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Govt confirms fee and course costs maxima system

Government confirms fee and course costs maxima system

The new maximum tuition fee and course costs system, announced as part of the Budget, has been largely confirmed following consideration of public submissions.

Tertiary providers will set their fees within these new rates; with the government anticipating fee rises to be around the level of inflation each year.

From 2004 the government is setting maximum limits on the tuition fees and course costs that students can be charged. The new system, that covers the years 2004-2006 after which time it will reviewed, replaces the annual fee freeze agreements the government has struck with tertiary providers over the last three years. Indicative rates were announced in the May Budget and have now been confirmed, with some changes, following consideration of the 59 submissions that were received.

Associate Education (Tertiary Education) Minister Steve Maharey said the new system gives students certainty about the fees they will pay over the next three years and provides greater flexibility to tertiary providers when they are setting their fees.

“The new fee and course costs maxima system establishes a sound middle ground between the uncontrolled fee-setting environment students experienced during the 1990s and a centralised fee-setting system which would give tertiary providers no flexibility to control a significant portion of their annual revenue.

“As required by changes made to tertiary education legislation last year, the indicative fee and course costs limits announced at Budget time were gazetted for public comment. A number of improvements have been made following consideration of the 59 submissions received.

“The changes made are: the fee and course costs maxima for subjects such as engineering, agriculture architecture, audiology and specialist large animal science has been reduced by $300; providers whose tuition and course costs fees are below the maxima will not be able to increase fees by more than 5 percent in any given year. This will provide students, who enrol in a multi-year programme, with a reasonable level of certainty about future fees. Exemption circumstances provisions will apply; . . / 2 courses above the fee and course costs maxima have been frozen in 2004 to enable a long term funding solution for these courses to be worked out. This provision mirrors the exemption for 2004 granted to Private Training Establishments that was announced as part of Budget 2003; postgraduate tuition and course costs fees will continue to be exempt from the maxima, however the amount providers are able to lift these fees in any given year has been decreased from $1000 to $500. Professional masters degrees, such as MBAs, will be exempt from the maxima, as will community education courses.

“The government anticipates that tertiary providers will keep any fee increases to around the rate of inflation next year. We have provided a 3% increase in tuition subsidies for 2004 – this is 1.2% above inflation estimates and builds on the annual funding increases tertiary providers have enjoyed since the change of government in 1999.

“Over the next four years additional targeted funding, over and above resources provided for usual teaching and research activities, will also be available to the tertiary education sector, including: more than $86 million to invest in areas such as e-learning, capability development and regional development projects by polytechnics; access to around $90 million of new funding going in research, science and technology over the next four years; and matching capital funding for partnerships projects through the Partnerships for Excellence scheme.

“The New Zealand government now spends more of our national income on tertiary education than most OECD nations.

“The final design of the fee and course costs maxima system draws heavily on the report of the Fee Maxima Reference Group, which included students, tertiary providers and staff union representatives. I want to thank the tertiary education sector for working cooperatively on the design of the new system,” Steve Maharey said.

Contact: Michael Gibbs, Press Secretary, (04) 471 9154 or (021) 270 9115, e-mail: michael.gibbs@parliament.govt.nz, www.beehive.govt.nz/maharey.

John Scott, Senior Policy Analyst, Ministry of Education, (04) 463 8706, e-mail: john.scott@minedu.govt.nz, www.minedu.govt.nz/step

Attached: Frequently Asked Questions and Answers

What are the fee and course costs maxima?

The new fee and course costs maxima policy establishes a middle ground between an uncontrolled fee-setting environment (which would provide students with no certainty around future fee levels) and a centralised fee-setting system (in which providers would have no flexibility in terms of fee-setting). From 2004, fee and course costs maxima will replace the annual fee freeze agreements that have been struck over the last three years. The fee and course costs maxima are based on Student Component funding categories (which are set by the field of study of the course type), and will provide a ceiling beyond which fees and course costs cannot rise.

