20 years in the life of a small tertiary education system

17 September 2012

Attaining and sustaining mass tertiary education - Lessons from the New Zealand experience

Roger Smyth

This talkNew Zealand spent a decade focused on attaining mass higher education

And then took stock

So spent the following decade working on the sustainability of the system

Making sure that the system delivers good value for New Zealand and for those who participate

New Zealand may be small …

But our journey may have lessons for others

This talkIn this presentation, I describe the policy context – the issues facing the NZ tertiary system at the end of the 1980s

And how the system was reformed to lift participation

How that worked in practice

And why – after a decade of a system focused on participation – we moved to shore up the gains and ensure sustainability

My roles …

1987-2002, a university manager, responsible for academic management

2002-now, a Ministry of Education manager, with responsibility for research on and analysis of tertiary education

Part 1Attaining mass higher

education

The context – the 1980s

The reform of the NZ economy – changed skill needs

And an economic downturn led to greater school retention and greater demand for tertiary education

While the tertiary education system was characterised by low participation

High levels of regulation and rigidity, especially in the polytechnics and colleges

We saw rationing of places – especially in universities – as demand grew

A true supplier’s market

A need for reform

The first phase of reformsA uniform, volume-driven funding system, across all sub-sectors

Removal of restraints on institutional competition

A moving cap on funded places

An expansion of places

Funded by progressive funding rate reductions

Removal of fee controls

Major reductions in student allowances/grants via targeting

An income-contingent loan scheme

Mitigates risks to participation by removing the liquidity constraint

In effect, loans channeled government funding of institutions via students, to mitigate the imbalance in market power

Increased incentives for responsiveness

Fees went up

Average fees for a BA at a university

$0

$1,000

$2,000

$3,000

$4,000

1982 1984 1986 1988 1990 1992 1994 1996 1998 2000

Tu

tiio

n fe

e N

Z$

Student Loan Scheme introduced

Financed by loans

The expansion of the loan scheme

0

50

100

150

200

250

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

Bor

row

ers

(00

0)

NZ

$ b

illio

ns

Loan borrowings Borrowers

Phasing in of the loan

scheme

Reduced course costs entitlement

Interest f ree loans

RecessionFee stabilisation

So did participationParticipation doubled 1985-1993

Average annual growth > 10%

And the cost to government

$0.0

$0.2

$0.4

$0.6

$0.8

$1.0

$1.2

$1.4

$1.6

$1.8

$2.0

0

50

100

150

200

250

1991 1993 1995 1997 1999 2001 2003 2005 2007 2009

Fu

nd

ing

-NZ

$ b

illio

ns

EF

TS

(00

0)

Funded EFTS Unfunded EFTS Government funding

What happened

Growth among groups who have traditionally had low participation

Including Māori and older age groups

The planning system was light-handed

Performance measures largely focused on volume

No sense of a ‘network’ view

Supported the competitive settings

Preference in the allocation of new places to ‘pipeline’ growth

A powerful incentive on providers to enrol over their funded levels

Over-enrolmentOver-enrolment ….

Most demand in the core age group was being met

The wānanga were helping address low participation among Māori

A new packageThe changes had dealt with the issue of participation, but ...

Concerns about accountability, governance, quality

Intense public anxiety about fees and loans

A new green paper package in 1998 including ….

Governance changes

Capital charge

Quality assurance

Restructuring of the tuition subsidy structure

Separation of research and teaching funding

Removal of differentials between fields

A greater role for the private sector

Demand-driven funding

A new packageAn election was coming up

Most green paper/white paper proposals were shelved

Including changes to governance, accountability, and quality assurance, capital charging, most of the tuition subsidy changes …

(But this set a policy menu for more than 10 years)

What remained …

Funding was opened up to private providers on the same basis as public, at levels 3+

Demand-driven funding …. But ….

