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International students created a gold rush for higher education in Australia, but in the wake of the Covid-19 pandemic, universities will need to shrink in order to survive. By Margaret Simons.

The end of the university boom

New graduates of Melbourne University in 2019.
Credit: PGRUB

The former Melbourne University vice-chancellor Glyn Davis likes to compare Australian universities to English monasteries during the reign of Henry VIII. The monasteries, he has written, were independent and could challenge the Crown. They also had “serious money”, including vast landholdings and bequests from the faithful.

Henry dissolved the monasteries, but he had to move cautiously. These institutions provided employment in country towns, trade and spiritual support. They were influential. The king began the process with surveillance and reports on their operations, “a sort of research assessment exercise”, by Davis’s description. The monasteries were not helped by excesses and corruption, alleged and actual. Dissolving them gave Henry VIII a windfall, some of which he spent on setting up university colleges, “but most [of it] he squandered on fighting the French”.

The analogy, Davis acknowledges, is not exact, but he has used it in a few publications to draw attention to the uneasy relations between government and universities.

For their part, governments want universities to teach and train, and to do research of clear utility to industry. They want them to serve the national interest.

Universities, meanwhile, pride themselves on independence, the pursuit of pure knowledge and the writing of journal articles read only by academic peers. They earn their own money, but also draw on the public purse, tending to regard such funding as both perpetually inadequate and their natural right.

In the past few weeks, in the wake of the Covid-19 crisis, the tensions in this relationship have been laid bare.

Higher education is one of the sectors hardest hit by the virus crisis, because the international students upon whom they have come to depend are no longer able to travel.

Yet the federal government has made it clear there are firm limits to its preparedness to help.

The government has guaranteed the money universities were expecting to be paid for teaching domestic students, even if those enrolments decline. But there will be no bailout.

In particular, the government has repeatedly tweaked the rules to effectively preclude universities from being eligible for the JobKeeper scheme, which would subsidise their biggest cost – staff salaries.

It is not clear what happens to Australia’s universities from here, but this pandemic may well mark the start of the unwinding of one of the nation’s success stories – the growth of international university education.

Asked about the crisis enveloping universities, Education Minister Dan Tehan offered something of a backhanded compliment.

“The Australian government is confident that Australia’s university leaders are up to the challenge of minimising the impact of Covid-19 on their operations,” he told The Saturday Paper, “such as a greater focus on domestic students, online education and greater alignment with industry needs.”

Tehan pointed out that, sector wide, universities hold reserves of $4.6 billion. In other words – they are on their own and can sort it out.

With both pride and resentment, university leaders interviewed for this article note the sector now earns much of its own money. A little more than half – $18 billion – of $34 billion in university revenue now comes from the Commonwealth, a departure from 30 years ago, when a small minority of people went to university and government picked up almost all of the bill.

The government quotes the same figures with different emphasis: $18 billion from the taxpayer, and yet universities still want more.

In recent years, revenue from international students has provided universities not only with a means to survive but also, in the case of the larger institutions, independence.

But as that money dries up, the dynamic of the relationship between higher education and government seems likely to change.

In a speech to The Australian Financial Review’s Higher Education Summit last August, Tehan made clear he believes this change is necessary.

“For too long,” he said, “the higher education sector and the government have stood apart and lectured each other about the future direction of higher education policy … It is time to inject some maturity into this relationship.”

This would require the sector to “change tack”, Tehan said, including universities accepting that the government was a “partner” whose role did not end when it handed over the cash.

 

Mass recruitment of international students is a particularly Australian invention.

It was Australian tertiary institutions that first sent recruiting agencies to China and India and began tapping the market, and we retain an enviable position as the third-largest player in the international student market overall, after the United States and Britain. Education is one of Australia’s largest exports – not far behind coal, iron ore and gas – bringing an estimated $35.2 billion into the local economy.

International student income has subsidised research, helping our leading universities rise in the international rankings, which in turn attracts more students, particularly from China’s prestige-conscious market.

Changes to migration policy – allowing graduates to stay in the country and work for two years after completing their degrees – meant students from poorer countries could access the Australian labour market, and gain the chance of permanent migration.

The result is either a virtuous circle, or a vicious one, depending on your point of view. In the wake of the borders closing, it looks more vicious.

