It can be found deep in the 2026 Budget papers. A transfer of $200k from the funding of international PhD enrolments to help pay for a review of tertiary education funding. A small amount in the scheme of things. But very important.
And now, an election is looming. Government is too busy to do much governing and ministers too busy to do much ministering. The Labour party has promised that, if it leads the next government, it will review funding. So, National and Labour may argue about which side has the least bad election promise on student loan debt[1]. But there is one thing they agree on in tertiary education: it’s time for a funding review.
They are right. There are opportunities to improve the design of the system. To provide more coherence and to target funding better. There are lessons from other countries. Opportunities to improve the allocation of funding.
The scope and the goals of the current review will have been shaped by ministers’ priorities and by advice from the agencies. But we don’t know the precise scope: Will it cover funding for students – meaning loans and allowances? Funding for research, for foundation education? What about VET, as opposed to higher education?
My assumption is that the primary focus of this review (like that of Labour’s proposed review, should the government change) is the policy settings for the funding for teaching and learning.
In this post, I plan to look at what we should expect of a comprehensive review of tertiary funding for teaching and learning, what questions it might address, what traps it must avoid. I look at teaching and learning in tertiary certificates and diplomas at Level 3 and above[2] at workplace-based VET[3], at VET based in tertiary education organisations (TEOs) – technical and trades VET and also professional vocational qualifications (like those in the health professions, law, teaching, …). I look at funding settings for degrees, for postgraduate qualifications.
I aim to provide a checklist against which we can assess the scope, the findings and the changes that come out of this review.
The funding of tertiary teaching and learning
Funding sets incentives
Funding is important because it sets incentives. TEOs – and the individuals that manage them – respond to those incentives. Learners can also respond to the incentives that the system creates, to changes that TEOs make in response to funding. That means the funding system steers system behaviour. So, funding can drive system performance – for better or worse.
We need to get the teaching and learning funding right, aligned to the enduring goals of the system, aligned to the costs that TEOs face in their management and delivery of qualifications. Getting the incentives wrong will create perverse outcomes.
And we need a funding system that delivers stability; the changes government makes need to be enduring, robust enough for TEOs and learners to plan with confidence.
Some high-level principles to underpin design
Funding needs to mesh well with other system levers
Because funding drives behaviours, it needs to reinforce the other levers government has for managing the system:
- the system planning and steering approach – investment planning
- the quality assurance system, which ensures that what is delivered is fit for purpose and which incentivises continual performance improvement in providers
- the student support system which gives almost universal access to loan finance for fees, guaranteeing liquidity and thus, the affordability of tertiary education fees for most domestic students.
Does the funding system fit with these levers, reinforcing them – and conversely, do they fit with the funding approach? It’s a moot point; I will come back to the tensions between the planning/investment system and funding further on in the discussion.
Sharing the cost
The funding system needs to recognise that the benefits of higher education are shared between the society at large and the individual[4].
- Tertiary education also generates the technical skills that societies need so it lowers the price that the society pays for those services. And tertiary education is also associated with social benefits like greater civic engagement and better health.
- There are also private benefits in the form of higher earnings. There are also non-market private benefits (like greater life satisfaction and better health). There is a private benefit from higher levels of education in all types of economies.
As a result, government’s tertiary education spending (higher education and VET spending especially) is regressive, transferring benefits to those who start from, and/or have the opportunity to achieve, a position of advantage. Regressiveness is inevitable. Regressiveness justifies a student contribution to costs.
There is no “right” split of the cost between student and government – the split in benefits differs between levels of study, between fields of study, between TEOs’ fee levels and it will vary according to conditions in the labour market. As well, the matter is complicated by the loan scheme; loans ensure that students have the liquidity to meet the cost of fees but, in addition, the high level of subsidy in the current loan scheme settings means that a large share of the government’s contribution to the cost of tertiary education is delivered via loans.
What matters for cost sharing is the principle; students should pay a share, reflecting the benefit they receive, and the government should ensure that loans are available and affordable to remove liquidity constraints that could stifle access.
A comprehensive review of funding will need to address the question of whether the current split is about right or too heavily loaded in favour of students/government. It needs also to address how the costs of workplace-based learning (WBL) are split; in WBL, there are three partners – learners, employers and government – and where the issue is complicated by the learner’s role as a worker for the employer.
