Australia’s universities face multi-billion dollar annual budget shortfalls over the next few years. Fewer international student arrivals are the single biggest cause of falling revenues. In 2018 26 per cent of university revenue came from international students, up from just 3 per cent in 1990.
Universities were warned about relying financially on international students. Since 2017, for example, the NSW Auditor-General has regularly commented that NSW universities are highly exposed to international students, especially from China. The Auditor-General’s concerns were ignored. NSW Chinese higher education enrolments increased by 25 per cent between 2017 and 2019.
We need to ask why universities took these risks.
Government funding levels
Historical funding evidence suggests a short-to-medium term relationship between university income sources; that if one declines university leaders look for another. Universities have significant expenses budgeted for current and future years. Raising revenue is less painful than cutting spending.
Dips in expected Commonwealth revenue sent vice-chancellors looking for replacement income. A huge increase in globally mobile students this century, especially from China and India, provided a substitute revenue source. The recent push for JobKeeper support as international student fee income dropped is the same dynamic operating in the other direction.
But the sector narrative of continuing government funding cuts is only sometimes true. Teaching subsidies were frozen from 2018, but after a decade of strong growth. Since 2001, total revenue for Commonwealth support students has grown by 165 per cent in real terms. Although students pay more of their educational costs than previously, total public subsidies for teaching went up by 145 per cent.
International student numbers fell for a few years during this public funding boom. But this decline was not a university strategy. It was a demand-side dip caused by changes in visa rules, a high Australian dollar, and negative publicity in India about crimes against Indian students. After these factors faded, international student enrolment growth resumed and continued until COVID-19 intervened.
The separation of teaching and research funding
Although domestic student funding policies intermittently trigger added recruitment of international students, research funding policies are a more significant factor. While Commonwealth research spending occasionally falls, as it has in recent years, the structure of research funding is a problem as well as the amount.
Over the last 30 years Commonwealth research funding has changed in important ways. The government phased out an overall block grant for teaching and research, which universities could spend according to their own priorities. Instead, teaching and research funding were separated. If Education Minister Dan Tehan’s reforms receive Senate approval it will be the final divorce between public teaching and research funding.
This separation means that universities are publicly funded for teaching and research based on largely different criteria. For teaching, student numbers drive funding, while research is principally funded according to indicators of previous research success.
Teaching-research academic roles
The problem for universities is that combined teaching and research academic employment, still the single most common role for academics who are not casually employed, assumes a link between teaching and research funding. That is how the same person can be funded to undertake both activities.
In reality, however, apart from money that would be lost in the Tehan reforms, no links remain between undergraduate teaching and research public funding at the university, faculty, department or individual academic level.
The funding logic is that academic employment should be specialised, and indeed we have seen a rise of research-only and teaching-only staff. But teaching-only positions are resisted by academic staff and their union. This trend towards specialisation would have been much greater, except that international students, by typically paying fees well in excess of teaching costs, partially restored what three decades of public policy had worn away, a funding connection between teaching and research.
With financial surpluses on both international and domestic teaching set to take big hits at the same time it is not just the total number of academic jobs in jeopardy. It is the very nature of future academic employment.
Part-funded research grants
In addition to being separated from teaching, research funding was itself sub-divided into competitive project grants, mainly from the Australian Research Council and the National Health and Medical Research Council, and block grants which universities could spend on research-related activities.
Competitive project grants are typically only part-funded, on the assumption that block grants cover other costs. The problem is that research block grants are too low to meet all the costs associated with competitive grants. This means that although competitive project grants bring prestige and additional resources to winning universities, they generate more expenditure than revenue.
Again, profits on international students, by financing part-funded research projects, have helped maintain research practices that might not otherwise have been viable.
Structural changes in research funding have driven universities to recruit international students. But these explanations on their own don’t fully explain the massive increase in research expenditure this century. It nearly tripled in real terms, fueling a similarly large growth in research outputs.
Research rankings have produced an obsession in universities with maintaining and improving their positions. Because many universities around the world want to be in the global top 100 universities simply doing good research is not enough. Universities need rapid increases in both the quantity and quality of research. It is not coincidence that the Group of Eight universities, which have the most ambitious rankings goals, ended up most exposed to the international student market.
The future of international education
Australian universities still have a credible optimistic scenario of an international student market recovery starting next year. Although due to the COVID-19 recession fewer students can afford to study overseas at least in the short term, market surveys show that strong student interest remains. If major competitors, such as the UK and USA, cannot contain COVID-19 Australia may take an expanded share of 2021’s commencing international students.
But more pessimistic scenarios are also possible. Entry to Australia may still be restricted in early 2021, especially for students from countries where COVID-19 is not under control. A deteriorating political relationship with China could see a decline in or even the end of our biggest source market. Before COVID-19 highlighted financial risks, a long list of other concerns had been raised about international students, including academic integrity issues, the influence of the Chinese Communist Party, student exploitation, and migration. One or more of these could lead to university decisions, market reactions or regulatory changes that affect student numbers.
If a pessimistic scenario eventuates, the extraordinary increase in Australia university research this century will turn into a dramatic fall in research activity. Many thousands of academic jobs will be lost.
A large international student program is necessary for Australia’s universities. Government spending might increase but it will never match university ambitions. But hubris crept in through an over-emphasis on rankings, encouraging the risk-taking the NSW Auditor-General repeatedly warned against. Some moderation in the international education market is in everyone’s long-term interests.
Andrew Norton is Professor in the Practice of Higher Education Policy at the Centre for Social Research and Methods at the Australian National University. This article draws on a series of blog posts on how Australian universities became reliant on international students. Andrew is on Twitter @andrewjnorton