Universities also increased the number of domestic students during the uncapped system under the Gillard government – in which they could enrol as many as they wanted, and send the government the bill. The Coalition brought that to an end, freezing the subsidy for two years from 2018.

And the worst pain is yet to come. Some universities earn up to 38 per cent of their total revenue from international student fees. In first semester, many international students made their way here despite closing borders. But in second semester, they won’t do so. The memos are already circulating from vice-chancellors. Staff cuts are coming.

Junior academics, those who were often hired to teach international students, will be the first to go. According to the National Tertiary Education Union (NTEU), only one-third of university staff have secure employment. Forty-three per cent are casuals, while 22 per cent are on fixed-term contracts, typically between one and two years.

University leaders will admit the international student market always carried risks but say they have few other options. The cap on domestic students has limited their choices. Deregulation, allowing universities to set their own fees for courses, has been rejected by the government.

The NTEU, which covers most university staff, backs the Greens’ policy for fee-free university education, with the government picking up the whole bill. Neither the current government nor Labor supports that idea, nor most university managements, but it’s a persistent view.

Says Gwilym Croucher, from the Melbourne Centre for the Study of Higher Education, “When you have fundamental disagreements within the sector, then it is harder to find a basis for conversation with government.”

There are conversations with government – constantly. But in recent years not all have gone well.

University managements cop it from both sides in the culture wars. Some in the right wing of the Liberal Party believe the country should return to the days when university education was “only for very smart people, plus them”, as one university leader puts it.

Writing for The AFR in March, John Roskam, executive director of the Institute of Public Affairs, summed up the view from the right, labelling universities “bloated” institutions that “privatised the profits from the fees paid by overseas students”. Vice-chancellors had built “Taj Mahals to themselves”, he said, while earning average salaries of more than $1 million.

Roskam argued, even as the impacts of Covid-19 were becoming clearer, that universities “should not get a cent of any federal government bailout program”.

Industry leaders interviewed by The Saturday Paper say such hostility is not the attitude of the government as a whole, nor of Minister Tehan.

Rather, the government wants to expand the sector and also transform it.

Conor King, executive director of the seven-member Innovative Research Universities, says that before the Covid-19 crisis there were conversations with Tehan about further increases in funding for teaching domestic students for those universities that could demonstrate they had extra demand – such as Western Sydney University.

“We had reason to expect that the logic of those numbers would win out,” King says.

Last year, the government received a report recommending that an uncapped system of student funding, such as the one presided over by the Gillard Labor government, be restored for rural and regional universities. The Education minister has not committed to that but has promised to fund improved access for regional students and universities – perhaps with contributions from state and territory governments.

In combination, these moves and his statements suggest Tehan’s goal is to bend the system to the government’s view of the national interest – “reshaping” it to play a bigger part in increasing job opportunities. “We want every student to be achieving more from what they learn,” he said in his speech last August.

He has encouraged universities to focus on the domestic, and shown some scepticism about the merits of the international market.

Tehan has tied increases in the government subsidy for domestic education to performance criteria, such as graduate employment outcomes, Indigenous participation and student satisfaction, and commissioned reviews of how higher education institutions are categorised, and how qualifications are awarded. He has encouraged working with industry to deliver short courses and “micro-credentials”.

When it comes to securing more funding though, university vice-chancellors have had limited success.

During the research for this story, I heard anecdotes, from both sides of the political aisle, about vice-chancellors from the prestige universities, on salaries of more than $1 million, arriving to cry poor to ministers and senior bureaucrats on half their pay.

The Times Higher Education supplement has described Australian vice-chancellors as “lavishly paid”, compared with their British counterparts. It reported that the vice-chancellor at the University of Sydney, for example, was paid $1.52 million in 2018, while the vice-chancellor of the University of Melbourne received $1.58 million in the same year. For comparison, the New South Wales police commissioner will get $649,500 a year after a controversial pay rise.

The issue is atmospheric and symbolic. Vice-chancellors could take a 50 per cent pay cut and it would hardly help their institutions’ bottom lines. But it feeds politicians’ suspicions that universities don’t use their money well.

