Has Australia fallen out of love with higher education?

Australia is on the verge of its biggest university expansion since the time of 1980s education minister John Dawkins. That is, if you believe his present-day successor, Jason Clare. In a July speech to launch the Australian Universities Accord’s interim report, Clare said the country must vastly increase the number of people obtaining post-school qualifications. “If we don’t, we won’t have the skills and the economic firepower that we need to make this country everything it can be in the years ahead,” he told the National Press Club.

Billed as a once-in-a-generation higher education review, the accord had found that almost every new job would soon require some sort of tertiary qualification. This meant that the number of Australians studying for government-subsidised degrees would need to roughly double by 2050.

Ruminating on the report the following day, La Trobe University vice-chancellor John Dewar said the sector had its work cut out. “Don’t underestimate the scale and the significance…of what this report...is telling us,” Dewar counselled delegates at a conference organised by higher education advisory firm HEDx. “Australia will need 900,000 more domestic university places if the skill needs of the economy are to be met. Metabolise that for a bit. Let that sink in.”

The challenges are daunting. Australian higher education funding is not equipped to accommodate a looming demographic bubble of school-leavers, let alone a massive scale-up. “Clearly, that influx of new students can’t be accommodated within a sector that’s already bursting at the seams,” Dewar observed. Meanwhile, the academic workforce faces a huge wave of retirements over the next few years as almost half of permanently employed academics are aged 55 or over.

But there is an even bigger challenge. As reviewers proclaim the need for ever more education, the people supposed to benefit most from this herculean effort – the students – seem to be losing interest.

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Take-up of master’s degrees by research has been in almost constant decline for the past two decades. Taught master’s enrolments have stagnated since about 2015, after more than doubling over the previous decade. A spike in master’s enrolments during the pandemic already seems to have subsided.

Much the same has happened at bachelor’s level, with domestic enrolments barely changing since about 2016. University admissions tend to run counter to economic cycles, flagging when jobs are plentiful and surging during labour market downturns. Australian National University policy analyst Andrew Norton believes something more enduring may have happened in the middle of the past decade, when a dip in the share of Year 12 students applying for university coincided with the “worst ever” employment outcomes for university graduates.

“At the margins, we’re seeing some drop-off in demand,” Norton told a higher education conference at UNSW Sydney. “And the courses where the demand is falling tend to be arts and business-related courses. At a guess, these are often courses done by people who aren’t quite sure exactly what they want to do. Maybe what we’re seeing here, with less confidence in the labour market for new graduates, [is] a bit of a decline in the school-leaver interest in universities.”

Perhaps most alarmingly, high school continuation rates have been falling since before the pandemic. The “apparent retention rate” – the proportion of students who start high school and reach Year 12 – fell by more than four percentage points between 2017 and 2022, after steadily climbing by about three times that margin over the previous two decades.

The decline accelerated amid Covid-19 lockdowns, with almost one in five students failing to complete their schooling in 2022. “The thing that keeps me up at night is that the percentage of young people finishing high school at the moment is going down,” Clare told the Australian Financial Review Higher Education Summit in Melbourne. “At a time when more and more jobs are going to require you to go to some type of tertiary education, we’re seeing a drop in the number of people finishing school.”

Of course, the Universities Accord is not happening in isolation. It is one of what Clare describes as “three big reviews”, with concurrent inquiries also under way into early education and schooling. “Each of these reports will individually be important, but it’s how they knit together that has the potential to change the lives of people who aren’t even born yet,” he told the Press Club.

The schooling review, which was due to report to education ministers in October, was framed to influence funding and policy negotiations between Canberra and the states and territories. The results may help to reinvigorate retention rates and reverse flagging outcomes at all levels of schooling, producing cohorts of school-leavers more suited to university. But to what avail, if university holds little appeal?

Campus resource: Why is recruitment and retention in the university sector more difficult than in other sectors?

Domestic higher education enrolments fell by 73,000, or 5.5 per cent, over the year to May 2022 and only recovered by 1.5 per cent over the following 12 months, according to the Australian Bureau of Statistics. There is little indication of a further rebound in demand in the coming year. In a sign of intensifying competition for a declining pool of potential recruits, most universities now offer early-entry schemes whereby students can secure undergraduate places well before completing their schooling – sometimes without requiring them to obtain tertiary admission scores.

