Contingency fund set up as Australia’s foreign fee reliance grows

A Sydney university has established a contingency fund to protect itself against a catastrophic loss of foreign students, as Australian institutions facing languishing federal funding increase their dependence on international education revenues.

New accounts reveal double-digit growth in foreign student earnings at about three-quarters of the nation’s universities, while most attracted commonwealth funding increases of less than 3 per cent.

The figures, contained in institutional annual reports covering the 2018 calendar year, reflect universities’ financial struggles following the capping of domestic places at the end of 2017. Two-thirds of universities were in worse fiscal circumstances a year later, with four in deficit.

Fourteen Australian universities now receive less than half their income from Canberra, the accounts show. They also suggest that a headline-grabbing report earlier this month understated universities’ reliance on foreign fees, with more recent data showing that they have become even more exposed.

That report, by University of Sydney political sociologist Salvatore Babones, warned that universities were taking a “multibillion-dollar gamble” on fee revenue from Chinese students. Dr Babones highlighted in particular risks from “macroeconomic” factors such as a sudden collapse in the value of the yuan or a restriction on how much Chinese currency could be exchanged for Australian dollars. Such scenarios could force taxpayers to “pick up the tab” because the government would not be prepared to allow universities to slide into bankruptcy.

But UNSW Sydney vice-chancellor Ian Jacobs, who heads one of the institutions most reliant on Chinese students, scoffed at suggestions that universities were unprepared for such scenarios. “The idea that we’re not thinking about it is ridiculous,” he said. “We are responsible leaders of institutions. UNSW has 60,000 students and 6,000 staff. We have a responsibility for all those people.”

Professor Jacobs acknowledged that a sudden plunge in Chinese enrolments would be challenging for Australian institutions, which lacked the enormous reserves of Oxford, Cambridge or Harvard universities.

“One way of dealing with it is to have a fund put aside so that if that catastrophic event occurs, you’ve got a little bit of time,” he said. “You can buy yourself an extra few months to plan the steps that are needed to deal with the decrease in students.”

He said UNSW had put funds aside for that purpose several years ago. But he added: “We would have to take very rapid action to decrease our expenditure on staff, buildings [and] infrastructure. Of course, if you had less students, you’d need less of all those things.”

Professor Jacobs questioned whether the government would come to universities’ aid in such circumstances. He said a political or economic shock big enough to slash Chinese enrolments would most likely be “profoundly damaging” for other Australian industries such as mining, banking and agriculture.

“If something that catastrophic happens, the government will be called in many directions because the economic consequences for Australia will be enormous,” he said.

About one-quarter of UNSW’s students are Chinese. Dr Babones’ analysis, which was based on 2017 data, found that UNSW obtained 22 per cent of its income from Chinese students.

That figure climbed to 27 per cent in 2018, more recent accounts show. At the University of Sydney, the share of revenue from Chinese students rose from 23 per cent in 2017 to 26 per cent last year.

Sydney’s earnings from international students swelled by 18 per cent in 2018 while its federal government funding rose by just 0.3 per cent. Across Australia, 27 of 37 public universities increased their overseas student revenue by 10 per cent or more – 13 of them by more than 20 per cent, and six by over 30 per cent.

Changes in federal funding, by contrast, ranged from 8 per cent boosts at two institutions to 2 per cent declines at two others. Commonwealth allocations rose by less than 5 per cent at 33 of the 37 universities, falling at four of them.

All but two universities increased their financial reliance on international students last year, with the two exceptions experiencing declines in their overall income. Operating margins declined at 24 of the 37 universities, with the average buffer shrinking from 4.5 per cent of income to 3.1 per cent.

The average university received 54.5 per cent of its income from the federal government last year, down from 55.9 per cent a year earlier. The average share of funding from foreign students’ fees rose from 20.8 per cent to 23.5 per cent.

The figures exclude the Australian National University, which is yet to release its financial results. Professor Jacobs said Australia needed a “thoughtful debate” about “how important it is to have universities performing at the cutting edge internationally”.

He said there was “overwhelming” evidence that university research paid for itself many times over in economic benefits. “I’m not suggesting that all of the funding for university research [should] be public, but it’s important to have a good balance.”

john.ross@timeshighereducation.com