by GARRY CARNEGIE and JAMES GUTHRIE

Australian public universities have had a healthy appetite for recruiting fee-paying international students. The markets – both onshore and offshore ­– have been developed over decades, with 2019 being a most significant year. However, there has been little attention focussed on the sector-wide financial risks of accruing progressively growing proportions of international fee-paying students, primarily on-shore overseas students.

The most significant states in this deliberate strategy are New South Wales and Victoria as the country’s two most populous states. In total, NSW has 10 public universities, and Victoria has eight in all, making up almost half of the 37 public universities in Australia.

Melbourne and Sydney have witnessed the increasing flow of onshore international students to the end of 2019. COVID-19 has impacted public universities, including their financial performance, position and cash flows, and this will continue.

Focussing on these states, we examined the 2019 published annual reports, including the audited financial statements of these 18 public universities for the year ending 31 December 2019. The purpose was to better digest and more fully understand the financial risks they have assumed.

The data gathered from the latest annual reports has resulted in the preparation of the following financial risk ranking order table, based on their fee-paying income from international students. The table portrays the top-10 financial risk universities in these terms, ordered in descending percentage terms, based on the 2019 financial disclosures pertaining to fee-paying onshore overseas students.

The ratios shown in the two columns for each university included are as follows:

• the proportion of income from fee-paying onshore overseas students of the total income from continuing operations during the year ending 31 December 2019, and
• the proportion of income from fee-paying onshore overseas students and from fee-paying offshore overseas students to the total income from continuing operations during the year ending 31 December 2019. *

Institution                                                                            Onshore                      Onshore and off

                                                                                                     2019                            2019          

Federation University Australia (VIC)                        44.4%                          44.9% (1)

University of Technology Sydney (NSW)                   40.4%                          40.7% (3)                      

The University of Sydney (NSW)                                   38.8%                          38.8% (5)

Monash University (VIC)                                                  38.1%                           38.9% (4)

University of New South Wales (NSW)                       35.7%                           35.7% (7)

RMIT University (VIC)                                                      34.4%                           43.1% (2)

The University of Melbourne (VIC)                              30.9%                          30.9% (9)

Deakin University (VIC)                                                    30.5%                          30.5% (10)

Southern Cross University (NSW)                                30.3%                           31.1% (8)

Macquarie University (NSW)                                          26.8%                          27.5% (11)

 University of Wollongong (NSW)                                 24.0% (11)*                35.9% (6)

*Equal 11th place with Swinburne University of Technology also on 24% for Onshore

At No. 1 is Federation U, which from its regional city base of Ballarat, has developed operations with educational partners in Australian capital cities and has many international students enrolled at the university in these locations.  It also has partners offshore.

Then follow the larger capital city-based universities, with the next top-five places in the Table being UTS, University of Sydney, Monash and UNSW. Each of these five universities (three in NSW and two in Victoria) derived more than 35 per cent of their income for the year from continuing operations specifically from onshore overseas students.

Then follows RMIT, which also has a large proportion of fee-paying offshore overseas students, located in countries such as China, Singapore, Spain and Vietnam. This further major cohort of international students, taught offshore, takes RMIT to No. two in the table in terms of overall reliance on fee-paying onshore and offshore overseas students.  It follows Federation at No. one in this regard with UTS placed at No. three.

The next four universities in places six-10 in the table derived at least 26 per cent of their income from continuing operations from fee-paying onshore overseas students. Importantly, nine of the Top-10 NSW and Victorian universities in this ranking, during the year ending 31 December 2019, derived at least 30 per cent of their income from continuing operations from onshore overseas students. The Top-six in these terms attracted more than a third of their income from this source.

In the other column dealing with the combined income from Onshore and Offshore overseas students, the University of Wollongong moved into the Top-10 institutions, coming in sixth place, pushing Macquarie from the top-ten list.

What the table shows is that such financial risk levels, as ascertained, can be assumed to have been acceptable to both executive management and the councils of the institutions involved.

On the other hand, all of us must be willing to “live and learn”. That is a cornerstone of what universities do as is evident in the often-used term “lifelong learning”. Attracting key income sources that may not materialise in future has been shown, to date in this crisis period, to be problematic.

What to do? We hereby make two calls to move to a fuller understanding of the situation most public universities across Australia have reached.

First, to mandate the adoption of half-yearly financial reporting by public universities to provide a fuller understanding of their financial predicament from 1 January 2020 and what their prospects and potential may hold. Interim reporting is proposed to begin for the period ending 30 June 2020.

Second, for the Federal Department of Education, Skills and Employment to make available the 2019 financial performance  of public Higher Education Providers – which contains financial information including financial performance, financial position and cash flows for these providers.

Most preferably, the data for 2019 should now be publicly available, rather than on its usual release relatively late in February of the next year (i.e. in February 2021 based on results published for the year ending 31 December 2019).

Often the phrase “the elephant in the room” is heard in everyday life. Of course, “the elephant” is not observed until it is somewhat too late. In short, a key financial risk underpinning the financial ratios in the table appears to have been extensively underestimated during a period of considerable growth in university business.

COVID-19 was indeed unexpected. That is not the real issue in terms of financial risk assessment. The critical issue concerns when a key financial risk, which is progressively growing, comes under scrutiny in case of any apparent need to mitigate that risk before such a crisis arises.

These circumstances lend support for a Senate inquiry into the finances and rebuilding of the Australian university system as proposed by the Australian Association of University Professors (AAUP). (link)

Emeritus Professor Garry Carnegie, FCPA, RMIT University and Distinguished Professor James Guthrie, FCPA, Macquarie University.

*  At the time of writing, however, two universities have yet to publish their 2019 annual reports, specifically the ANU and the UTAS.