by FRANK LARKINS and IAN MARSHMAN
In our comprehensive modelling study for Melbourne CSHE, of the impact of the loss of international student fee income resulting from the pandemic, 38 Australian universities are categorised into three risk categories. The risks vary according to the relative reliance of a university on international fee revenue and its underlying financial resilience, as represented by available cash and investment reserves.
A finding from the modelling is that the sector as a whole and all but seven universities have adequate cash and investment reserves to deal with the immediate impact of a downturn in international student revenue in 2020. However, when possible longer term impact is taken into account, Australian universities appear to be increasingly vulnerable.
Under an optimistic scenario, in which international enrolments decline further in 2021 before incrementally returning to pre-COVID-19 levels by 2024, at a whole of sector level available cash and investment reserves of $13.5 billion would be sufficient to cover an expected shortfall in fee revenue of $11.5bn. However, the $2bn excess may be insufficient to cover other revenue losses, or increased expenditure occasioned by the pandemic.
Eleven universities would face fee revenue losses greater than available reserves.
Under a pessimistic scenario, in which the decline in international student enrolments is more severe and extends beyond 2024, the financial resilience of universities would come under intense pressure. Cumulative fee revenue losses of $18.1bn would outstrip available cash and investment reserves of $13.5bn by $4.6bn. Only 14 universities would have sufficient available reserves to cover the loss of fee revenue. Of the large research intensive universities, Melbourne is the only university with sufficient reserves.
Based on the study findings, seven universities are assessed to be the most vulnerable from a resilience perspective and therefore face the highest financial management risks, another 13 universities face medium risks and the remaining 18 face risks of lower severity.
The most vulnerable universities assessed to be at highest risk are Monash U, RMIT, UTS, La Trobe U, CQU, Southern Cross U and Uni Canberra. As shown in the figure on both the optimistic and pessimistic scenarios these universities do not have sufficient available reserves to cover predicted shortfalls in overseas student fee revenues. They will have to undertake drastic cost-saving measures and develop new revenue-raising initiatives to mitigate serious consequences that may last for many years.
Australia's high-risk, most financially challenged universities (-$m) Monash U net funds, optimistic: -$675m net funds, pessimistic: -$1314m RMIT net funds, optimistic: -$505m net funds, pessimistic: -$853m UTS net funds, optimistic: -$336m net funds, pessimistic: -$608m La Trobe U net funds, optimistic:- $109m net funds, pessimistic:- $228m CQU net funds, optimistic:-$72m net funds, pessimistic: -$180m Southern Cross U: net funds, optimistic:- $53m net funds, pessimistic: -$108m Uni Canberra: net funds, optimistic: -$40m net funds, pessimistic:-$82m
The study confirms the need for strategic policy choices to be made by all institutions with respect to major expenditure reductions and internal restructuring. Such actions are presently being reported in the media on an almost daily basis. It is concluded from the present study that for some universities the scale of the adjustment required may be too great for solely an internal response. More government assistance will be required if the current sector-wide fabric is to survive.
Without such intervention, it is likely that COVID-19 will impose a major reshaping of the Australian unified national system that has been in place and only marginally refined since the early 1990s. This might occur organically through a series of university-led mergers or systemically as a result of government-led policy review. The risks of inaction are a deterioration of the international competitiveness of individual universities and, in aggregate, the erosion of the international standing of Australia’s higher education sector.
Frank Larkins and Ian Marshman, Honorary Fellows, Melbourne Centre for the study of Higher Education, The University of Melbourne