Why have the fee and course costs maxima been introduced?

Fee and course costs maxima are being introduced to maintain the affordability of tertiary education for all New Zealanders. They provide students with some certainty as to the future costs of tertiary education, whilst also giving some flexibility to providers in terms of their fee setting.

The development of the maxima has drawn heavily on the Fee Maxima Reference Group’s report. The report is available on-line at http://www.minedu.govt.nz/index.cfm?layout=document&documentid=8058&indexid=1200&indexparentid=1028.

This Reference Group included students, providers and staff union representatives. The reference group outlined some clear principles and criteria for the government to consider when making decisions regarding fee and course costs maxima.

Why have the maxima been changed since they were announced as a part of Budget 2003?

An indicative set of fee/course costs maxima were announced in May as a part of Budget Education 2003 and published in the New Zealand Gazette. Submissions were invited from interested stakeholders. These gazetted maxima were not intended to be the final policy as the consultation process was perceived as a vital stage in policy development. This process is required by law.

Although a small number of submitters had concerns with the fee/course costs maxima policy as a whole, the majority were supportive of the philosophy behind the policy, but had specific concerns relating to aspects of those announced in May. These concerns included: high costs of delivering specific courses of study; issues of equity; short courses; and definitional issues (what is included and what is excluded from the maxima).

A summary of the submissions received is available at www.minedu.govt.nz/STEP. The changes to the finalised maxima are intended to address these concerns.

What has changed about the maxima?

The fundamental change to the fee/course costs maxima has been to adopt a more liberal approach to the granting of exemptions, but to limit the potential for providers to lift their fees in any given year. Changes include: an annual fee movement limit has been introduced to the fee/course costs maxima so that a provider cannot increase the fee of a course by more than 5% in any year; all Student Component funded courses that are currently over the maxima will be exempt from the fee/course costs maxima in 2004. These courses will not be able to increase their fees during this time; the fee/course costs maxima will no longer apply to Community Education courses and programmes, nor will the annual fee movement limit. This will replace the short course maxima previously proposed; the maxima for Funding Categories C and H have been reduced to $5,200. This figure better reflects the range of course fees within these categories. No other maxima have been changed; and the limit on increases to post-graduate fees has been reduced from $1,000 to $500. Movement beyond this will be at the discretion of the Tertiary Education Commission. Associated with this decrease however, is the exclusion of professional masters from the maxima.

What will this mean for students?

The government is fulfilling its commitment to keep tertiary education affordable by creating a predictable environment where no student faces excessive fee increases.

The government anticipates that students’ fees will tend to increase slightly next year, by around the rate of inflation. The fee movement limit means that most courses (such as Bachelor of Arts, Bachelor of Commerce and Bachelor of Science) cannot increase by more than $200-$225 per year.

These provisions will be in effect for 2004, 2005 and 2006. Therefore, unlike in the 1990s, students will now have a high level of certainty about the fee levels throughout the duration of a three-year qualification such as a bachelors degree.

6. What funding has the government provided to allow providers to keep fee increases low?

Funding rates will increase by 3.0% next year (inflation is estimated to be 1.8%). This is on top of nearly 10% increases in funding in previous years. Total funding for tertiary education (excluding areas such as industry training and training opportunities) has increased by $645 million a year since the 1999/2000 year, an increase of 50% percent. This includes funding for increased enrolments. The New Zealand government now spends more of our national income on tertiary education than most OECD nations.

7. How does the fee and course costs maxima affect aviation fees?

The government has received information from the aviation industry and is currently considering the implications of that information for funding of aviation courses and how these will relate to the maxima. A decision will be made in mid-September.

8. What flexibility do providers have under this policy?

The maxima system allows providers much greater flexibility than was available under the previous ‘fee stabilisation’ approach, while still maintaining affordability for students.