Funding for capital – respecting the autonomy of TEOs
Currently, TEOs are responsible for financing their own capital development, through use of accumulated reserves, endowments or borrowing. Having the power to control capital spending – to choose where to invest, how much to invest and the timing of investments – is a prerequisite for institutional operational autonomy. And that requires that the funding system enables well-managed institutions to generate reasonable surpluses that create the opportunity to invest and to service debt. Capital funds managed by governments compromise autonomy, lead to lobbying contests and risk perverse prioritisation.
There may be occasions where there is a national case for a major new development – for instance, a national need for a wholly new and very expensive area of study or research that the nation wants and that needs a major capital injection, beyond what any public institution could be reasonably expected to borrow for. And there may be a case for a capital injection if an institution is hit by a disaster. Those are likely the only circumstances that can justify a government decision to make a capital injection in an institution.
Funding transparency
Because funding creates incentives and drives TEO behaviour, it is axiomatic that funding decisions should be transparent, equitable and evidence-driven. As far as is possible, the system should rely on measures. Facts; it should avoid basing funding decisions on judgement. Using judgement, even experts’ assessments, industry claims, political priorities … as a means of allocating funding is fraught with difficulty. Politicians, industry leaders, even experts – they all have biases, they get things wrong. What is one expert’s high priority is another’s nice-to-have. Using experts is likely to result in lobbying contests.
Funding for teaching and learning needs to be formula-driven, with a formula that takes account of volume of delivery and cost of delivery. This is something I discuss in more detail below.
Competition vs collaboration
Because funding creates incentives and drives TEO behaviour, it can generate – or stifle – competition and collaboration.
The absence of any competitive edge in the funding system in the 1970s and 1980s was corrosive, leading to complacency in institutions, terribly poor service to students, homogeneity of institutions and a lack of incentives to improve. We need a level of competition between TEOs and between different slices of the system.
But a funding system that drives competition too hard – such as occurred in the latter half of the 1990s – will also be negative, leading to trade-offs between volume and quality, and encouraging TEOs to contest only the largest market segments.
That means that the funding design needs to enable, facilitate and encourage institutions to work in collaboration where it makes sense, while also maintaining a competitive edge.
Tertiary education’s role in the community
Tertiary education institutions are repositories of knowledge and expertise. They are autonomous, they are guaranteed academic freedom and the right to “… question and test received wisdom, to put forward new ideas, and to state controversial or unpopular opinions”[5]. That means that they are community assets, able to contribute that expertise to the community through technology transfer, advice and comment. While it needn’t be part of a funding formula, the government needs to ensure that institutions have space in their funding to exercise that role.
What the review needs to do
Funding focused on the enduring goals of tertiary education…
A tertiary education system exists to build human capital and social capital, to create the capacity for innovation, to enhance and develop the culture of a society and to critique, disseminate and preserve the culture. To provide individuals with skills – technical, vocational, social, emotional and cognitive – and the knowledge that enable them to function in society, in its economic, social and cultural life. To provide the society, including (but not only) the labour market, with the skills and knowledge that we all need for our society to prosper.
As society becomes more complex, as it addresses the challenges we face, we need the tertiary education system to be accessible and equitable. It needs to enable diversity of participants.
Those are the enduring goals of a higher education system.
The funding system needs to protect and enhance those goals.
… but avoiding ever-present traps …
The word “incentive” creates expectations – how will the system be incentivised to serve the economy and society? Here, there is a caveat. And a risk. We want the system to provide skills and knowledge, including those needed in the labour market. Tertiary education plays a critical role in building a healthy labour market and, thus, a healthy society. But, beware…
So often, governments and industry leaders lament the misalignment between what the tertiary system delivers and what the labour market needs, arguing that the system should be retuned, rebalanced and realigned so that it is poised to fill skill gaps. Strategic reviews of tertiary education systems seem often to focus on how to get the system to deliver more of what society needs, less of what is nice to have[6].
But alignment is a complex, multi-dimensional problem. Many attempts to deal with shortages by trying to shift enrolment preferences have failed because of inadequate problem analysis. Every mismatch issue involves a unique set of causes involving some, or all of, emigration, immigration, the number and quality of tertiary education graduates and a range of demand-side factors – such as remuneration levels, conditions of employment, reputational issues[7], the current workforce demography, …. Solutions are certainly possible and the tertiary system will always have an important role in finding solutions. But loading the tertiary funding and/or regulatory systems with responsibility for correcting labour market imbalances is fraught with risk.
