The decision to introduce Prep to Queensland's schools 10 years ago will have a surprising flow-on effect to the balance sheet for the state's universities.
Queensland universities are preparing for a potential reduction in revenue because of a prediction there will be fewer domestic students in 2020, an audit office report reveals.
![A Queensland Audit Office report reveals the state's universities have $453 million in debt.](http://web.archive.org./web/20170624125816im_/https://www.fairfaxstatic.com.au/content/dam/images/g/h/u/0/z/1/image.related.articleLeadwide.620x349.gww5ha.png/1498132307593.jpg)
It is expected there will be fewer OP-eligible students in 2020 because of the introduction of the Prep year in 2007, which meant some children who were due to go to Year 1 went to Prep instead.
"This means that students who would have been choosing a university for 2020 will instead be completing Year 12 as a result of the additional compulsory year of education," the report reads.
It comes as Queensland universities have almost half a billion dollars in debt, with a 34 per cent increase over the past five years.
The Queensland Audit Office conducted financial audits of the state's seven public universities and their controlled entities, the eight grammar schools and other education entities.
As of December 31, 2016, the universities held $453 million in debt.
Of that debt, $430 million was attributed to four universities: The University of Queensland, Queensland University of Technology, Griffith University and James Cook University.
But the audit office said all seven universities were financially sustainable, with a low debt-to-revenue ratio.
The surplus at Queensland's seven universities is also declining.
There was a surplus of $164.6 million in 2016 – a 41 per cent decrease on the $280.8 million surplus recorded one year earlier.
Six of the state's seven universities achieved an operating surplus in 2016, with The University of Queensland being the exception.
UQ's deficit of $15 million was mainly a result of a significant increase in its annual depreciation charge of $35 million, mainly due to a decision in 2015 to break buildings down to more detailed components, which shortened their average useful life.
Expenditure was growing faster than revenue, with increases in employee expenses by $117 million and depreciation charges of $39 million.
The universities reported $5.1 billion of revenue in 2016 – an increase of $96 million from the previous year.
Expenditure was more than $5 billion in 2016 – an increase of $212 million from the previous year.
The average domestic student fee for Queensland universities increased from $7283 in 2012 to $8869 in 2016, an increase of 21.8 per cent.
The average international student fee increased from $19,881 in 2012 to $26,422 in 2016, an increase of 32.9 per cent.
In 2017, the federal government proposed changes to higher education funding, including 7.5 per cent being contingent on meeting performance criteria and increased fees for some courses, which would affect future cash flow.
Attracting international students to Queensland universities is expected to be challenging, due to volatility in recent years in the exchange rate and an increase in overseas competition, particularly from Asia.
Meanwhile, the state's grammar schools achieved a combined surplus this year, but the surpluses were declining.
Expenditure increased by 2 per cent, mostly due to an increase in employee-related costs of $5.3 million, as a result of enterprise bargaining.
Other expenditure across the grammar schools increased by $1.7 million from the year before, mainly because of Brisbane Grammar School making payments in settlement of claims made by past students, amounting to almost $3 million.
As of December 31, the grammar schools held $94.3 million in debt, with most schools reducing their level of debt.
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