Selling higher education has become precarious

Australia’s overseas student industry has surged in recent years. It generated some AU$30 billion (US$22 billion) in export revenue in 2017 from the fees and living expenses paid by all overseas students in Australia (AU$20.7 billion attributable to the higher education sector).

This is a remarkable record. Between 2012 and 2016 the number of commencing overseas students in Australian universities increased from 85,497 to 124,150. As a result, the share of commencing overseas students to all commencing students increased from 21.8% in 2012 to 26.7% in 2016.

The overall figure hides a spectacular increase in the dependence of Group of Eight (Go8) universities on overseas students. In the case of the University of Sydney, this share increased from 22.8% of all commencing students in 2012 to 39.2% in 2016.

This outcome was similar for the University of Melbourne, Monash University and the University of New South Wales where, by 2016, the share of commencing overseas students to all commencing students was 36.2%, 36.5% and 38.7% respectively.

Despite this success, the industry is in a precarious state.

To understand why, we need to differentiate the industry into its two main markets. They are each vulnerable, though for quite different reasons.

The first comprises universities charging very high fees – AU$40,000 or more a year by 2018. These are primarily the Go8 universities. Despite the princely cost, the number of overseas-student commencements at Go8 universities increased massively, by 56%, between 2012 and 2016. Almost all of this increase came from Chinese students.

The main attraction here for the Chinese students is the prospect of obtaining a higher education degree from a university rated among the world’s top 100. These ratings are based primarily on publications in prestigious international journals and citations in these journals.

For the most part, the Chinese are not attracted by the possibility of staying on in Australia.

The second market covers universities other than those in the Go8, all of which charge much lower (though still high) fees of around US$25,000 per year. Overseas-student commencements in these universities increased by 41% over the years 2012 to 2016. Most of this growth came from countries located in the Indian subcontinent, particularly India itself.

Students comprising this second market are primarily attracted by the opportunities that study and graduation in Australia offer to enter Australia’s labour market and to access a permanent or long-stay temporary visa.

We show that the surge of enrolments in this second market has been largely due to the Australian government’s opening up of these opportunities in 2012. A key initiative was to allow all overseas student graduates (including those completing two-year masters-by-coursework degrees) to gain access to a work-study visa. This provides a minimum of two years in the Australian labour market after completion of a university degree, regardless of field of study.

No such privileges are available in our chief competitor countries – the United States and the United Kingdom.

Why precarious? The case of the Go8

University revenues, especially among the Go8, are highly dependent on overseas-student fees. In the case of the University of Sydney, the share of its ongoing revenues from overseas students increased from 16.3% in 2012 to 28.1% in 2016.

For the Go8, fees from overseas students are a major source of cross-subsidisation for the group’s research activities. These activities are, in turn, the basis of the group’s success in the international ratings.

A key issue is the Go8’s dependence on the Chinese market. The fear here is that the student flow from China could be arrested or reversed by Chinese government intervention in pursuit of its geopolitical agenda. This is a well-founded fear as our analysis demonstrates. Other concerns include competition for such a lucrative market from other countries, and from universities within China itself.

We focus on another, rarely acknowledged concern. This is the low quality of the education Chinese students are receiving.

Most Go8 overseas students are taking masters-by-coursework degrees, over half of them in business and commerce with most of the rest enrolled in information technology and engineering.

These masters courses were designed in the early 2000s to attract overseas students. These students wanted a short course that would give them a credential acceptable to the relevant accrediting authorities. This would then qualify them to apply for a permanent residence visa based on skill. As in the 2000s, students can still achieve this outcome with just two years study without any previous education in these fields (other than engineering).

Overseas students make up the great majority of those taking these two-year masters courses.

The Go8 are primarily catering to Chinese students whose English language skills are weak. The universities have had to adjust their teaching and assessment to the capabilities of these students. For this reason they do not produce highly trained professionals. Go8 claims that these graduates are “incredibly well trained” are not credible.

The weak performance in the Australian labour market of Chinese nationals with graduate qualifications in management and commerce attests to this assessment. Only 34.1% of young male Chinese with these qualifications held managerial or professional positions in 2016. (In contrast the share of Australian-born male graduates in the same age group holding managerial or professional positions was 68.5%.)

Universities, especially the Go8, are vulnerable to reputational damage as this state of affairs becomes better known.

Vulnerabilities in non-Group of Eight universities

The main source of precariousness for the non-Go8 universities is changes to the rules governing access of overseas student graduates to the Australian labour market and to permanent or long-stay temporary visas.

The work-study visa is still intact. However, as a result of immigration reforms in 2017 and 2018, it is now far more difficult to access a permanent residence or a long-stay temporary work visa.

These restrictions are likely to dampen recruitment levels in non-Go8 universities.

Distortion of Australia’s higher education system

The federal government has reduced the rate of growth in university funding. But universities have found a way of compensating for this: increasing enrolments from overseas students.

In the case of the Go8, there is much to admire in their achievement of top-100 world university ratings.

But this success has been achieved to the neglect of their teaching effort as well as neglect of any moves towards vocational education and industry-oriented research. Such work does not contribute to international ratings.

The Go8 and, increasingly, other universities are involved in an ‘arms race’ to maximise research that prioritises the kinds of output that contribute to these ratings.

It is a vicious circle in which high ratings based on favoured types of research help drive overseas-student enrolments, and the revenue delivered is a crucial contributor to the production of this research.

Too many downsides

The overseas student industry has been put on a pedestal and its continued growth given high government priority. This report indicates that this stance is not justified. There are too many downsides, including the vulnerabilities outlined above and the major contribution overseas students are making to Sydney and Melbourne’s growing pains described in the report.

A more balanced approach to the industry is required. There must be more emphasis on ensuring that it is sustainable, that its quality defects diminish, and that it focuses more on vocational education and industry-relevant research.

Dr Bob Birrell and Dr Katharine Betts are respectively president and vice-president of the Australian Population Research Institute.