In no way do I want to understate the importance of skill matching. Providing an adequate supply of trained, skilled tradespeople, health professionals, teachers, engineers …. It’s a key part of what the system does. It’s especially important in areas where there is occupational regulation, where having a particular qualification is part of gaining a licence to practise, as an electrician, as a gas fitter, as a nurse, or teacher, doctor or lawyer. Rather, what I am suggesting is that matching is an issue with many components; the training system has a part to play but it needs to do so alongside industry groups, regional interests, unions and immigration officials. But the tertiary sector is only one player in a multifaceted solution.
An example of that sort of multi-dimensional approach was the successful E2E Engineering project, 2014/18, coordinated by the TEC involving the engineering profession and tertiary education institutions[8].
For an example of how not to do skill matching, we need look no further than Australia. The naïve Jobs Ready Graduates (JRG) changes of 2021 – an attempt to use fee settings to shift enrolment preferences towards qualifications that lead to needed occupations – was an abject failure. JRG reduced fees dramatically for nursing, teaching and engineering qualifications and increased fees, equally dramatically, for social sciences, humanities, law and business. But the demand response was almost zero; research showed there was almost no shift in fields of study[9]. It generated equity problems without doing anything to address skill shortages; many graduates received their education with virtually no government subsidy, while others – those with well-paid careers ahead of them – were subsidised to an excessive degree. Perversely, JRG provided an inducement to universities to overenrol in fields like arts (because fees became so high). JRG is almost universally acknowledged to be a mess as well as a failure. But the logical remedy needs much more political courage than subsequent ministers appear to have[10], so Australians are saddled with it pro tem.
… meaning retaining we need a system that is demand led …
That suggests that whatever happens, this funding review needs to accept that one of the important architectural features of our system is that it is, and should continue to be, demand-led, responsive to student choice. The funding system should try to respond to, not try to shape, student preferences.
Research[11] shows that the formation of preferences in young people is complex, occurring over a long period and subject to multiple influences. Australian data[12] suggests that, at the end of that process, in selecting what to study, school leavers take account of what interests them and their career prospects. Those who study what interests them, what they are good at, what they see as valuable – that combination is likely to predict success.
Analysing the data[13], Australian higher education researcher Andrew Norton asks 18 year-olds or politicians: who makes the better course choices?, and concludes that political leaders’ advocacy (for instance, the ever-present evangelism for STEM subjects) is usually misguided and can lead to perverse outcomes.
The closest New Zealand has come to a move away from demand-led funding was the introduction, in 2023, of the strategic component of the VET funding system, where additional funding was to be granted to TEOs that provided VET in certain fields in order that they “respond to national and regional skills priorities” identified by Workforce Development Councils (WDCs). What counted as a “response” or a “priority” was unspecified (although some of the fund was reserved for qualification development and enhancement, a task that any responsible and half-competent TEO or WDC would be expected to do anyway, as a matter of course, with or without additional funding). What the strategic component meant in practice was that VET in favoured fields was funded higher than VET in non-favoured fields. And that TEOs in favoured fields were given extra funding to do the job they ought to have been doing all along. So TEOs in non-favoured fields were expected to do exactly the same set of tasks with less funding.
It is simply implausible that this bonus funding would have led to additional take up of those fields by learners – learners don’t make career choices based on how much money a provider receives[14]. So, logically, this funding could not have anticipated addressing skill shortages. TEOs in the favoured fields had the scope to lift quality, creating an edge over industries that were less skilled at arguing their case. The system set up a high-stakes lobbying contest.
The strategic component system didn’t last long enough for us to assess the longer-term impacts – on quality of provision, on industrial development – of the strategic component. But (given it was funded as a reallocation of funding, rather than an injection of additional funding) it’s hard not to conclude that, had the strategic component become embedded, the most likely outcome would have been erosion of quality and capability in TEOs that were non-favoured. It wasn’t zero-sum; average quality would have fallen.
Simply put, the strategic component was just shoddy policy, politics dressed up as policy.
