for the Council of Ontario Universities claimed that of the 26 US states that experimented with performance-based funding between 1979 and 2009, 14 discontinued their programs, while another two abandoned them before introducing a revamped version.

La Trobe University HE equity expert Dr Andrew Harvey has previously pointed out that the trouble with using a big funding stick against criteria such as attrition and the like would see many universities less courageous in enrolling equity students. Harvey has also pointed out that performance funding saddles universities with red tape and compliance costs that distract them from getting on with the overarching mission of educating students and undertaking research.

The discussion paper also flags the idea of making universities partly responsible for the repayment of their students’ loans – an idea that has been doing the rounds for some years now. The rationale behind it that if universities have skin in the game, they will up the ante on ensuring graduate outcomes are healthy. Essentially, if students dropped out or graduates didn’t earn enough to make repayments, universities would be held accountable. The annual income threshold for a student to start making repayments fell last year to $52,000. The idea is that universities which received funding on a per-student basis, are incentivised by quantity not quality. But as we have already seen, overall attrition rates have barely budged in a decade so it appears to be an answer in search of a problem.

Besides other research by Australian National University’s Dr Mathias Sinning revealed that the gender pay gap, part-time work and caring duties plays havoc on loan repayments and “a considerable number of female university graduates rarely or never cross the minimum income threshold that would require them to repay their student loans”.

If universities were required to be responsible for loan repayments would they be discouraged to enrol women? Would they stop offering some disciplines, such as science, with low graduate incomes and low repayment rates? Should universities be held responsible for students’ poor choices of life circumstances that lead them to drop out? Can universities predict workforce demands and if not, should they be punished for structural changes in the economy? Unlikely, but we can see some of the problems afoot.

The debt collector

In 2016, the total outstanding student debt was $52 billion, and rising fast. Around 20% of former students never repay their debt in full causing the government to write off more than AU$1.6b a year. Yes, it makes the UK look positively shambolic by comparison.

It seems like the the original intent behind income-contingent loans – to get graduates to contribute to their education while not penalising those who don’t benefit from it – is getting lost as government bangs on about the short-term multi-billion dollar bills but fail to look at the long-term benefits of having an educated citizenry.

Surely, we need to not just look at the short-term costs of HE, but start asking some much broader and profound questions about the role of post-secondary education in the economy, particularly whether the current model is fit for purpose or whether we need more diverse options that include cheaper, industry-embedded options and a vibrant and high-quality vocational system.

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