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The crisis universities should have seen coming

May 26, 2020 • 16m 06s

Almost overnight, Australian universities lost billions of dollars in international student fees. Some are asking how they could have been so reckless in depending on this money in the first place.

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The crisis universities should have seen coming

231 • May 26, 2020

The crisis universities should have seen coming

RUBY:

From Schwartz Media, I’m Ruby Jones, this is 7am.

Australian universities have relied on international student fees for decades… but the pandemic has ended that - essentially overnight.

So what happens to higher education now, and should the sector have seen it coming?

Today, Margaret Simons on the future of the country’s universities.

Archival tape -- reporter:

The education minister has warned about the prolonged economic impact the coronavirus could have on the nation’s university sector...

Archival tape -- reporter:

As it stands, 56% of Chinese students who were due to come here and study in Australia are not able to be here…

Archival tape -- unknown:

There will be no question -- if the coronavirus continues and we can’t get students here for the first semester, and god forbid we couldn’t get them here for the second semester, that will have a significant economic impact.

RUBY:

Margaret let’s start with the effects of the pandemic on the university sector.

MARGARET:

Yes, well, the worst is yet to come, in a sense, because even though our borders were closing at the beginning of the semester, many international students did manage to make it here. But from next semester, the usual mid-year intake, most universities are expecting that they won't get any of the international students that they would normally get.

RUBY:

Margaret Simons reports on business for The Saturday Paper.

MARGARET:

Some universities, most particularly our most prestigious research universities, draw up to 38 percent of their revenue from international student fees. They actually earn more from international student fees than they get from the federal government. So for some universities, it's an enormous hit.

And vice chancellors are already putting out the memos saying that there will be staff cuts. It's not surprising because this is a huge drop in revenue. Obviously, casual staff and those on short term contracts will be the ones most at risk, but most are expecting there to be other redundancies, including for tenured staff if the situation doesn't improve or isn't resolved.

RUBY:

What’s the federal government's response to universities losing this revenue?

MARGARET:

In terms of the loss of international student revenue, the federal government has been pretty unsympathetic. What it has done and this shouldn't be minimized is guaranteed universities that they will get the same amount that they were expecting for domestic students regardless of enrollments. And that's a big thing. It does give, you know, sort of floor belief beneath which universities won't drop.

But through various means the federal government has really signaled that the international student market was a business decision that universities made. And if it's going to unravel now, they're going to have to bear the pain of that themselves.

Archival tape -- unknown:

We thought universities should face the same requirements of those of large businesses if they’re over a billion dollars or those businesses who are under a billion dollars...

MARGARET:

So, for example, the federal government has repeatedly tweaked the rules so that universities, even though their charities can't access the job keeper scheme, which would be a subsidy of their main cost, that salary costs.

RUBY:

Margaret, should universities have seen this coming?

MARGARET:

Well, even within the sector, there are people who will say privately that the extent of the expansion and the rapidity of the expansion into the international student market has been reckless. So in 2009, there was a really sudden and sharp reduction in enrollments from Indian students, which is our second-biggest market.

Archival tape -- reporter:

Well this week one of the nation's big exporters, the tertiary industry sector, hit the panic button with enrollments continuing to tumble...

MARGARET:

Nobody saw it coming and the causes of it were really out of control of the universities. They included the dollar being high.

Archival tape -- reporter:

Shoppers and travellers are the big winners after the Aussie dollar soars to record heights...

MARGARET:

Some scandals about some of the dodgy vocational colleges that were in the market at the time.

Archival tape -- reporter:

The botched vocational loan scheme, VET FEE HELP the program is continuing to impact students who were ripped off by dodgy education providers.

MARGARET:

And also racist attacks on Indian students in the western suburbs of Melbourne in particular.

Archival tape -- reporter:

Top story, it’s another shocking case of violence against Indian students in Australia.

Archival tape -- reporter:

Victoria police say the spate of bashings are not racist attacks. but the continued assault of Indian students around Melbourne has prompted strong words in parliament.