Investing or funding? The duration of funding decisions
At present, funding decisions are annual. The TEC gives each funded TEO a commitment as to the following year’s funding, with an indicative funding track for outyears. But there is a reconciliation of funding against the enrolments achieved. This can lead to the indicative allocation being changed and the recovery of overfunding. That is entirely consistent with the TEC’s role as custodian of the government’s resources[15].
When the planning system was simplified in 2006/07, ministers bought the rhetoric of “investment” but weren’t prepared to adopt the practice, retaining, instead, the practices of “funding”. Investors take a long-term view, recognising that innovation takes time. Funders take a transactional view, providing resources for specified tasks over a specified timeframe – like a contract. Investors live with a level of uncertainty; funders minimise risk. The terminology of investment is just that – terminology.
But the effect of the current processes is that TEOs are incentivised take a short-term, risk averse approach, minimising the risk of penalties. It limits TEOs’ confidence to innovate, to invest and to sustain delivery capacity and capability while they build markets.
There have been calls for government to enable the TEC to trial a true investment approach to its funding, for instance, providing a multi-year guarantee of funding to TEOs with a good record of performance, performance beyond meeting just enrolment and financial targets, but including evidence of (for instance) outcomes for learners (and especially for priority learner groups); employer and learner satisfaction; responsiveness to workforce and industry needs; educational innovation; collaboration with employers and industry bodies; and, in the case of universities, research that contributes to national or regional priorities[16].
That would represent a major step for the government. Possibly, also, a risk. But it would be useful for the review to commission a trial with a number of high performing TEOs to establish the trade-offs, benefits and risks of such an approach and to explore the types of conditions and evidence that might qualify a TEO for investment-based funding.
Funding for sustainability. Funding and cost
We need a funding system that ensures the sustainability of the system and of well-managed TEOs. Sustainability means that TEOs have the ability to generate financial surpluses at a level that enables them to maintain and invest in their assets, to improve their systems, services and facilities – to enhance their quality. Breakeven leads to erosion of quality. Losses mean a choice between closure and bailouts.
But sustainability means that institutions shouldn’t be able to make excessive surpluses – if institutions can readily generate very high surpluses, then that means that funders (government and students) are paying more than they should. Resourcing needs to be at a level that obliges institutional managers to manage well and prudently, but that allows the sort of surpluses that are needed for maintenance and enhancement of assets.
Redesigning funding relies on understanding costs
If funding is to underpin sustainability and if TEOs are to be able to respond to student preferences in a demand-led funding system, then tuition revenue (and hence, funding) needs to bear a relationship to cost of delivery. Funding for sustainability implies an understanding of the drivers of costs.
Most tuition funding at present is volume driven with differentials by field of education. But it’s not clear that field of study, by itself, is the sole (or even the most important) driver of costs.
Recent Australian research (by Croucher and Rahimi)[17] set out to identify factors associated with cost of delivery. The researchers analysed cost and delivery data on nearly 190,000 units of study (what we would call “courses”) in 12 Australian universities that cover more than half the EFTS in the Australian university system. They grouped the courses into eight broad groups according to cost of delivery per EFTS. They found that higher average cost per student was often associated with factors like small class-size and labour-intensive postgraduate teaching while lower costs arise with scale-based online delivery models. Field of education and delivery mode were found to play a contextual role in differentiating the cost classes. In other words, certain fields are more likely to use high-cost delivery approaches than other fields. But it is not the field, itself, that drives the cost; rather, it is the delivery approach. What we think of as a low-cost field may well include very high-cost courses, while a high-cost field will include some low-cost courses.
That research calls into question the notion that field of education is the primary driver of unit cost and hence that differentials in funding rates should be primarily driven by field[18]. It suggests that differentials need to take account of a wider range of factors: scale of delivery, mode of delivery, possibly even institutional context, as well as field of education.
- On scale: There are serious economies of scale in tertiary education – there are very high fixed costs but, in most cases, relatively low marginal costs. Yet the current funding formula takes no account of enrolment scale. The new Australian research suggests there is a case for recognition in the funding system for providers serving small populations, for types of education that command only small numbers of students, for TEOs whose specialties mean they cater for very small market segments. In the late 1990s there was a small base grant component in the NZ tertiary education funding model that was a token recognition of the challenges faced by smaller TEOs – but this was removed from 2000[19].
