Seven universities in Australia are at “high financial risk” as a result of a cash crunch that could stem from a loss of revenue linked to international students, new analysis shows.
While most Australian universities have adequate cash and investment reserves to weather the financial impact of Covid-19, the “longer term prospects are grim”, research by academics at the University of Melbourne has found.
Ian Marshman and Frank Larkins, honorary fellows of the Melbourne Centre for the Study of Higher Education, identified seven institutions at which a downturn in revenue from foreign students risks exceeding available reserves. These are: Monash University, RMIT, University of Technology Sydney, La Trobe, Central Queensland and Southern Cross University, and the University of Canberra.
The findings were published as La Trobe, situated in Melbourne, confirmed it had sparked talks with three banks around a lifeline and began discussions with staff about voluntary redundancies.
Two of the universities most at risk – Southern Cross and Canberra – have “very low” levels of available cash and investment reserves, according to the research, the authors of which said “this adds to their financial vulnerability”.
Out of 38 universities analysed, 13 faced “medium” financial risk, the study said, while the remaining 18 – comprising nearly half of the sector – faced “management risks that are of lower severity”.
“The adverse consequences of the Covid-19 pandemic on the university sector are both immediate and can be anticipated to endure for many years,” wrote Marshman and Larkins. “Some strategic policy choices that will need to be made to varying degrees by universities to mitigate predicted losses are discussed.
“These choices are likely to result in changes to sector-wide operational practices more profound than anything experienced since the establishment of the unified national system in the early 1990s.”
The stark revelations follow numerous warnings from Australian universities about the adverse financial effects of a fall in the number of international students who make up a multibillion-dollar sector because of the pandemic. Deakin University called for voluntary redundancies after it forecasted a A$110 million drop in revenue for this year; the University of New South Wales has projected a A$600 million cut to income, Melbourne A$500 million, and Sydney University A$470 million.
Between 2009 and 2018, Australian universities enjoyed an unprecedented boom in international student enrolments, as revenue from foreign students grew by 260% from A$3.4 billion to A$8.8 billion.
But Australia’s market-based higher education system, in which universities rely heavily on tuition fees and less so on state handouts, has seen institutions become “increasingly reliant” on international student fee income to fund teaching, research and capital infrastructure programmes, Marshman and Larkins said.
Their modelling suggests that, as a result of the Covid-19 pandemic, Australia’s universities will lose international student fee revenue amounting to A$18 billion by 2024.
Even under what the pair calls an “optimistic scenario”, international student enrolments will not return to pre-pandemic levels until the same year.
Regional universities, given their relatively smaller cohorts of international students, are expected to be “less exposed financially” to a drop in enrolments, Marshman and Larkins said.
However, few institutions have sufficient operating margins or reserves to withstand a sustained reduction in international fee revenue, the researchers said.
“Without significant increases in public funding (which is unlikely), each university will, to varying degrees, need to identify and build additional revenue streams, and/or significantly reduce spending,” Marshman and Larkins said.
Among measures being implemented by universities to offset losses, according to the academics’ findings, are the delaying or scaling back of uncommitted capital projects; asset sell-offs; reviews of campus operations; programme cuts and subject streamlining; and pay and job reviews.
“Given employee costs represent 57% of total university spending, further reductions in this area are inevitable to reflect the decline in student enrolments,” said Marshman and Larkins. “Each university may also need to adjust its workforce capability to meet changed future requirements.”
At the same time, universities will need to continue investing in digital education, the pair said, as well as new forms of student experience “capable of attracting and retaining both domestic and international market share” in a post-pandemic era.
“Covid-19 will test the resilience of all Australian universities in a manner rarely – if ever – seen before,” said Marshman and Larkins. “Not all 38 universities will emerge from the pandemic in their current form.”
Date published: 3 June 2020