New warning of over-reliance on foreign student fees

Australia’s universities have been warned of the dangers in their growing reliance on fee income from foreign students.

Should the billions of dollars the institutions earn each year by selling higher education to foreigners dry up, many could face serious consequences, even collapse.

“As China continues to build its capacity and quality to educate its own people, the appetite of its students for offshore study could diminish in the coming years,” says Angel Calderon, a principal advisor for institutional research and planning at RMIT University in Melbourne.

Calderon says Australian universities should have a “sound risk management strategy”, realising that the loss of a market the size of China’s could create an upheaval in the way the institutions currently operate.

He notes that Australian universities now have total annual revenues of more than AU$32 billion a year (US$21 billion). But while more than half that huge sum is provided from government sources and the national student loan programme, almost 25% comes from international student fees and charges.

As a result, Calderon says, universities need to diversify their international student recruitment away from traditional markets.

Instead, they should focus on middle-income economies and countries with which Australia has forged strategic trading partnerships, including harmonisation and recognition of qualifications, he says.

Writing in the Australian Universities’ Review*, Calderon refers to the closer links that Australia has forged with Chile, Peru, Colombia and Mexico over the past 20 years: nations that, like Australia, “have embraced trade liberalisation and have also increased two-way trade with Australia”.

“Whilst these features can be viewed as Australia’s strengths and key to the success in global university rankings, they are also Australia’s threats,” he says.

“Consider that there is no differentiation in what universities are deemed to be distinctively strong or specialised in. There is also no differentiation in what courses are on offer in locations across Australia.”

While this lack of differentiation has not driven student demand away from the 37 public universities over the past 30 years, Calderon says the increased relevance of private universities and non-university providers in educating Australia’s domestic population, as well as the overseas students who choose to study onshore, “cannot be under-estimated”.

And nor, he says, can the impact of technological transformation on the provision of educational services and the continued growth of online learning and other forms of delivery.

Huge rise in foreign enrolments

The number of students enrolled in Australian higher education has increased enormously over recent decades: from 441,000 in 1989 to 1.56 million in 2018, a huge 76% jump.

Yet over this period, domestic student enrolments have shown an annual average growth of only 3.4% compared to 12% for those from other countries.

“In recent years Australia has benefited from instability in the UK and the US in recruiting international students; however, Australia lags those countries in attracting top quality students,” Calderon says.

“The other factor which has made Australian universities increase their international student numbers is that domestic demand for education is flat [whereas] international student enrolments have underwritten the growth seen in Australian universities.”

Highlighting the heavy reliance of Australian universities on income from foreign students, Calderon notes that from 2000 to 2018 the 37 public universities and other higher education providers earned more than AU$90 billion from international students via tuition fees and charges.

By 2018, those fees and charges amounted to more than AU$11 billion in a single year and, although federal government contributions to universities continued to rise from 1995, revenue from overseas students increased five times faster.

“In 1995, federal government grants totalled AU$4.3 billion, increasing to AU$17 billion by 2017, whereas income generated from international students jumped from AU$441 million to AU$7.5 billion in 2017,” Calderon says.

As a result, over this period Australia’s educational services exports across all sectors became the nation’s third-largest export industry.

But this strong growth has led to a greater dependence by the universities on income from international students to supplement government-sourced payments.

The huge rise in the value of foreign student fees to universities is also revealed in the following figures: In 1995 less than 6% of Australian universities’ revenue came from international students, whereas 22 years later the ratio had jumped to nearly 24%.

The University of Melbourne is a prime example of the extent to which foreign student income has boosted its coffers: Melbourne received AU$879 million from international student fees and charges in 2018, compared to AU$23.6 million in 1995.

Across Australia, 12 universities generated more than a quarter of their revenue from international students in 2018, with Monash University receiving the most income in real terms – more than AU$990 million – followed by the University of Sydney, University of Melbourne and the University of New South Wales, which all received more than AU$800 million.

But Calderon is not the only critic to warn that Australian universities would suffer a potentially disastrous financial loss if international student numbers were to steeply decline.

China: Major source and danger?

An illustration of the potential dangers is shown by the astonishing rise in the number of students from China: In 2018, 33% of international students were from the Chinese mainland, compared to less than 5% in 2000.

In a 2018 paper, Dr Bob Birrell and Dr Katharine Betts** pointed to the impact that the Chinese government could create “in pursuit of its own geopolitical agenda” if it decided to deter or even ban Chinese students from enrolling in Australian universities.

As Birrell and Betts concluded, such an occurrence could have serious financial consequences, particularly for Australia’s Group of Eight leading universities.

They pointed out that the number of enrolments in higher education globally (including those who seek to study abroad) was expected to rise further, with East Asia and the Pacific being the region with the largest number of enrolments.

However, they also noted that there was no guarantee Australia and the traditional host countries of international students would continue to be the main beneficiaries.

On the contrary, in recent years China has emerged as a source but also a host country for transnational education. And, as China continues to build its capacity – and quality – to educate its own people, perhaps the Chinese appetite for offshore study could diminish in the coming years.

Diversification strategy

A sound risk management strategy, recognising that the potential loss of a market the size of China’s could not be replaced by one single market, would, as Calderon says, involve diversifying their international student recruitment away from the traditional market.

Australia has forged ties with Chile, Peru, Colombia and Mexico over the past 20 years, countries that have embraced trade liberalisation and increased two-way trade with Australia.

“We live in an era surrounded by uncertainty and witnessing many economic, social and geopolitical shifts: there is no guarantee that Australia’s ongoing educational success is assured,” Calderon writes.

He says there are several challenges, many of which have a demographic as well as a geopolitical connotation. 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.

* Angel Calderon is a principal advisor for institutional research and planning at RMIT University in Melbourne, Australia. His paper on which this article is based was published in the Australian Universities’ Review, vol 62, no 1, 2020.

** “Australia’s higher education overseas student industry: In a precarious state”. The Australian Population Research Institute, November 2018.