MARGARET:

All of that meant that Australian universities lost 60 per cent of their Indian enrollments in a single year. Fee revenue dropped by 225 million. And it took a while to recover. Overall, Australian universities probably missed out on about $1.3 billion between 2009 and 2016.

Archival tape -- reporter:

In India, the issue burns on as headline news. Many say it’s already stopped students coming here damaging one of our biggest export earners.

MARGARET:

Now, why wasn't this even bigger headlines than it was? Well, partly because at the same time, the Chinese market really took off and was growing very fast. So the impact of that was masked.

Archival tape -- reporter:

The Australian Visa office here says it got nearly 30,000 Visa applications from Chinese students over the past year, that’s up by more than 20 per cent from the year before.

MARGARET:

But what it did show is that the business can go downhill for all sorts of reasons which are out of control of the universities. Now, the scholars have looked at this, didn't predict pandemic, but they did talk about geopolitical tensions with China, in particular global economic downturn, heaps of things which are out of control and could cause a very quick and fast moving hit to revenue, which, of course, is now exactly what's happened with the COVID crisis.

And the vibe I'm getting is these universities took risks with this market. It was always a risky business. And now they're going to. Like any other business, have to bear the cost of that. On the other hand, vice-chancellors will say, well, what choice did we have?

RUBY:

We’ll be back in a moment.

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RUBY:

Margaret, I want to take a step back here. And I'm hoping that you can tell me when universities became so reliant on international student fees. How did that happen?

MARGARET:

Mm yeah, well, it started about 30 years ago. And I mean, at one level, international education has been a huge success story and it's a particularly Australian success story. Australian universities are some of the earliest to be going into India, Nepal, China, actively recruiting students, building relationships with recruitment agencies in those countries. And the market grew quickly and particularly quickly in the last five to 10 years, particularly with China.

And this coincided with various changes to migration policy with the country as a whole, moving from a very tightly controlled system of permanent migration to include a less tightly controlled system of temporary migration, which is partly about people on short term working visas, but also about international students who are able to come to Australia, work while they studied, and then also apply to stay on after they'd finished their degree to continue working. And that was a pretty winning deal. Australia was very successful with that. And many of our moves, including the migration law moves, were copied by our competitors.

RUBY:

Mhmm. And what do the universities themselves say about why they need international student fees?

MARGARET:

They say that the Commonwealth governments and this is from both sides of politics that Commonwealth government funding for universities has declined and it has that the subsidies for teaching don't cover the full cost of teaching. That the research grants don't cover the full cost of research. Of course, some of the universities, particularly the Group of Eight, the most prestigious universities, wanted to be allowed to deregulate their fees.

Archival tape -- reporter:

In a deregulated environment it wouldn’t be consistent for universities not to increase their fees to at least address the underfunding which has been identified over some period of time.

MARGARET:

And that's why we saw all those headlines a few years ago, about some degrees costing more than $100,000 and so on.

Archival tape -- reporter:

The changes could see the cost of a degree blow out to $100,000, out of reach for many Victorians...

MARGARET:

That was rejected by government. They haven't been allowed to do that. So they would say that gives us no room to move if we want to continue to do world breaking research. We have to find other sources of revenue and international students have provided that.

RUBY:

Margaret, what is it that the federal government would like to see universities do?

MARGARET:

Well, the message from Minister Tehan and in particular has been that he wants to expand the sector. I think it would be a mistake to say that he's hostile to the sector. He sees it as a key part of the national interest. But he wants universities to change tack a bit to serve that interest.

And by that, he means more attention to graduate employment outcomes, more relevant qualifications, including sometimes what he calls micro qualifications or small courses, you know, directly meeting the needs of industry, more collaboration with industry around research. So a tighter relationship between the government's take on the national interest and what universities do.

And he said in a speech last August that universities and government have tended to talk past each other and that universities need to accept that government's role doesn't end just by handing over cash. That government needs to be a partner and they need to work together on national interest issues.

So they, of course, prefer to see themselves as independent and autonomous institutions that can pursue pure research, that can criticize government and government, I think, probably tends to want to see them as part of the Department of Education in the same way that state schools are part of state departments of education.