- On mode of delivery: Some modes of delivery are inherently costly – for instance, those involving equipment which imposes limits on numbers. Or supervised work-integrated learning. Others – such as online delivery – may have high set-up costs but are highly scalable thus, can drive economies. Taking no account of delivery mode can incentivise providers to select lower cost delivery modes and to avoid higher cost models with less regard for the quality or value.
- On the characteristics of students: Students who are at risk of attrition or failure impose additional costs on teaching. If there is no allowance in the funding model for student characteristics, that suggests the model has implicitly assumed that the additional costs of teaching those at risk are balanced by “savings” on those who are “easier” (ie, less costly) to teach.
The current funding model for non-degree tertiary education (DQ3-7) recognises student characteristics and delivery mode alongside volume and a loading for field of education (but not scale). That gets close to squaring with the factors identified by Croucher and Rahimi in their recent paper. But the higher education model (DQ7+) recognises only volume and field of education.
The new review of the funding model needs to take better account of cost drivers – possibly using the current DQ3-7 model as a starting point. But the redesign needs to ensure that the model takes due account of the overlap between factors that are correlated (for instance, mode of delivery and field of education) lest it create double jeopardy for some TEOs, double rewards for others[20].
And it needs to recognise that creating a new formula creates new incentives. It needs to balance simplicity and complexity in the allocation formula. It Complexity risks TEOs targeting measures that maximise funding, rather than lifting performance.
Funding of teaching, funding of learning
Typically, the teaching and learning funding system funds delivery of education. In practice, that is funding for the primary activity – teaching. Learning – students’ acquisition of skills and knowledge – is a consequential activity. We fund learning mostly on the assumption that when teaching occurs, learning follows. But that isn’t a perfect assumption – some TEOs add greater value than others, but that difference is usually invisible.
We have flirted with recognising learning explicitly in the funding formula in the past. Between 2012 and 2018, 5 percent of teaching and learning funding was “at risk”, performance linked, subject to measures like course completion and qualification completion etc. In effect, this was an attempt to moderate the funding for teaching by an explicit measurement of how much learning had occurred. This approach was abandoned by the government in 2018.
The main flaw in the performance-linked funding approach used in the past was that there were no controls for the type of student; TEOs that attracted older students or students from educationally disadvantaged backgrounds were likely to score less well on the measures that drove the performance-linked funding. Because performance-linked funding worked as a “fine” for low performance (rather than a bonus for good performance) and because the threshold for fining was very high, few TEOs were fined – though it was painful and humiliating for those that were. (One institution publicly declared an intention to reduce part-time and distance delivery in response to having been fined – an utterly perverse outcome, given the likely effects on access).
While it may have been possible to apply statistical controls for some younger learners (those who had taken NCEA in the three or four years before entering tertiary study[21]), there are no variables that would allow robust controls for learners who are older or who have non-standard backgrounds. The decision to abandon performance-linked funding was a good one and its demise appears to have been quietly welcomed.
However, interestingly, there has recently been a proposal (in a white paper from the Skills Group[22] and also in the Green Party’s current election policy) to reintroduce performance-linked funding for apprenticeships, paid as a bonus to the Apprenticeship Boost funding.
I am not convinced – the experience of performance-linked funding makes me cautious…. But the review of the funding system will need to consider this proposal, as well as the broader question of funding learning.
Learning at work …
Workplace-based training
Much of the discussion above relates implicitly to provider-based teaching and learning. But it is also applicable to workplace-based learning (WBL). WBL, however, has different dynamics, in that the primary instructor is not an educational professional working in or for a TEO, but, rather, a skilled and experienced staffer in the firm that employs the trainee. The instructor and the learner are supported by itinerant advisors employed by the TEO that signs the training agreement, and that arranges and manages the training.
The WBL system has a number of distinctive features relating to the funding system:
Employer costs
First, research[23] in both New Zealand and Australia shows that firms bear two types of costs in taking on trainees:
- Paying wages to trainees (who are relatively non-productive as employees in the early years of their training)[24]
- Reduced productivity due to giving some of the most skilled workers training, mentoring and supervisory roles, rather than from pure production roles.
