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Australian universities must rethink their broken business model or risk failure

Posted By and on May 28, 2020 @ 12:16

For years Australian universities have exposed themselves to excessive dependence on revenue from international students, particularly from the People’s Republic of China. Unconstrained growth in this sector is changing everything from the design of Australia’s inner cities to the quality of the on-campus student experience.

Overdependence on anything is risky, and it’s clear that the Covid-19 crisis has turned this risk into an immediate threat to the viability of some universities. The tertiary chickens have come home to roost.

In late 2019, 212,264 people from China were on student visas at all levels of education in Australia. At the same time, only 104 students were here from Timor-Leste. That’s after 20 years of cooperation and development assistance, along with $2.44 billion in military stabilisation and peacekeeping operations.

Similarly, after many years of involvement in Afghanistan (during which 41 Australian soldiers were killed and 261 wounded and $8.47 billion was spent on military operations), a mere 29 Afghan students studied here last year. One can only conclude that despite the effort and expenditure, what we’re doing with those two countries is not translating into deep, enduring person-to-person connections.

After years of increasing revenues from skyrocketing international student enrolments, the vice-chancellors of Australia’s leading universities get paid obscenely high salaries, like the CEOs of large private corporations. Unlike the CEOs, whose shareholders expect them to manage risk and not just blindly pursue low-hanging opportunity, the vice-chancellors don’t appear to have had a viable strategy to manage the risks inherent in a business model that is excessively dependent on overseas students, especially from the PRC.

In 2019, before the Covid-19 crisis, nearly one-quarter of the higher education sector’s revenues and students came from overseas, and 37.3% [1] of international enrolments were from the PRC. Some leading universities were drawing around 70% of their international student revenue from China. In December 2019, there were 164,730 Chinese student enrolments in the higher education sector. These enrolments were concentrated [2] in coursework master’s degrees in management and commerce.

There have, of course, been warnings about this situation. Last year, for example, the Centre for Independent Studies’ Salvatore Babones argued [3] that Australian universities had reached ‘China max’ and were massively exposed to risk. One risk was the perception of the declining quality of an Australian education. This resulted in an imbalance between the high cost of studying in Australia and the arguably low quality of teaching and learning making Australian universities less attractive.

Macroeconomic factors such as slowing Chinese growth, currency controls and exchange variations proved to be a greater risk. To this we can add a political risk of the Chinese Communist Party using student numbers as another source of economic vulnerability through which to demand Australian political acquiescence to CCP priorities.

Unlike American universities, whose finances are less exposed to the foreign student market, Australian universities failed to protect themselves in case of a catastrophic fall in overseas student enrolments.

In Babones’s assessment, the risk presented a moral hazard. That is, the universities’ pursuit of international student dollars presented them with substantial benefits, but if the business model failed it would be the Australian government and taxpayers who would have to bail the universities out.

One could argue that this is a microcosm of a broader unfettered Australian pursuit of Chinese money and the view that sees it only as upsides, with no impact on our sovereignty, resilience or freedom of action.

With the Covid-19 crisis, these risks have been realised. The university sector could lose [4] up to $6 billion in revenue, and individual universities could lose up to half a billion dollars each. The Australian National University is reportedly expecting [5] a $225 million financial hit this year, with similar cuts in revenue in coming years. No doubt the brunt will be borne by casualised staff. But the impact on education for Australian students and on research (which has benefited from the universities’ increased foreign revenue) is not clear. Will the Australian public have to bail universities out and suffer because of the moral hazard created by the universities themselves?

But even if things soon could return to the ‘normal’ of Australian universities’ highly abnormal dependence on revenue from PRC students, would we want them to?

There is an alternative.

The universities’ current embarrassment presents an opportunity for an ambitious plan that will wean the universities off their dependence on PRC income while developing our other neighbours and strengthening our relationship with them.

The shape of a plan to cut our university sector’s dependence on China could look like this: in return for the universities reducing their PRC student numbers by 100,000, the Australian government would fund 100,000 students from Southeast Asia and the Pacific—where we should be investing in deep, enduring interpersonal connections. We should bias the award of these ‘scholarships’ to countries that are democracies.

