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Australia: challenges will “prolong” HE tuition fee revenue downturn

Australia’s university sector’s recovery is facing multiple challenges out of its control, according to new reports by Australia’s global rating agency S&P.

Some state governments are working on "safe corridors" to facilitate the arrival of small numbers of international students. Photo: Unsplash

"Beijing has used unofficial student sanctions as a geoeconomic tool in the past"

The ‘Australian Universities Go From Boom To Zoom’ and ‘Australian University Finances Under Covid-19: Degrees Of Discomfort’ papers outline two significant challenges – continued border closures and the souring of Australia-China bilateral relationship – threatening the recovery of the industry that contributed AUS$37.5 billion to the economy last fiscal year.

According to the reports, before Covid-19, some institutions derived over one-third of their total revenue from international students, and Universities Australia has estimated the sector experienced a $1.8 billion (4.9%) drop in revenue year-on-year in 2020. It predicts the sector will lose a further $2 billion in 2021. S&P shares that prediction and warns it will lead to further severe cost cutting measures.

“We could see university managers enact another round of unpopular layoffs, cost cuts, asset sales, or raising of debt”

“The continuing ‘hard border’ policy will prolong the downturn in tuition fee revenues that we saw in 2020,” said S&P Global Ratings credit analyst Martin Foo. “In response to the revenue squeeze, we could see university managers enact another round of unpopular layoffs, cost cuts, asset sales, or raising of debt.”

Universities have been slashing headcount, shedding 17,300 jobs in 2020, as well as renegotiating employment contracts, freezing new capital investment, closing unviable campuses or courses, tapping reserves or contingency funds, selling assets, and, in some cases, raising new debt.

The reports suggested if there is a silver lining, it is that the crisis has shown universities have substantial flexibility to respond to ups and downs.

“The sector’s 2020 revenue decline (estimated at $1.8bn) was less than half both its annual capital expenditure (A$4.5 billion in 2019) and its pile of cash ($4.7bn at the start of 2020). An increasingly casualised workforce also makes retrenchment easier.

“Casual employees comprise about 23% of the academic workforce (i.e., not including teaching-only staff) on a full-time-equivalent basis and probably a majority on a headcount basis, according to the Grattan Institute. Rolling layoffs through 2021 will prolong the sense of emergency but help support long-term financial viability.”

The reports also revealed Australian universities face proportionally larger revenue shortfalls than their counterparts in Canada, the UK, and the US. This is because Australia accounts for 8% of global education market share, on par with the UK, despite representing just 1% of global GDP.

Before the pandemic, over a quarter of enrolled students at tertiary level were from overseas, with over half of master’s-level students coming from overseas. No public university in the US has as high a proportion of international students as the average public university in Australia, according to the Centre for Independent Studies.

Some state governments are working on “safe corridors” to facilitate the arrival of small numbers of international students.

New South Wales recently invited tenders from accommodation providers for 600 quarantine spots that could cater to several thousand students through the remainder of 2021. However the report notes “that safe corridors will prioritise the return of already-enrolled students over new commencements, and therefore do little to ameliorate the pipeline effect of fewer new cohorts”.

Despite its status as Covid-19-free proving an appealing point of differentiation from other countries, it is feared Australia’s extended denial of entry will alienate foreign students.

A November 2020 report by Tertiary Education Quality and Standards Agency, the federal regulator, found about one-third of remote learners were concerned about a lack of engagement and interaction with lecturers and peers.

A petition submitted to Australia’s parliament in February 2021 on behalf of international students complained of poor-quality online lessons and mental distress. It attracted over 17,000 signatories.

The government responded that healthcare students with confirmed work placements at hospitals and year 11 and 12 students are exempt to travel restrictions. The commissioner of the Australian border force will also consider PhD research students, it said in February.

In addition to the Covid-19 crisis, S&P said the sector must also contend with deteriorating Australia-China bilateral relationship which has seen Beijing imposing tariffs or import restrictions on a range of Australia products. There are fears education will be next.

China is by far the largest country of origin for international students enrolled in Australian universities, accounting for about 39%.

“In February 2021, China’s Ministry of Education issued a fresh warning (after one in June 2020) regarding the personal safety of its students in Australia. Anecdotal reports suggest education agents based in China have been directed not to send students to Australia,” stated the report.

“Beijing has used unofficial student sanctions as a geoeconomic tool in the past. It did so following disputes with South Korea and Taiwan.”

S&P believes this will necessitate universities seeking out new markets, which also presents challenges.

“We have a negative bias in rating outlooks, though credit pressure is unevenly distributed”

Monash University and University of Western Australia are among those to recently step up engagement with Indonesia. The Victorian government’s recovery plan for its higher education sector includes an expansion of the state’s on-the-ground network into Vietnam, Brazil, and Kenya.

“And the Australian Strategy for International Education 2021-2030 consultation paper, released in March 2021, says strategic success could be measured by diversification of partner countries. However, any diversification will be gradual because prospective source countries, including India, lack China’s purchasing power.”

S&P concludes while there are positive signs, there are more lean years ahead for the Australian university sector.

“We have a negative bias in rating outlooks, though credit pressure is unevenly distributed. Our overall sector view remains negative.”

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