One effect of that is to disincentivise smaller employers from taking on trainees, encouraging them instead to recruit qualified staff who have gained their certification through larger employers – the problem of “poaching”[25].
The funding system currently recognises those employer costs only through the Apprenticeship Boost system, which has succeeded in lifting the take-up of apprentices by employers but which targets only some types of trainees and only some industries. In Australia, there are similar government subsidies for employers to take on apprentices, recognising the costs of training to businesses.
Analysis by the Apprenticeship Employer Network Victoria suggests that the return on investment to employers from taking on an apprentice is positive from the third year of a four-year apprenticeship – even discounting the government subsidy[26]. However, some NZ firms, even in industries favoured by the Apprenticeship Boost choose to hire qualified staff, in preference to hiring apprentices or trainees. In effect, some small firms rely on the large leading firms supply most or all of the training in the industry and the Apprenticeship Boost may have only partially addressed this issue.
The funding review should investigate if the Apprenticeship Boost or a similar subsidy is actually needed, and if so, at what level. It should look at whether other forms of WBL – not simply apprenticeships – should be included. It should question whether it makes sense to restrict the subsidy to just some favoured industries (as in the current Apprenticeship Boost funding) – rather than, as in Australia, providing the subsidy to all apprenticeship agreements.
Finally, to address the problem of poaching, it should consider whether there is a case for an industry training levy of employers with discounts or credits for employers who are active in training or workforce development[27]
Itinerant training advisors – is the training advisor scheme resourced adequately?
Second, the evidence[28] shows that the itinerant advisor system has often been seriously deficient, with some training arrangements allowing for no more than four visits to trainees on the job per year, where some trainees are left to cope with online distance delivery for the theoretical side of their learning even if they face literacy or numeracy challenges, where some training advisors are not able to provide pastoral support to trainees.
It’s not clear how much the weakness of the itinerant advisor approach is down to TEO performance or to funding. It is possible that this problem may have its origins in the effective monopoly held by industry training organisations on arranging and managing training that applied before the VET reforms that began in 2019 and ran through to 2025 – in which case, the principal driver of the problem was TEO performance. Or it may be that the training advice under-resourced[29]. Has greater contestability in training arranging addressed this problem? That is a matter for investigation on the review. If not, there is a case for greater funding, perhaps funded through learner fees – which could be borrowed through the loan scheme[30].
Living cost support for WBL
The recent Skills Group White paper[31] proposed that apprentices should be eligible for student allowances and the living cost component of student loans. That’s an original and interesting idea
But think about it …. currently, the training wage pays more than $750 for a 40-hour week while a student allowance is abated, dollar for dollar, when a recipient’s weekly wage gets to $285. Meaning if an apprentice earning the minimum wage was entitled to apply for a student allowance, the allowance would be abated to zero. Meaning that, in practice, the Skills Group’s idea is not that apprentices should be entitled to student allowances but, rather, that they should be entitled to borrow living costs through the loan scheme (which would, in effect, lift the training wage to 15% above the minimum wage, but with an obligation to repay an interest-free loan of up to nearly $70k[32]). An original, interesting, but possibly not entirely serious, suggestion. Or is this a subtle way of proposing a shift of support for apprentices from employers to the government?
The Green Party election policy takes the reverse position. Their plan is to abandon the training wage, meaning presumably, that they believe apprentices should be paid the minimum wage or more (and they plan to pay a tools and equipment grant to apprentices (an idea borrowed from the 2013/14 Apprenticeship Reboot scheme).
Neither the Greens and the Skills Group acknowledge the fact that many employers pay apprentices above the training wage, especially because the evidence suggests that, as apprentices progress through training, they contribute to (rather than act as a drag on) the employer’s bottom line[33]. That suggests that a move to shift the living costs of apprentices from employers to government is unlikely to be warmly received, whichever party leads the government in 2027.
Work-integrated learning
Work-integrated learning (WIL) has always underpinned provider-based vocational qualifications (especially in professional areas such as teaching and the medical professions). Evidence[34] on the effectiveness of WIL as a complement to theoretical learning has seen its take-up spread beyond vocational qualifications and into general (ie non-TVET) tertiary qualifications (such as science, IT and business[35]), from certificate level up to postgraduate qualifications.