It seems that would-be students – or, at least, increasing numbers of them – no longer buy the idea that higher education is the ticket to prosperity. But why not?

Many consider the product too expensive, for one thing. Graduate debt, a sleeper issue for most of the 30-plus years since Dawkins reintroduced university tuition fees, has exploded into people’s consciousness thanks to the combined impacts of rising fees – particularly for humanities degrees, whose cost more than doubled under the previous government’s Job-ready Graduates reforms – and generation-high inflation applied to outstanding student debt.

On 1 June, students’ repayment obligations rose by an almost unprecedented 7.1 per cent – the biggest annual hike since 1990 in proportional terms, and about double the previous record in absolute terms. And in a timing quirk of breathtaking unfairness, the mark-up was applied to students’ balances some 11 months earlier, ignoring the repayments made since then.

Accumulated student debt, once considered so insignificant that banks disregarded it when assessing loan applications, now hampers graduates’ ability to borrow for homes and cars. “Why should people study at university if it seems like they’ll be left behind when they graduate?” Clare was asked at the National Press Club.

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“Don’t create that impression in people’s minds, please!” Clare implored journalists. “I don’t want Aussies thinking that it’s not a good idea to go to uni.” The average annual income of university graduates is A$100,000 (£52,000), he explained, compared with A$73,000 for school graduates without tertiary qualifications. “That’s a big difference – 30 grand a year, every year of your working life. The average uni debt in Australia at the moment is A$24,000.”

The idea of a graduate salary premium has long been cited as an economic argument in favour of university study. But do Clare’s figures stack up? Not necessarily. The average outstanding debt is closer to A$26,500, according to the latest Australian Taxation Office data. And this average is calculated from every student who has incurred a debt since university fees were introduced by Dawkins in 1989. Those confronting present-day realities must borrow considerably more. An analysis by former Department of Education bureaucrat Mark Warburton found that students were now graduating with average debts of between A$50,000 and A$60,000 and would spend “a significant part of their working lives” repaying them – unlike when the scheme was introduced almost 35 years ago. 

But does it really matter if a degree generates a A$27,000 annual salary premium? Graduate salaries over the long term appear to be maintaining their value, according to annual surveys. The average earnings of new graduates rose by about 39 per cent between 2009 and 2022, putting them slightly ahead of the Reserve Bank of Australia’s inflation guidance rate of 36 per cent over that period.

Yet other data sources tell a different story. Statistician Tom Karmel, who long served as managing director of the National Centre for Vocational Education Research, analysed 2011 and 2021 census data and found that degrees had become tickets to employment but not necessarily prosperity.

His study found that significant numbers of well-credentialled people were languishing in low-paid jobs, often displacing those with lowly or no post-school qualifications. By 2021, about 2 per cent of labourers, machine operators and technicians had master’s degrees or PhDs, as did 3 per cent of sales staff and 6 per cent of clerical and administrative workers. Bachelor’s graduates were about four times as prevalent in all of these occupational groupings. The graduate salary premium still exists but “it’s becoming more uncertain”, Karmel said.

Meanwhile, a long-running University of Melbourne survey has uncovered widespread scepticism about the return from degrees. Asked about barriers that may prevent their counterparts from pursuing higher education, slightly over half of the respondents cited a belief that university qualifications “may not lead to a better job”.

Financial impediments also proved a major concern, with most respondents pointing to “expensive” tuition fees and a reluctance to take on student debt, while a significant minority highlighted living costs and inadequate income support. In a surprise finding, degree-educated people appeared more wary of the costs than people without a university education.

The survey results reveal paradoxical perceptions of university, with few graduates regretting their time there and many keen for more. Around half of respondents in their twenties, thirties and forties were either studying for degrees or planned to do so within the next decade, with some older people also envisaging a return to university. Bachelor’s graduates appeared particularly eager to go back and upgrade their qualifications. Yet many doubted the utility of university education for young adults from similar backgrounds.

