Regional universities catering to disadvantaged students have hit out at the government’s decision to effectively end the demand-driven funding system in higher education, saying the policy unfairly targets those with a larger low socioeconomic cohort.

On Monday the federal government announced that it would cut $2.2bn from university funding through a two-year freeze in commonwealth grants funding.

The government blamed the cuts on ballooning higher education costs since the introduction of demand-driven funding in 2009, and the unwillingness of Labor, the Greens and the Nick Xenophon Team to pass the $2.8bn in funding cuts and fee rises from the 2017 budget.

The freeze in the CGS effectively ends the demand-driven university funding system by capping commonwealth contributions at 2017 levels until 2020, when the government intends to introduce a performance-based funding model.

“What we are seeking to do is ensure that all students, all young Australians, don’t face unreasonable levels of government debt in the future, that we do continue to bring the budget back into balance,” the education minister, Simon Birmingham, said on Tuesday.

But regional universities have criticised the decision, saying it will “freeze” participation rates for students from low socioeconomic backgrounds and regional areas.

The demand-driven funding system has been used by small and regional universities to drive growth through enrolments. Since 2010 the University of Southern Queensland has increased its offers by 65%. The University of Tasmania has grown by 130% in the same period.

The University of New England increased its student cohort by 11% since last year, including a 23% increase in the number of Indigenous students. But Annabelle Duncan, the vice-chancellor at UNE, said the funding freeze “makes it very hard to continue to grow”.

“Not only do we not get money for extra students but there is no indexation on the frozen amount, so in real terms we’re getting less funding for same number of students,” she said. “That’s going to make it very hard to increase participation rates for people from disadvantaged backgrounds.”

The government has pointed to fast-growing higher education spending to argue that universities are “awash with extra funding” and Birmingham said on Tuesday that the sector had spent $1.7bn on advertising.

But Duncan said lumping the entire sector together was “naive”.

“We don’t have extra money,” she said.

Similarly, Scott Bowman, the vice-chancellor of Central Queensland University, which has increased offers by nearly 35% and expanded its reach to 27 satellite campuses across regional Australia, said the government’s announcement had left the school “high and dry”.

“We’ve got spending growth factored in for the next four years because we’ve followed what the government has said about their commitment to demand-driven funding,” he said. “And then literally overnight they say, all those campuses, all those courses, you’re not actually going to get any income.

“We’re lucky in that we’re in a strong financial position and can look at cross-subsidising our enrolments [but] whether we can sustain all 27 delivery sites is all in question now.”

Andrew Norton, the higher education program director at the Grattan Institute, said the changes would hurt regional universities because they were more reliant on commonwealth grants than richer institutions.

“Typically they don’t have the same research funding and they don’t have as large a cohort of international students as somewhere like the University of Melbourne for example,” he said. “So for regional universities domestic undergraduate students is their big business, which means regional universities are more exposed to this than a lot of metros.”

In 2014 Norton co-authored a review of the demand-driven funding system, which found “no persuasive case for returning to the capped system” of university funding and recommended that the demand-driven system be “retained, expanded and improved”.

The review suggested that if the government wanted to rein in the ballooning cost of higher education, it should reduce commonwealth grant scheme payments per student “with a corresponding increase” in student contributions, measures broadly in line with what the government tried and failed to pass in the Senate.

“I think that on balance it would have been better for students to pay a little bit more each year and have a system that functions in their interests.”

He said the changes announced by the government would remove the “dynamism” from the sector.



“What we have at the moment is quite a competitive market where universities have to be on the lookout for what students want to do,” he said. “Now there’s not really going to be a powerful incentive to do interesting, innovative things.”