But effective, high-quality WIL carries extra cost. The placement needs to be built on specific educational input from the provider as well as from the workplace mentor. And assessment of WIL students’ performance is a particular challenge. Because each student is likely to have a different work placement and performs a different set of tasks in a different context, it is all but impossible to achieve the kind of economies of scale that exist for on-campus learners. This means that some providers will avoid WIL because of the fact that the cost is very much higher[36], (perhaps reverting instead to compliance-based work experience placements).
The problem faced by institutions in developing and managing high-quality WIL is that, except in a few areas, the resourcing system fails to recognise this additional cost, thus creating incentives on institutions to opt for less costly approaches to teaching and assessment (potentially compromising quality), despite the acknowledged value of WIL. Alternatively, providers may be forced to reduce the rigour (and hence, the quality) of WIL delivery and (especially) assessment – in effect, replacing WIL with work experience – ie, job placements but without the deliberate structured learning and assessment that characterises WIL.
This suggests that the funding review should treat WIL as a one of the modes of delivery.
Payment for interns
In some professional areas where WIL is mandatory – teaching, nursing – student advocates have argued that learners on internships should receive some form of stipend. Interns are mostly eligible for a living allowance through the student loan scheme (or via student allowances). At present, the only additional government support for interns or other WIL placements is for medical students whose sixth year is a trainee internship year – which involves a number of extended placements, often with an overseas placement.
Students in other professional qualifications – nursing, for instance – have complained that they too deserve additional income support during placements. Most famously, during the 1987 election campaign, the Prime Minister was confronted by angry teacher trainees complaining that they were obliged to wear smart clothes when undertaking placements and that this was unaffordable within the limits of the student allowances scheme[37]. More recently, as WIL has gained momentum, these complaints have received media attention. Advocates argue that students whose programme involves multiple extended placements have to meet additional costs – potentially travel costs and/or temporary relocation costs, sometimes additional equipment or clothing costs – to undertake their internships. They argue that the level of living cost support from student loans and allowances is insufficient to meet those extra costs and that the student financial support system should recognise those extra costs.
The Greens policy addresses this question, proposing a $380/week payment for those on placement (presumably in addition to the living cost support from the loans and allowances schemes[38]
This issue is at the margins of the scope of this paper (which excludes the loans and allowances schemes). But a funding review that doesn’t acknowledge the issue will be missing an irritant that won’t go away any time soon, especially as WIL gains more prominence as a delivery mode.
Conclusion
A review of the system for funding teaching and learning in tertiary education is a good idea. Even the country’s two cornerstone political parties agree (even if they will likely differ as to their focus and the decisions they make).
The best way forward is for the agencies to take a principles-led approach to the review, ensuring we end up with a system that delivers on the enduring outcomes we expect from tertiary education, with a system that is demand-led, a system that ensures the sustainability of TEOs, that shares the cost of the system between students and government while maintaining access through providing students with liquidity to meet their share of the cost, that manages the tension between promoting collaboration between TEOs while ensuring that we keep a competitive edge, treats learning in the workplace appropriately, …
PS: here is the bibliography.
Endnotes
[1] My view on the two major parties’ student loan debt proposals is the topic of a forthcoming post. National wants to reduce the repayment obligation (from 12 c/$ to 10 c/$) while Labour’s policy is a 10% student loan write-off for graduates who remain in NZ
[2] So, this means I exclude foundation education – including Youth Guarantee, a matter which – I infer from the titles of reports received by the minister over the last few months – has been the subject of a separate review.
[3] VET is used in this paper to denote qualifications – either professional or technical or trades-related – that are designed to prepare people to work in a specific occupation or field. This includes qualifications in health, teaching, law, engineering, architecture, accounting, as well as trades-related VET related to industries like construction, infrastructure, energy, agriculture etc.
[4] There is a vast literature on this topic. For the purposes of this discussion, see Smyth (2019), Nikula and Morris Matthews (2018), Aziz et al (2012), OECD (2020)
[5] Education and Training Act 2020, s 267.
[6] The University Advisory Group of 2024/25 spoke of this but had no concrete proposals to address this yearning. The Tertiary Education Advisory Commission (TEAC) in 2001/2002 proposed the creation of the TEC for just that purpose, hoping that the TEC would exercise expert judgement in deciding what and how much to fund. Fortunately, wiser heads prevailed. Not to be deterred, the Australian Tertiary Education Accord followed precisely the same path as TEAC, leading to the creation of the Australian Tertiary Education Commission (ATEC), intended (among other things) to make strategic choices for the system. The new Australian higher education funding legislation has recently been enacted – with ATEC’s powers much more limited than originally envisaged.
