Some rough first thoughts on how much students subsidise research at Australian universities

Say you’re a university student. How much of the marginal cost of providing you with this university education is being covered by (a) your own contribution, deferred through HECS and (b) government payments to universities? The short answer is, we don’t really know.

Universities get about $15 billion of government money a year. This comes in various forms. Some of it comes from direct government grants (about 44% of operating revenue, according to the Commission of Audit), and some of it from student fees that have been deferred and so are paid by the government initially.

A lot of this is set aside for research. But not enough. When universities get research funding, whether from government or private sources, it is often not enough to cover the whole cost of research. Universities have to make up the difference somehow. There are special government funding programs to pay for the ‘indirect’ costs of research—the overheads that aren’t covered by specific grants—but universities sometimes have to look elsewhere for funding.

In a report for the Bradley Review of higher education funding, Thomas Barlow made a rough-and-ready estimate of the amount of research funding that was being paid for by cross-subsidisation from other university income sources (not just student fees) and came up with the following approximation: around 12% of all university revenue in 2006 was spent on research that was financed by ‘general university funds’, of which fees make up a substantial proportion.

I had a rough go at updating this figure for 2012, the latest year for which the ABS have released figures on research in universities. This requires a bit of judgement, since university funding arrangements have changed a bit since Barlow’s estimates, with the Systemic Infrastructure Initiative and the Institutional Grants Scheme wound down and the Sustainable Research Excellence in Universities and the Joint Research Engagement Program replacing them. Adding up all the programs which aim to provide money for the ‘indirect’ costs of research (laboratories, administrative staff, electricity: all the things the universities have to provide on top of the things that are paid for by research grants) and subtracting it from general university funds spent on research, and we find that about universities spent about $3.8 billion on research from the general funds (that is, funds that are not from government, donations or private commissions for the purposes of funding either the direct or indirect costs of research). That represents about 15% of universities’ operating revenue in 2012, up from the 12% Barlow calculated in 2006.

A substantial fraction of this $3.8 billion likely comes from fees, especially international student fees, but possibly some from domestic student fees as well.

This cross-subsidisation could be the result of perverse incentives in the system. With the demand-driven system put in place by the previous government, universities can enrol however many students they like. If each additional student is cross-subsidising research, and research excellence is the measure on which vice-chancellors are usually assessed, then each additional student provides a benefit to the university, since some of their fees are used to pay for research, and the cost of a degree might be more than the marginal cost of providing it. (Assuming there is no benefit to students of university research. Universities often claim that they have ‘research-led’ teaching, but to be honest, I’m sceptical.) Of course, governments pay for some of the sticker price of a degree, so there’s a sort of ‘counter-subsidy’: students subsidise deficient government funding, and governments subsidise students.

But when you hear that plumbers are subsidising future doctors by funding their education, remember that it’s not quite as simple as that.


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