Fin de siecle: reengineering New Zealand higher education for life after the global financial crisis


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New Zealand has a large higher education sector, with one of the highest rates of tertiary participation in the OECD. Under the 1989 Education Act, access to university is an entitlement for all students who successfully graduate from high school and, more uniquely, for all permanent residents, regardless of previous educational attainment, once they reach the age of 20 years. The system of budgetary support for higher education is also unusual, insofar as almost half the total funding goes directly to students (in the form of allowances and interest-free loans) rather than as grants to the providers. Sustained high participation rates have put this funding mechanism under strain over the last decade.

The global financial crisis has led to a sharp rise in projected public debt levels. After a major fiscal stimulus package in 2009, the economy is recovering and the government is under intense pressure to cut public spending. New Zealand has very high external debt levels, requiring constant refinancing, and the government needs to restore fiscal stability to retain the country’s AAA credit rating. New government policies are aimed at capping total enrolments in higher education and withdrawing access to loans for under-performing students. Grants to universities have been frozen for 2011 and some related funding lines cancelled. All eight New Zealand universities are currently facing a significant loss of government funding from 2011 and most are in the process of cutting costs and making redundancies.

In the years ahead, the demands on the public purse from an ageing population will intensify, forcing the government to make ongoing real terms cuts to spending on higher education in order to control government debt. These cuts will make the present funding model for New Zealand higher education unsustainable. Alumni donations in New Zealand are relatively uncommon as higher education is widely considered a public service and universities have been relatively unsuccessful in very recent years at growing international enrolments as a way of diversifying their revenue base. The only other source of significant revenue is for universities to be allowed to raise domestic tuition fees over time to full cost-recovery rates and for the government to target declining tuition subsidies and student allowances and loans more precisely on degrees with a strong ‘public good’ dimension (like teacher training) and low-income students.

These changes would signal an end to affordable and easily accessible higher education for New Zealand students. It is hard to avoid the conclusion that the global financial crisis has exposed flaws in the underlying ‘business model’ of New Zealand higher education and, by so doing, is likely to hasten the transformation of the system to a more expensive and selective system.

Higher Education Summit, Auckland, March 2010

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Fin de siecle: reengineering New Zealand higher education for life after the global financial crisis