[7] Who on earth would want to train to be a nurse or a teacher when we are constantly being told through the news media how dreadful and dangerous the working environment is?
[8] See the evaluation of this project in Vaughan (2018)
[9] Fees were reduced in fields like nursing and teaching plus IT, sciences etc and increased very greatly in fields like social sciences and business in an effort to discourage enrolments in those fields. Research (Yong Coelli and Kabátek (2023)), shows that there was little change in enrolment patterns, despite the severity of the fee changes. This is attributable in part to the Australian income contingent student loan scheme means that fees don’t place a barrier to study; demand for higher education in Australia is very inelastic, as it is in NZ.
[10] Rectifying the problem in a logical way would involve large fee increases for fields like nursing – which would make terrible headlines! Recognising the awful politics involved, commentators have suggested compromises that rectify the most egregious effects without harm to sacred cows – see this comment and this from Andrew Norton.
[11] Hofer, Zhivkovikj and Smyth (2020) reviews and assesses the literature on this topic
[12] See Kemp and Norton (2014) and Norton (2020)
[13] ibid
[14] Though, conceivably, it may have encouraged TEOs to recruit more trainees – something they were already being paid to do!
[15] Refer to the TEC’s 2026 Funding Conditions Catalogue and their 2027 Global Indicative Allocation Methodology
[16] See Mischewski and Smyth (2025)
[17] Croucher and Rahimi (2026)
[18] Detailed analyses of delivery costs (such as those conducted in New Zealand, Australia and the UK over the last 10-15 years) have reinforced the notion of field of education as the driver of cost, but that is because those studies used field as the unit of analysis; those three studies identify differences between fields but don’t look at what drives those differences.
[19] See Roberts and Peters (1999)
[20] The DQ3-7 model appears to manage this by grouping field of education and mode of delivery in the same component.
[21] Earle (2018) and Engler (2010) both show that NCEA predicts success in tertiary education.
[22] Skills Group (2026) The future of apprenticeships.
[23] See Jones (2023), Scarlatti (2025) and see the analysis in this seminar (view from 22 minutes to 28 minutes).
[24] Noting however, that apprentices can be paid the training wage, which is lower than the minimum wage (although most are paid above that base level)
[25] See Jones (2023), Herriman, Smyth, Mischewski (2025) and Mischewski and Smyth (2025)
[26] See the analysis in this seminar from 22 minutes to 28 minutes. See also Skills Group (2026) for returns to NZ, Australian, US and Canadian employers from taking on apprentices. See also Jones (2023) pp 21-23
[27] Mischewski and Smyth (2025)
[28] See Allen & Clarke (2020) and Herriman, Smyth and Mischewski (2025)
[29] Mischewski and Smyth (2025)
[30] Ibid
[31] Skills Group (2026)
[32] On current data, the training wage is $766 a week. Supplement that by the maximum student loan living cost borrowing ($333 a week) and you get a weekly income of $1,100 a week. Borrow that for 52 weeks a year for four years – you get a debt of nearly $70k – and that’s even without allowing for inflation which might adjust the training wage (or might not, if the ACT party were to get its way) but which would lead to higher borrowing entitlement..
[33] See this set of FAQs. See also Jones (2023) and the Apprenticeship Employer Network Victoria analysis referred to above.
[34] Jackson (2014), Coll et al (2009), Ferns et al (2014), Coll and Kalnins (2009), Orell (2004)
[35] The University of Waikato expects nearly all bachelors students to complete WIL. Victoria University also promotes WIL to students in all fields.
[36] See Jackson et al (2017), McNamara (2013), Patrick et al (2009)
[37] Note, there were no student loans in 1987. Mr Lange, unsympathetic, advised the protesting trainees to shop at Farmers, as he did (or, to be more exact, the then Mrs Lange did)!
[38] Note also that under current allowances settings, a $380/week additional income would see a student’s allowance reduced by ~$95 a week). But the living cost student loan entitlement would be unaffected.