Emma Dawson, executive director of public policy thinktank Per Capita, says young people are questioning not so much the cost of degrees as the value. “Students are graduating with high debt for courses that aren’t necessarily getting them the jobs they were promised. A degree isn’t worth what it used to be in terms of the job market. The job you used to get with a bachelor’s degree now needs a postgrad.”

The value proposition of university education is also a “hot topic of conversation” in the UK, Dawson notes. And in the US, while surveys by the Minneapolis-based Educational Credit Management Corporation found that high schoolers’ belief in the need for tertiary education had rebounded from a coronavirus lull, just 52 per cent of respondents were considering four-year undergraduate degrees, down from 66 per cent before the pandemic.

Dawson says some young Australians accept the need for a university education to land relatively menial jobs, such as receptionists or service team members. Others decide they are better off working in pubs or restaurants than amassing A$40,000 debts for degrees that earn them “not much more than minimum wage”.

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“You see a lot of entry-level positions that really don’t need bachelor’s degrees demanding them, as a way of weeding people out,” she says. “Employers…think: ‘This person’s completed a degree. They’re kind of literate; they know how to turn up every day; they can take the pressure of exams.’ That’s a way of assessing someone’s capacity for work. But the cost of that on the young person is actually quite unreasonable. We can’t put that responsibility on their shoulders alone. We have to take it as a society.”

She says governments need to fund more skills-focused training. In fact, this is already happening at both the federal and state level. Canberra says it has over-delivered on a 2022 promise to bankroll 180,000 free training places at public technical and further education (TAFE) colleges, subsidising over 215,000 enrolments so far. Meanwhile companies, particularly those specialising in information technology and cybersecurity, are developing their own in-house academies.

Such approaches might be more cost-effective, Dawson says, than doubling university enrolments. “What’s the better use of public funding? Is it to make more and more bachelor and postgraduate degrees available, or is it to fund skills-focused vocational education? My intuition would say it’s the latter in terms of the cost-benefit for individuals [and] also the societal return. But it’s about getting the mix right. It’s really important not to play one thing off against the other.”

John Baker, chief executive of learning technology company D2L, says the global appetite for higher education is increasing despite the “setback” of Covid-19. Since he started his company in 1999, global enrolments have ballooned from about 100 million to almost a quarter of a billion. Student numbers in his native Canada are also rising – a “pretty good trend line” that he credits to initiatives such as a C$250 million (£150 million) upskilling strategy and work-integrated learning schemes such as the Student Work Placement Programme, which help overcome students’ concerns about affordability and drive home the value of higher education to students and employers alike.

The need to boost staff’s skills, which used to feature within chief executives’ top 20 concerns only “if we were lucky”, is now a priority as low unemployment forces companies to recruit more unqualified employees. Ideally, bosses want to be able to promote from within rather than rely on increasingly hard-to-find outsiders. “It’s a way for them to drive better growth, better profitability,” Baker says. “These are metrics CEOs care about deeply.” Hence, they prefer to recruit graduates.

Baker says work-placement schemes at university create a “feedback loop” that reinforces the career benefits of degrees for students, while introducing employers to “talent and fresh ideas”. He credits the University of Waterloo’s co-op programme, which intersperses four-month paid placements with four-month study blocks, for not only paying his way through his degree but also providing the capital to start his company.

Another option is for universities to offer study blocks as “stackable” microcredentials, he says. “Instead of paying $20,000 or $40,000 for a programme, maybe you’re paying $500 or $1,000 for a course…that eventually you build into a full programme. With the employer paying some of that at the same time as you’re working, you’d be getting a master’s or upgrading your certificate in whatever field you might be working in. That seems to be another model to chip away at this affordability question.”

Iain Martin, vice-chancellor of Victoria’s Deakin University, says Australia has seen “huge growth” in “shorter-form postgraduate qualifications” whenever formal funding pathways were introduced. “When the funding goes away, the growth dies off,” Martin told the Australian Financial Review Higher Education Summit. “There is a real opportunity for us to meet need, but it needs to be designed and baked into the system, as opposed to little bits of ad hoc [provision] here and there.”