This would have some similarities with the government’s Australia Awards [6] program, but there are fewer than 2,500 students in that program, and 90% of them are postgraduates. Moreover, the Australia Awards provide living allowances, driving up the cost per student. The proposed larger scheme would not provide such allowances to all its students; there are no doubt many enterprising young people who would be motivated by the waiver of tuition alone.

The new scheme would offer a mix of undergraduate and postgraduate courses, as well as secondary or bridging courses for those who need help to be ready for the start of tertiary education. In place of the current preponderance of business and management studies, the Australian government, in consultation with the governments of the beneficiary countries, could offer a more rounded mix of degrees driven by student requirements, not by the need to repay student loans. This would benefit medicine and nursing, education, engineering, IT, and even arts and social science degrees.

By using its buying power, the Australian government could require the universities to charge no more than the current average cost of a degree for an Australian student, which is around $20,000. It should be a take-it-or-leave-it proposition. To stop the universities from saying, ‘Thanks for the extra cash, we’ll take it, but we’ll also keep pursuing as many fee-paying overseas students as we possibly can’, as part of this deal the government would impose a cap on total overseas student visas, with subsidiary caps on individual countries and institutions.

To attract students from countries such Afghanistan and Timor-Leste, a proportion of scholarships would need to provide living allowances. But if the universities do in fact deliver a great product, a fee waiver should be enough inducement for many prospective students.

How much would it cost? A program with 100,000 students at $20,000 for tuition each would be $2 billion per year. If we assume another $2 billion for a sliding scale of living allowances depending on need, plus $500 million for bridging courses for students needing English and other preparatory training, along with program administration and overheads, that’s $4.5 billion per year.

That’s a lot of money for the government to find in this Covid-19 era. But, in the short term, it can in part be regarded as stimulus spending for the tertiary sector. Whatever one may think of the universities’ commercial strategies over the past decade, their staff include many of our most talented people. We want them to stay here and keep teaching and researching.

In the longer term, as well-educated students start returning to their home countries, demonstrating the benefit of an Australian education, new markets could open up, allowing a reassessment of the balance between paying and scholarship students.

Another way to regard the funding is as a long overdue turnaround for our declining aid budget, which is now down to $4 billion per year or only 0.21% of GDP, a figure well below international benchmarks.

This program would be a major investment in the people of the broader region, one that will develop deep, human connections that will endure well after many Belt and Road Initiative projects have crumbled.

An Australian investment to build the human capital of Southeast Asia and the Pacific could become the centrepiece of an effort to lift our national engagement with the region, based on a foundation of people-to-people links. It is an infinitely more valuable approach than simply forever scaling up average-quality degrees for PRC students.

As we saw with the Colombo Plan, the long-term return on investment to Australia for building high-quality people-to-people relationships with our neighbours has been of enormous economic, social and strategic value.

This approach also gives our universities a one-time opportunity to rethink their currently failing business model, which is built on greed, scale and a less-than-optimal commitment to offering a high-quality educational and life experience.

Many academics who find themselves teaching in Australian degree factories would agree on the need to rethink the sector. In the post-Covid world, any business model built on a slavish over-reliance on a relationship with the PRC is irretrievably gone. Universities that rethink their approaches have a chance to design a solid future. Those that cannot make the break from dependence on money from the PRC will remain hostage to the fickleness of the CCP in ways that cannot be sustained.



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URL to article: https://www.aspistrategist.org.au/australian-universities-must-rethink-their-broken-business-model-or-risk-failure/

URLs in this post:

[1] 37.3%: https://internationaleducation.gov.au/research/International-Student-Data/Documents/MONTHLY%20SUMMARIES/2019/December%202019%20End%20of%20year%20summary.pdf

[2] concentrated: https://internationaleducation.gov.au/research/DataVisualisations/Pages/nationalitySummary.aspx

[3] argued: https://www.cis.org.au/app/uploads/2019/08/ap5.pdf?

[4] could lose: https://www.michaelwest.com.au/overpaid-university-bosses-cry-poor-as-their-foreign-student-riches-evaporate/

[5] expecting: https://www.canberratimes.com.au/story/6771254/anu-cops-225-million-financial-hit-due-to-coronavirus-crisis/?cs=14329

[6] Australia Awards: https://www.dfat.gov.au/sites/default/files/australia-awards-statistical-profile.pdf

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