Quality, governance and other interventions were put aside

Demand-driven applied across the system

Demand driven funding…Further unforecast cost increases

Private providers refocused on level 3+ and new providers entered the market in large numbers

The wānanga were new and in a growth phase – they grew fast

One wānanga grew from 1,000 to 36,000 EFTS in 4 years

Funding up from $5m to $177m

Polytechnics sought to grow via community/continuing education

Where there was a ready market, able to be driven by advertising

Universities ... Less change, but …

High dead-weight expense

Volume prioritised over quality

What happened …More supply-induced demand

45% of the growth was among older students

NZ had the second oldest student profile in the OECD

Meaning lower human capital gain

So a lower value spend

Much growth in lower level qualifications

Low labour market returns

Quality concerns

Changed the dynamics of decision-making in all parts of the system

Destabilised government’s fiscal planning

And IFRS costing for loans was looming with large, hard to control costs

Part 2Sustaining mass higher

education

A new reform agenda

A new government meant a new agenda

Managing affordability for students – a new consensus on sharing costs

Loan interest concessions

Fee setting controls

A strategic approach to setting goals for the system

The tertiary education strategy (TES) – articulating national goals for the system

New planning mechanisms for institutions

Steering the system to align with national priories

While retaining institutional autonomy

Separation of research funding from teaching funding

Research performance

0.0%

0.1%

0.2%

0.3%

0.4%

0.5%

19

81-1

98

5

19

82-1

98

6

19

83-1

98

7

19

84-1

98

8

19

85-1

98

9

19

86-1

99

0

19

87-1

99

1

19

88-1

99

2

19

89-1

99

3

19

90-1

99

4

19

91-1

99

5

19

92-1

99

6

19

93-1

99

7

19

94-1

99

8

19

95-1

99

9

19

96-2

00

0

19

97-2

00

1

19

98-2

00

2

19

99-2

00

3

20

00-2

00

4

20

01-2

00

5

20

02-2

00

6

20

03-2

00

7

20

04-2

00

8

20

05-2

00

9

20

06-2

01

0

20

07-2

011

Publications Citations

PBRF and CoREs decided on….And implemented

Source: Thomson Reuters

Share of world indexed publications and citations by New Zealand tertiary education institutions

The new reform agenda

BUT … the quality assurance system remained

And representative governance was retained

Moves to chip away at demand driven funding

Mainly focused on the private sector

BUT … costs were still high and unpredictable

The TES was too loose

And the planning and funding systems were too complex

Accountability was loose

Fine tuning for sustainability …

And in 2006, the government announced the abandonment of demand-driven funding

As part of a wider package

Simplification of the planning and accountability arrangements

An overhaul of quality assurance

Rationalisation of the qualifications system

Leading to performance-linked funding

A new TES, prioritising human capital growth

And interest-free loans

This and the new accounting standard saw the cost of lending move from 13 c/$ to 41 c/$

Meaning the cost of over-enrolment was very high

Now …The government didn’t want to stifle demand

Rather, the intention is to move funded levels in line with shifts in demand

But to manage the fiscal implications for government carefully

Institutions have to manage to between 97% and 103% of their funded levels

Avoiding high flow-ons to loans costs

And quality risks

And managing according to the priorities of the government tertiary education strategy

Reverses the dynamics of institutional decision-making

We have seen …The new caps came into effect in in 2008

And in 2009, youth unemployment went up, leading to greater demand for tertiary education

Just as the birth bubble was hitting the tertiary age group

And improved school achievement put pressure on higher level enrolments

So what happened?

By and large, institutions managed to the tolerance bands

And have become better at it

Except the private sector where caps were applied earlier

And where over-enrolment is being managed down slowly

We have seen …

The new system has changed institutional decision-making

Prioritisation of students who are younger, more likely to be full-time and in higher level qualifications

Greater human capital development

Greater value for money

We have seen …Participation rates by age group

Attaining and sustaining?

Under 25 25 and over

0%

3%

6%

9%

12%

15%

2005 2006 2007 2008 2009 2010 2011

Per

cen

t

Certificates 1-3 Level 4-7 non degree

Bachelors degrees Graduate/Postgraduate

0%

1%

2%

3%

4%

5%

6%

2005 2006 2007 2008 2009 2010 2011

Perc

ent

Certificates 1-3 Level 4-7 non degree

Bachelors degrees Graduate/Postgraduate

The new priorities…

Fine-tuning within these settings ….

Youth transitions

Vocational/on job training

Reviewing research funding mechanisms

Questions

For more information, research and statistics

Visit www.educationcounts.govt.nz