  1. 1. Fin de siècle? Re-engineering NewZealand higher education for life after the ‘Global Financial Crisis’ Professor Nigel Healey Pro-Vice-Chancellor, University of Canterbury
  2. 2. Overview  Some axioms of higher education  Orthodox policy prescriptions for higher education  Internal contradictions in the university ‘business model’  Special features of the New Zealand system  Where are we?  Some possible ways forward
  3. 3. (Linked) axioms of higher education  Investment in (higher) education increases productivity and promotes economic growth – especially in a knowledge economy  Higher education transforms the life chances of those educated – promotes social harmony  The gains to society of an educated population exceed those to the educated individuals (through higher productivity and earnings) – there are positive ‘spillover effects’
  4. 4. Orthodox policy prescriptions  Countries should aim to increase overall participation rates in higher education  Policy should focus on raising the participation rates of socially disadvantaged or under-represented groups – ‘social inclusion’, ‘widening access’  Governments should provide (at below cost) or subsidise higher education to ensure optimal take-up  Such support may be targeted at subjects where the positive spillovers are particularly high (eg, teacher training, medicine)…  …or at lower income groups who are less able/willing to fund an investment in higher education
  5. 5. Proportion of 25-64 year olds whohave studied at tertiary level 45 40 35 30 25 OECD New Zealand 20 15 10 5 - 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Source: OECD Education at a Glance 2009
  6. 6. New Zealand university participationrates by ethnicity, 2008 45.0% 40.0% 35.0% 30.0% Pakeha 18-19 Pakeha 20-24 25.0% Maori 18-19 Maori 20-24 20.0% Pasifika 18-19 Pasifika 20-24 15.0% Asian 18-19 Asian 20-24 10.0% 5.0% 0.0% 1 Source: Ministry of Education
  7. 7. Internal contradictions in theuniversity ‘business model’  Growing participation and social inclusion increases the cost to the taxpayer of higher education  Higher education is an increasingly international sector, in which NZ universities have to compete for qualified faculty – adding to costs  Public subsidies cannot be increased fast enough to sustain the system  Governments have been forced to:  introduce (regulated) domestic tuition fees  introduce full-cost international tuition fees
  8. 8. The cost of the NZ tertiary system($m) 4,500 4,000 3,500 3,000 2,500 Student loans 2,000 Tuition subsidies 1,500 Student allowances 1,000 500 0 Source: Ministry of Education
  9. 9. Direct Government Funding toUniversities $1,400,000 $1,200,000 $1,000,000 $800,000 Total Government Funding $600,000 EFTS Vote $400,000 $200,000 $0 2000 2001 2002 2003 2004 2005 2006 2007 2008 Source: Ministry of Education
  10. 10. University domestic versusinternational tuition fees $25,000 $20,000 $15,000 Average Domestic Fee Average International Fee $10,000 Average Domestic Tuition Fee + EFTS Subsidy $5,000 $0 2000 2001 2002 2003 2004 2005 2006 2007 2008 Source: Ministry of Education
  11. 11. Is the business model sustainable?  The global financial crisis has caused fiscal stress in most developed economies and will severely constrain public subsidies to higher education in the medium term  Raising domestic fees must (at some point) reduce participation rates – especially amongst lower socio- economic groups  Increasing international enrolments in an increasingly competitive, post-Bologna environment requires rethinking university strategy – especially in terms of qualification structures
  12. 12. New Zealand government debt –projections based on historicspending Source: The Treasurys Long-term Fiscal Statement
  13. 13. New Zealand university internationalEFTS 30,000 25,000 20,000 15,000 10,000 5,000 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 Source: Ministry of Education
  14. 14. International student mobility 3,500,000 3,000,000 2,500,000 2,000,000 Foreign students enrolled worldwide 1,500,000 Foreign students enrolled in OECD countries 1,000,000 500,000 - 2000 2001 2002 2003 2004 2005 2006 2007 Source: OECD Education at a Glance 2009
  15. 15. Changes in international enrolments2000 = 100 400.00 350.00 300.00 250.00 Foreign students enrolled in 200.00 OECD countries Foreign students enrolled in 150.00 New Zealand 100.00 50.00 0.00 2000 2001 2002 2003 2004 2005 2006 2007 2008 Sources: Ministry of Education, OECD Education at a Glance 2009
  16. 16. Structure of universities’ tuitionrevenue 25.0% 20.0% 15.0% Domestic student fees as % of total revenue International student fees as % of total revenue 10.0% International EFTS as % total EFTS 5.0% Graph illustrates current dependence on government 0.0% funding (44% in 2008) and 2000 2001 2002 2003 2004 2005 2006 2007 2008 disproportionate contribution of international EFTS at the peak in 2004-05 Source: Ministry of Education
  17. 17. Some special features of the NewZealand system  Open enrolment  University entrance at NCEA  Open entry at 20+ for domestic students (citizens and permanent residents)  ‘Americanisation’ of undergraduate education  Broad general degrees with high degree of flexibility  Liberal progression standards  Completion times vs completion rates
  18. 18. Illustrative academic progressionpolicies The University of Auckland  A student who has twice enrolled in, but has failed to be credited with a pass in, a course is not entitled to enrol again in that course other than in exceptional circumstances approved by Senate or its representative.  Satisfactory progress: a student is required to attain a Grade Point Average of at least 0.8 in the last two semesters in which they were enrolled.  Victoria University of Wellington  Satisfactory progress: passing at least half the number of points attempted in the last two consecutive trimesters of study, or passing at least 36 points in the most recent trimester. !
  19. 19. Comparative completion rates 100 90 80 70 60 50 Completion Rates (at least 40 5A/5B Programme) 30 Left Without Tertiary Qualification 20 10 0 Source: OECD Education at a Glance 2009
  20. 20. Pass and completion rates forbachelors degrees, 2004-08 90% 80% 70% 60% % courses passed 50% % students passing all courses" 40% % students graduating after 5 years 30% % students passing all courses without graduating after 5 years 20% 10% 0% 1 Source: Ministry of Education
  21. 21. Some unintended consequences  Costs - increases average cost per graduate  Student motivation  Creates a culture amongst weaker students of ‘just doing enough’  In extremis, being a student is a lifestyle choice  Top students as good as anywhere, average students may be less motivated  Staff attitudes  ‘Try and try again’ system means that staff do not ‘own’ retention issues – seen as natural consequence of public policy or a problem for support services
  22. 22. Where are we?  The ‘business model’ is unsustainable  There is no more public money  Domestic tuition fees will have to rise  Increased international enrolments do not offer a short-term ‘fix’ – but may be part of the longer-term solution  Open entry and public funding based on capped enrolments are incompatible (penalties for low completion rates just compound the confusion)
  23. 23. The Way Forward? (1)  Make better use of existing resources  Admit only students with the ability and motivation to succeed to university  Revise NZQA UE requirements (in process), end open entry and separately fund university foundation programmes across the sector  Tighten and align university progression standards with public policy (access to allowances/loans)  Incentivise universities to target support on, and improve participation and completion rates for, underrepresented groups (eg, PhD model)
  24. 24. The Way Forward? (2)  Grow new resources  Accept private rate of return is different for different subjects and levels (business vs history, MBA vs PhD)  Allow greater flexibility to universities to charge differential domestic tuition fees (as HECS)  Position New Zealand as a postgraduate provider for international students  Requires radical review of university qualifications for post-Bologna world: 3+2+3 Melbourne model? 4+1+3 US? 3+1+3 UK?
  25. 25. A paradox to conclude  New Zealand universities are research-intensive, highly regarded internationally  In WUR, they perform well against highly selective universities from higher pc GDP income countries  But they are mass market, open entry institutions  Research and advanced study is heavily cross-subsidised by large level 100 courses with high drop-out and failure rates  Need to recognise that moving from open entry and improving completion rates fundamentally challenges the way New Zealand universities are organised  Herein lies a central challenge, not for government, but for us