The Funding of Higher Education: An Empirical Examination of the Cost of Education in Business Schools

In late 2020, Australian university funding was profoundly changed by the Higher Education Support Amendment (Job‐Ready Graduates and Supporting Regional and Remote Students) Act (hereafter ‘the Act’). The Act is based on separate funding of education and research and relies heavily on estimates of education costs that are controversial. The Act increased tuition fees for domestic business students by 30%. Using an empirical archival approach, this study examines three questions: (1) What are the costs of providing tertiary education to business students? (2) Does research intensity impact the costs of education? (3) Is there evidence consistent with a cross‐subsidy from education to non‐teaching activities, including research? Unfortunately, sufficiently granular data for Australia are not publicly available, so we use data from business schools in US public universities as a proxy. The sample is partitioned between institutions professing a primary focus on either education or research. Results reveal that undergraduate degrees cost, on average, around AUD3,000 per annum per full‐time student when regressed on university operating budgeted dollars, holding other factors constant; much lower than Australia's increased business tuition fee under the Act. Significant differences for undergraduate, master, and doctoral education costs exist between the education‐ and research‐focused sub‐samples. Master degrees are around triple undergraduate costs, on average. Both research (publications) and research training (doctoral degrees) are high cost, with ‘elite’ publications much more costly than other scholarly publications. We conclude that education costs are impacted by research intensity and that opportunities to cross‐subsidize non‐teaching activities exist.