Bumpy road ahead for Australian universities

Australia’s higher education success has rested on policy reforms that started in the late 1980s. These reforms resulted in the amalgamation of institutions and the creation of a unified national system; an increase in the number of publicly funded places available for study; and a new funding model based on discipline and level of study, among many other changes.

The main argument for the reforms, which continued into the 2000s and were influenced by neo-liberal forces which underpinned market-driven approaches, was that Australia needed to be more competitive internationally.

With each subsequent wave of reform, the Australian government further advanced liberalisation, heightened institutional competition and increased deregulation and marketisation of the higher education sector.

Boom built upon international students

The number of student enrolments in Australian higher education has increased from 441,074 in 1989 to 1.56 million in 2018. International student enrolments have underwritten the growth seen in Australian universities.

Over the period 1989 to 2018, domestic student enrolments have seen annual average growth of 3.4% compared to 11.9% for international students.

Since 2000, Australian universities have earned more than AU$90 billion (US$61 billion) from international students through tuition fees. Between 2000 and 2017, revenue from international students increased five times faster than the Australian government contribution to universities.

This growth led universities to depend on income from international students to supplement government-sourced income.

Consider that, in the early 1990s, less than 6% of Australian universities’ revenue came from international students, compared with 23% in 2017. In fact, the University of Melbourne received AU$879.3 million in income from international students (or 33% of total revenue) in 2018, compared with AU$23.6 million (or 4.5% of total revenue) in 1995.

This means that Australian universities are greatly exposed to financial loss in the likelihood of international student numbers diving, particularly from China. In 2018, 33% of international students were from mainland China, compared to 4.6% in 2000.

Distinguishable features

A key feature of Australia’s enviable position as a global education leader is that it has built a robust quality assurance framework over the past 20 years. Additional features of Australia’s unified university system are that:

• • Its universities offer similar programmes.
  
  
• • It has fewer institutions (43) compared to other national systems – for example, 164 in the United Kingdom and 2,832 degree-granting institutions in the United States.
  
  
• • Its universities are big: the average size of institutions is 34,325 enrolments, compared to 13,740 for the UK and 4,500 for the US.
  
  
• • All universities are considered research-intensive.
  
  
• • All universities are comprehensive and offer doctoral programmes.

While these features can be viewed as Australia’s strengths, they are also Australia’s weaknesses. For instance, there is no way of knowing what universities are deemed to be distinctively strong or specialised in.

This lack of differentiation is likely to drive student demand elsewhere. Universities need to consider the value proposition of their location and the communities in which they operate in order to set themselves apart from one another.

Challenges ahead

As we live in an era surrounded by uncertainty and economic, social and geopolitical shifts, there is no guarantee that Australia’s ongoing educational success is assured.

There are several challenges, both demographic and geopolitical. The way the state, civil society and market forces respond to these challenges will determine the path for Australia over the next 10 to 20 years.

Over the period from 2004 to 2018, the proportion of Australia’s population aged 20 to 64 with a bachelor degree qualification or above increased from 21.1% to 31.4%. But there is a disparity in the levels of educational attainment by cohort: people in rural and regional areas are much less likely to go to university than those living in major cities. Queensland and Tasmania are the weakest performers compared to the other states and territories.

Other demographic issues include more women holding university qualifications than men and higher levels of school-children seeking to enter university.

The 18- to 64-year-old population in Australia is expected to rise by just 1.2% per year from 2017 to 2030. Therefore, lifelong learners (and those seeking second or more degrees or higher) are most likely to drive domestic student demand. An analysis of the historical patterns of university enrolments and population growth suggests that:

• • The 16-24 domestic commencing student cohort is expected to rise by 1.2% per year from 2017 to 2030.
  
  
• • The 25-39 domestic commencing student cohort is expected to rise by 1.4% per year from 2017 to 2030.
  
  
• • The 40-64 domestic commencing student cohort is expected to rise by 1.1% per year from 2017 to 2030.

The implications for universities of this reduced population growth are significant. While the domestic school leaver population represents the main student cohort, domestic undergraduates are increasingly moving towards online and multi-modal studies.

In 2002, 82% of domestic undergraduate students were on campus, 12% were online and 6% were multi-modal. Fast forward to 2018 where 67% were on campus, 16% were online and 17% were multi-modal. Should current trends persist, over the next 10 years about 55% of domestic undergraduate students will be on campus; 20% online and 25% multi-modal.

We also see that domestic postgraduate students are significantly moving towards off-campus modes of study. By 2030, it is estimated that only about 40% of the domestic postgraduate student population will be studying on campus.

What these shifts in study mode mean for the student cohort on campus is that these will largely be international students and that managing student well-being will be of paramount importance. This will represent a rethink for university decision-makers on how best to support an increasingly culturally and ethnically diverse student (and academic staff) population.

Overreliance on international students

In recent years Australia has benefited from instability in the United Kingdom and the United States when it comes to recruiting international students. However, Australia lags behind those countries in attracting top quality students.

Although the number of enrolments in higher education globally is expected to continue to increase, with East Asia and the Pacific remaining the region with the volume of enrolments, there is no guarantee that Australia and traditional host countries will continue to be the main beneficiaries.

In recent years China has emerged as a source but also a host country for transnational education. As China continues to cement its capacity to educate its own people, we are likely to see Chinese appetite for offshore study diminish.

Australian universities need to have a sound risk management strategy, realising that the loss of a market the size of China will not be replaced by one single market. Australian universities need to diversify their international student recruitment away from traditional markets and instead focus on middle-income economies and countries with which Australia has forged strategic trading partnerships, including harmonisation and recognition of qualifications.

What lies ahead

An analysis of universities’ financial statements suggests that, over time, Australian universities’ revenue growth is weaker relative to expenditure. Over the next few years we are likely to see reduced operating results.

With domestic demand down, other geopolitical factors at play and limited revenue opportunities in a competitive market environment (the domestic fee-paying market is capped, industry contributions are atypical and philanthropy is a relatively foreign concept), Australian universities will have to reduce overheads in the next few years. This is, in part, due to the influence of higher costs and technological transformation.

That also means universities will shut down programmes in which student demand and discipline relevance have subsided.

Over the next decade, Australian universities are likely to face tightened government financial support; pressure to increase student financial contribution; more emphasis on outcomes-based funding; targeted access policies; a focus on student well-being; and questions about the purpose of universities: who they are for and how they address national priorities.

There is no doubt that the road ahead for Australian universities is bumpy. Policy responses from government, civil society, market forces and university leaders need to consider the spectrum of possibilities arising from these demographic and geopolitical shifts. Timeliness and moderation are central to mapping out a way forward.

Angel Calderon is principal advisor, planning and research, at RMIT University in Australia. He is a rankings expert and a Latin American specialist, and serves on the board of QS World University Rankings. This is an abridged version of a keynote address at the annual forum of the Australasian Association for Institutional Research in Hobart, Tasmania, on 12 November 2019.