David Lloyd, vice-chancellor of the University of South Australia, says “inflexibility” in funding is holding the sector back. “We get measured and…funded to deliver three- and four-year [undergraduate] programmes and two-year postgraduate programmes, but the unit of attainment can be small,” he told the summit. “To drive…outcomes which are relevant to skills acquisition, lifelong knowledge and, ultimately, the bundling and stacking of things to become qualified individuals, we have to be able to unpick that.”

Baker agrees that innovation is critical as the world grapples with the “lost generation” left by Covid: “The pandemic was hard on a lot of students globally. Hundreds of millions of students…have fallen out of the education system [or] don’t meet the educational standards of times gone by. This is presenting a huge challenge. We’ve got to do a better job in [finding] ways to get these students engaged and inspired and back on the right path for success.”

Gigi Foster, an economics professor at UNSW Sydney, says the “post-Covid malaise” affects not only students but the entire workforce. “It’s hard to get people to get out of bed and…put in a good day’s work in almost anything because they’ve developed some bad habits. And they’ve been subjected to so much abuse and neglect by governments and bureaucracies over the last few years that they’re pretty battered.”

Foster says the sense of disengagement is particularly acute in universities, where bureaucratic “overreach” constrains research and teaching. While students are “shielded” from this because the system treats them as “customers”, they sense that course quality has deteriorated over the past few decades. This is exacerbated by ideological “capture” of university curricula “by vested interests that are not necessarily aligned with…what real science actually is about. If you want students who are really prepared for the labour force, that kind of ideological indoctrination isn’t really going to help, at least from a standpoint of productivity. And we do have a productivity slump in this country. That’s been going on for 10 or 15 years.”

Arts degrees in particular have long been satirised as of little occupational value. But Foster says things have changed since she joined academia in the 2000s, and particularly since her undergraduate days at Yale University in the 1990s. “You learned how to think critically and change intellectual paradigms, how to adopt different models for different problems, how to understand other people’s positions, how to think through really complex dynamic realities. Today, it tends to be more ideologically infused.”

Foster says it is up to employers to step into the breach and train people in skills specific to their workplaces. According to labour economics theory, the money companies spend on training people and raising their wages will be trumped by the “higher marginal product of labour” from staff who are now “more likely to stick around”, because their skills might not be so valued elsewhere.

But it is up to universities to teach general skills, such as critical thinking and problem-solving. Employers “have no incentive to finance” these because if they did so, their trained employees’ value to other employers would increase, making them liable to “walk right out the door” and take up another job. Universities have “lost sight of what we’re really all about in an aggregate sense”, Foster argues. “The big picture is crumbling as we focus on these…small potato causes that we get all excited about and then use our big brains to try to justify why we’re spending so much time on. That’s corrosive for the society as a whole.”

Students sense all this, Foster says. “If I were a would-be employee and wanted to build my skills, I’m not sure the university sector is the first place I’d be looking. I’d be looking at TAFE or further education – learn an actual hard skill, avoid the ideological indoctrination and then get a job. Even if it’s a low-level job…you’ll learn stuff that’s actually useful for building the Australia of tomorrow.”

Chris Ziguras, a professor in higher education at the University of Melbourne’s Graduate School of Education, agrees that TAFE makes sense for people interested in “manual” or “tactile” careers. “As societies get more technologically mediated or dehumanised in some ways, personal service professions [are] where there’s going to be labour market growth. You need a university education for careers in the health sector, but there might be others which [require] more vocational-type qualifications.”

Ziguras attributes the current drop in university participation to the Covid hangover, the buoyant labour market and high interest rates: “Lots of people with mortgages can’t afford postgraduate fees. When those short-term factors wash through, I’d expect the demand will go back up.”

But he is sceptical of the accord’s statement that participation must double by 2050. “We’re entering a dramatic era of automation…which is going to transform every profession. The number of people you need in different types of roles is going to change. Predicting the number of university graduates you need is a really difficult thing. I wouldn’t be making any forecast that far ahead.”

john.ross@timeshighereducation.com