So there's an inherent tension there and I think this crisis will play out through that tension. It's going to be harder for universities to assert their independence if they're needing bailouts from government.

RUBY:

Mm mm and is this tension over how universities see their role and how the federal government does, part of the reason that the government is now holding out on bailing out universities, are they using it as leverage?

MARGARET:

I suspect so. I mean, I don't think it's necessarily all that calculated. Things have been moving very fast and government has many demands on its purse. So I I don't think they've all sat down and sort of thought this through this at a philosophical level, but my interpretation is that I see a consistency in approach from the speeches that Dan Tehan was making last August, calling for partnership, calling for a refocus on domestic priorities and the way the government has responded so far.

RUBY:

Ok so are any universities actually going to shut down as a result of all this?

MARGARET:

Well, it's a mixed picture. If you look at our richest universities, say Melbourne University or Sydney University, these are very big businesses. They've got turnover in the billions. They have substantial reserves. It's going to take a bigger crisis than this to see those universities completely unravel.

In terms of smaller universities, particularly some of the rural and regional universities. The absolute dollar hit will be less, but they are less able to weather the storm. And I think certainly the people that I spoke to were predicting that the government would find a way of bailing them out. Regional universities may not be huge businesses, but they're very important to the towns in which they're located. They're often the biggest employer in town, for example, and both state and federal governments will make sure they don't fail. So I don't think we're going to lose any universities, but the sector is going to shrink.

RUBY:

So universities will stay open, but what happens next for the sector?

MARGARET:

Well, there's heaps of uncertainties. You know, just like the course of the virus, there's just heaps of uncertainties. It's not certain that the international students are gone for all time. We may have a competitive advantage against the US and the UK because we seem to have got the virus under control. And those countries, sadly, certainly haven't. So we may actually see students return.

But on the other hand, we also have the geopolitical situation with increasing issues with China in particular. Also, if there's a global economic downturn, students may be less able to afford education in Australia and also people may just be more reluctant to travel given all the disruption and the pain that's being caused to travelers over the last few months. There may just be a greater reluctance to travel. So while I think international students will return to Australia, I suspect the boom is behind us and we will see the beginning of a long-term decline, hopefully a gradual one.

RUBY:

Margaret, thank you so much for your time today.

MARGARET:

It's a pleasure.

Margaret Simons writes on business for The Saturday Paper, in a position supported by the Judith Neilson Institute for Journalism and Ideas.

**

RUBY:

Also in the news -

The Health Minister, Greg Hunt, said the country now had more than five consecutive weeks in which the daily growth rate of new cases of coronavirus was less than half a percentage point.

The Minister ALSO said there are now 585 testing clinics around the country… and that Australia had one of the lowest rates of positive tests in the world.

**

And the Royal Commission into National Natural Disaster Arrangements has been told the fire season in parts of eastern Australia has lengthened by almost four months since the 1950s.

The head of climate monitoring at the Bureau of Meteorology said the South Coast of NSW and eastern Victoria now see fire weather arriving towards the end of winter rather than the end of spring.

Karl Braganza said that climate change was a prominent driver of the trend.

I’m Ruby Jones, this is 7am. See you tomorrow.

Almost overnight, Australian universities have lost the international student fees on which they depend. Some in the sector say universities were reckless to rely so heavily on this source of funds. Margaret Simons on what the future looks like for higher education.

Guest: Writer for The Saturday Paper Margaret Simons.

Background reading:

The end of the university boom in The Saturday Paper
The Saturday Paper
The Monthly

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7am is a daily show from The Monthly and The Saturday Paper. It’s produced by Ruby Schwartz, Atticus Bastow and Michelle Macklem. Elle Marsh is our features and field producer, in a position supported by the Judith Neilson Institute for Journalism and Ideas. Brian Campeau mixes the show. Our editor is Osman Faruqi. Erik Jensen is our editor-in-chief. Our theme music is by Ned Beckley and Josh Hogan of Envelope Audio. New episodes of 7am are released every weekday morning. Make sure you don’t miss out by subscribing on your favourite podcast app. I’m Ruby Jones, see you next week.

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231: The crisis universities should have seen coming