Most tuition fees (along with course costs) are currently below the maxima that have been set. Providers will have broad freedom on the setting of such fees, with the proviso that they cannot increase them by too great an extent in any one year.

In practice, providers have always tended to be moderate in their fee-setting decisions. Throughout the 1990s institutions set fees to maintain their total tuition income in line with inflation on average. This resulted in large fee increases only because the government was repeatedly cutting its share of tuition funding over this time.

The effect of the fee movement limit is largely to give reassurance that this moderation will continue.

9. Why will exemptions to the fee/course costs maxima be granted?

Submissions received from providers during the submission process indicated the maxima have been set too low for a number of specialist courses that are particularly expensive to deliver. Providers requested that course exemptions be introduced for high cost programmes so that they can continue to offer low or no cost courses in other areas. Providers generally opposed requiring students who are currently paying low or no fees to subsidise students whose fees for high cost specialist courses currently exceed the maxima, but argue that without exemptions they will be forced to recover their costs by raising fees elsewhere. The same concern was raised in some students' association submissions.

For this reason the government will allow exemptions in 2004 for courses where the fees per EFTS are over the fee/course costs maxima. Providers will be permitted to maintain their fees for these courses at their current level, but not increase them.

10. Why has the Annual Fee Movement Level been introduced?

There are a number of courses that have fees that markedly lower than the maxima for their respective fee maxima category. A number of submissions expressed a concern that the fees for these courses could be increased significantly. Although many providers have indicated that they would not increase their fees to the maxima, the annual fee movement limit has been introduced to limit fee increases. The annual fee movement limit will act as a ceiling for individual courses’ possible fee movement.

The percentage limit for the annual fee movement limit for the years 2004-2006 will be 5%. It is considered that this will best combine student affordability and provider flexibility. Providers will have the flexibility to move their fees within the annual fee movement limit. This is in addition to the funding increases already announced in 2004, tuition subsidy funding will increase by 3%. All tertiary education institutions will, in 2004, have the ability to increase their tuition subsidy and fee income by more than the Consumer Price Index.

It is still anticipated that in most cases providers will limit their fee increases to around the rate of inflation on average.

11. Why have maxima when the annual fee limit movement limits fee increases?

Without the maxima the policy would be solely based on an annual fee movement limit, regardless of how a provider’s fees compare to those of other providers. This would tend to lock the sector into the fee relativities set in 1999.

The intention of the government’s policy is to create an environment where fees do not tend to rise by more than the rate of inflation. However, it is recognised that after three years of fee stabilisation, providers may need to rebalance their fee structure.

Providers may consider that some of their fees are now set too low, in relative terms. Therefore, providers are able to increase them by a little bit more than the rate of inflation in order to rebalance them. (The annual fee movement limit, however, ensures that this will be done at a measured pace over multiple years rather than in one large jump.)

Similarly, providers may consider that some of their fees may now be too high, in relative terms, and they may choose to increase these by less than rate of inflation, or else lower them.

12. Why are post-graduate fees being excluded from the maxima?

A difficulty in implementing fee/course costs maxima for post-graduate courses was the high current level of variability in such fee levels. This reflects the diversity of post-graduate courses, and makes the setting of one maximum, or one maximum per funding category particularly difficult.

Under the policy for post-graduate study providers will be able to maintain their fee income for all of their post-graduate programmes (thus maintaining providers’ incomes), and will be able to increase fees by up to $500 per EFTS. Providers will require special permission from the Tertiary Education Commission to increase their fees beyond this point, and it is anticipated that the number of fee increases above this amount will be small.

Providers argued through the Fee Maxima Reference Group that if post-graduate study was not included in the maxima, post-graduate fees would not rise significantly because of the competitive pressure amongst providers. Government will be monitoring post-graduate fee levels closely and the Ministry of Education and the Tertiary Education Commission will undertake a review of post-graduate fees in 2005. Professional masters will be excluded from the maxima.

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