1. 20 years in the life of a
small tertiary education
system
Attaining and sustaining mass tertiary education -
Lessons from the New Zealand experience
Roger Smyth
17 September 2012

2. This talk
New 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

3. This talk
In 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

4. Part 1
Attaining mass higher
education

5. 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

6. The first phase of reforms
A 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

7. Fees went up
Average fees for a BA at a university
$4,000
$3,000
Student Loan
Scheme introduced
$2,000
N
T
Z
$
e
n
o
u
f
t
i
$1,000
$0
1982 1984 1986 1988 1990 1992 1994 1996 1998 2000

8. Financed by loans
The expansion of the loan scheme
1.8 250
Fee Interest f ree Recession
stabilisation loans
1.6
1.4 200
Reduced
1.2 course costs
entitlement
Phasing in 150
1.0 of the loan
scheme
0.8
100
N
Z
n
o
b
$
s
l
i
w
B
0
e
o
0.6
s
)
(
r
0.4 50
0.2
0.0 0
1992 1994 1996 1998 2000 2002 2004 2006 2008 2010
Loan borrowings Borrowers

9. So did participation
Participation doubled 1985-1993
Average annual growth > 10%

10. And the cost to government
250 $2.0
$1.8
200 $1.6
$1.4
150 $1.2
$1.0
-N
Z
n
o
b
$
s
l
i
100 $0.8
S
E
T
F
0
)
(
$0.6
F
g
d
n
u
i
50 $0.4
$0.2
0 $0.0
1991 1993 1995 1997 1999 2001 2003 2005 2007 2009
Funded EFTS Unfunded EFTS Government funding

11. 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

12. Over-enrolment
Over-enrolment ….
Most demand in the core age group was being met
The wānanga were helping address low participation among
Māori

13. A new package
The 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

14. A new package
An 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

15. 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

16. 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

17. Part 2
Sustaining mass higher
education

18. 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

19. Research performance
Share of world indexed publications and citations by PBRF and CoREs
decided on….
New Zealand tertiary education institutions And implemented
0.5%
0.4%
0.3%
0.2%
0.1%
0.0%
-2
1
0
-1
5
8
9
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6
8
9
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7
8
9
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9
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9
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9
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2
9
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3
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4
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5
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6
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7
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8
9
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9
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1
0
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2
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3
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4
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6
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7
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1
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1
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4
8
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4
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5
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6
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2
Publications Citations
Source: Thomson Reuters

20. 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

21. 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

22. 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

23. 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

24. 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

25. We have seen …
Participation rates by age group
Attaining and sustaining?
15% 6%
Under 25 25 and over
5%
12%
4%
9%
P
P
n
e
n
e
c
c
3%
r
r
t
t
6%
2%
3%
1%
0% 0%
2005 2006 2007 2008 2009 2010 2011 2005 2006 2007 2008 2009 2010 2011
Certificates 1-3 Level 4-7 non degree Certificates 1-3 Level 4-7 non degree
Bachelors degrees Graduate/Postgraduate
Bachelors degrees Graduate/Postgraduate

26. The new priorities…
Fine-tuning within these settings ….
Youth transitions
Vocational/on job training
Reviewing research funding mechanisms

27. Questions
For more information, research and statistics
Visit www.educationcounts.govt.nz