Politicians tend to see universities as branches of the Department of Education, and hence make comparisons with public service salaries. Vice-chancellors, and the university councils that award their contracts, prefer to compare themselves to chief executives in the private sector. Perhaps they could get away with this when they were building a multibillion-dollar export industry.

“The best thing vice-chancellors could do for their credibility with government”, says one university leader who didn’t want to be identified, would be to submit themselves to the remuneration tribunal – the independent statutory body that sets salaries for politicians and judges. 

This points to the larger issue: the decline in the international student market will hit universities not only financially, but also in their capacity for independence.

 

Most discussion of universities focuses on the city-based institutions, the huge employers and real estate barons.

But a sweep through the annual reports of the nation’s 41 universities reveals diversity, and the different ways this crisis may play out.

At one end of the spectrum is the University of Sydney, which had $2.5 billion in revenue in 2018. At the other is Southern Cross University, based on the Gold Coast, barely breaking even with just $270 million in revenue.

While richer universities will suffer the biggest absolute falls in revenue during Covid-19, they are also better placed to weather the storm.

The University of Melbourne owns its vast inner-city campus and another 101 buildings, pushing into the central business district. In 2018, its assets included $352 million worth of works of art and “other collections”, and another $290 million of “construction in progress”.

Compare that with Charles Darwin University, with revenue of just $259 million and a deficit of $21 million. Among its assets are $1.2 million worth of cattle, and 19 horses. More than a third of its 20,124 students – at both certificate and degree level – were already studying online.

One of the nation’s newest tertiary institutions, Federation University, is based in Ballarat. International students bring in 39 per cent of its $331 million in revenue. It has a thin surplus of just $6.6 million. Then there is Melbourne’s Swinburne University – already in the red by more than $9 million and drawing 22 per cent of its revenue from international students.

Gwilym Croucher does not expect any university to fail. “No government and no Education minister wants to see a university close on its watch,” he says. Rural universities, acutely vulnerable, are too important to towns and employment to be allowed to close. It is expected both state and federal governments will find ways of propping them up.

But the government will not bail out the big universities for the risks they took with the international student market.

Even within the sector, there are those who describe some of the big increases in international students in recent years as “reckless”.

Croucher says the downturn in the Indian student market in 2009 should have made it clear the international student business was risky.

The downturn came fast and was not predicted, caused by a combination of scandals concerning dodgy providers of vocational education, a high Australian dollar and racist attacks on Indian students in Melbourne.

Indian enrolments more than halved, and only in 2016 did they grow beyond the 2009 levels. Universities missed out on an estimated $1.3 billion in tuition fees. It would have been devastating but for the fact the Chinese student market was growing fast at the same time.

So the universities hurtled on, with the proportions of international students increasing ever more rapidly. “Of course, everyone was worried about it,” says one former vice-chancellor. “We talked about it all the time. But what choice did we have?”

If Australia continues its success in suppressing the coronavirus, and if political tensions with China settle down, we could give ourselves a competitive advantage over the US and Britain in international education. On the other hand, reluctance to travel for education may be permanent.

Almost certainly, with a global economic downturn inevitable, the boom is behind us. Our universities are about to shrink.

 

In March this year, Croucher and a colleague wrote a discussion paper trying to assess where the Covid-19 crisis might leave Australia’s universities.

Like the course of the virus, the pair found, the future of tertiary education is full of uncertainties. But, they said, some may see an opportunity for radical reform, such as moving to a two-tiered system, with institutions funded for teaching and not research. Universities might move to do “bulk teaching” of first-year courses, with students moving to other specialist institutions in later years.

There is no conceivable future for a wealthy Australia without high levels of participation in tertiary education, as Minister Tehan has said.

But, as Croucher points out, the message from the government is clear: universities, having taken the risks and the benefits of the international student market, will have to take some of the pain of the decline.

The monasteries will not be dissolved, but they will almost certainly shrink and may be reshaped. And, for a government wanting to bring them to heel, this crisis might look like opportunity.

This article is supported by the Judith Neilson Institute for Journalism and Ideas.

This article was first published in the print edition of The Saturday Paper on May 23, 2020 as "The end of the university boom".

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Margaret Simons is a Walkley Award-winning journalist and author. She reports on business for The Saturday Paper.