Why universities are headed for a reckoning

The need for more paying students has made top universities huge; some have almost 100,000 students. At Sydney and Melbourne, two of Australia’s most established educational institutions, almost half of students are from overseas.

So, when Opposition Leader Peter Dutton called out the numbers of international students at Sydney University in a radio interview as a partial justification for slashing student visas, it quickly became a political issue. Now, universities find themselves at the centre of a fight they cannot win.

The question is, how many foreign students are too many?

Breaking it down

The federal government wants to reduce net overseas migration – the difference between the people who arrive on a temporary visa in any one year and those who leave – to 260,000 next year, 255,000 the following and then stabilise it at 235,000 in coming years.

This is half the net migration figure of 518,000 in 2022-23. Since students made up half the number, it is the education sector that is firmly in the firing line.

Under the 235,000 net migration scenario, new students would fall to numbers not seen in decades. In 2023, 561,162 new international students started a course, a record.

The Coalition wants to go further.

Modelling done for The Australian Financial Review by migration expert Abul Rizvi suggests Dutton’s stated ambition of reducing net migration to 160,000 people a year would mean new student enrolments would have to fall to between 10,000 and 15,000 a year.

To put that in context, Sydney University alone enrolled 13,500 new students at the beginning of the first semester this year.

It’s not just universities that would suffer. Students also come to Australia to study in vocational and English-language colleges, as well as schools.

But universities enrol the lion’s share of international students. In a complex interplay of factors, it is international students – and the tuition fees they pay – that allows Australia to count seven universities in the top 100 of global rankings.

Mark Scott is the vice chancellor of the University of Sydney and chairman of the Group of Eight universities. He says governments have knowingly and willingly facilitated the nexus between international student fees and underfunding of universities over many years.

“The whole funding system of Australian higher education and our research capability is dependent on the flow of international students,” Scott says.

“We are all happy to have a conversation about managed growth. But to now see headlines suggesting that swingeing cuts to student numbers, without any evidence at all the government is willing to stump up to fill that very significant financial hole, are deeply disconcerting.”

Dictating policy

Contrary to common opinion, international students do not take the place of domestic students in universities. While local student numbers are controlled via funding mechanisms, universities and colleges have always been able to enrol as many international students as they choose.

But that is about to change. Both the government and the opposition plan to cap international student numbers. Amendments to legislation tabled in parliament last week will allow the education minister to dictate enrolments not just by individual institution, but right down to the course level.

Unsurprisingly, the proposal has not been well received by the university sector.

“The fact that the minister has huge personal discretion is a problem. If universities realised that all that income is at ministerial whim, that really changes the relationship between the government and the universities,” says Australian National University policy expert Andrew Norton.

While the Coalition’s policy has yet to be fleshed out, Opposition Leader Dutton has mentioned imposing a cap on student numbers, potentially on a first-in, first-served basis.

Experts say a cap would drive unintended consequences and probably backfire. Luke Sheehy, CEO of peak group Universities Australia, says it would damage the sector and consequently be “economically reckless”.

Under Labor’s plan, universities will be allowed to go over their cap if they have plans in place to increase the amount of student accommodation they have in the pipeline.

The government’s plan also involves getting more students to head to regional universities. That is despite years of evidence that international students do not want to study in regional towns, no matter how alluring the incentive.

“If the government can somehow mastermind the movement of international students around the country to take pressure off the big cities then good luck to them. International students will have something to say about that,” Scott says.

“Even though big global universities like Sydney are more expensive, more students to want to come for the experience and the reputation of the degree they get on graduation. They have not lacked opportunity to go to regional settings at lower prices. They just don’t want to go.”

In 2022, just 1020 international students were enrolled at the University of New England, while 37,000 opted for Sydney University. More than two in every three choose to study in Sydney, Melbourne and Brisbane.

Economic drivers

The importance of international students to the economy was fleshed out in a research report from National Australia Bank in March, which found they contributed about half of Australia’s economic growth in 2023.

Its analysis of national accounts found education exports, which capture spending by international students living in Australia, were equivalent to 0.8 percentage points of annual GDP growth, or more than half the 1.5 per cent annual rate in December.

Included in that spending are tuition fees, which are significant. A bachelor of agriculture at the university of Sydney costs $54,000 a year for three years – $162,000 – while nursing, its cheapest degree, costs $45,000 – or $135,000. A master’s of engineering from the University of Melbourne costs $52,800 a year – or $166,450 in full.

Degrees from regional universities are cheaper. A bachelor of agriculture at the University of New England costs $33,829 a year, while nursing costs $32,354.

The current situation has been a decade in the making, with the mix of overseas student enrolments changing dramatically. Analysis by AFR Weekend reveals that, in 2012, the Group of Eight universities, such as Sydney and Melbourne had an international cohort of 20 per cent to 25 per cent.

They are now the biggest enrollers of international students, with Sydney adding over $1.4 billion in fee revenue to its coffers in 2023. Melbourne University took just shy of $1 billion while Monash was in receipt of $950 million.

Most universities receive more than $100 million in overseas student fees, with just a handful of regional universities falling below that figure.

Thai-born Kunachon Somboonporn, 26, is one of the 5 per cent who opted for South Australia, where he enrolled in a master of business administration at the University of Adelaide in 2022.

In researching where to study, Somboonporn considered the UK and Singapore, but opted for Australia because it was where his parents had spent a few years on a medical fellowship in Melbourne when he was young.

“Australia has a very good education system. And it’s a nice place; it’s a mixture of western and Asian cultures, so I feel more like at home here,” Somboonporn says. And despite a cost-of-living crisis, it’s cheaper than the UK and most of Europe.

Having completed his course, Somboonporn is now waiting to see if his application for a post-graduate visa that will allow him to stay and work for up to 18 months is successful.

A brief history

Along with the aircraft black box, Wi-Fi and the Hills Hoist, international education is one of Australia’s great success stories.

It began in the 1950s when a diplomatic program called the Colombo Plan brought promising young people from third-world countries to Australia for a university education as way of developing human capital in those countries.

It was hugely successful, producing leaders in government, business, the diplomatic corps, medicine and research, many of whom retained strong links to Australia.

By the late 1980s, when Bob Hawke and his education minister John Dawkins decided to dramatically expand the number of young Australians going to university, it was realised that the emerging middle classes of Asia were willing to pay for a degree in an English-speaking country.

The sector took off. It grew year-on-year without pause until the late 2000 when a confluence of negative events collided: the Aussie dollar hit a high of more than $US1; there was widespread rorting of the visa system under a policy that guaranteed residency for anyone with an Australian qualification; and racist attacks and thefts on students from the subcontinent blew up in the Indian media, which labelled Australia as a racist nation.

A review of the visa system by former NSW minister Michael Knight righted most of the wrongs and the sector, again, began building up steam. But, in the aftermath of the pandemic, demand exploded.

More than 560,000 new students arrived in Australia in 2023, bringing to 975,230 the total number of students in the country. Added to that were 160,303 former students who were granted another visa – an increase of 170 per cent on the previous year.

Almost one in every 23 people in the country was either a current international student or had recently been one. So while the number of domestic students doubled over the past 30 years, international students increased more than 20-fold.

Past the peak

While much of the focus has been on plans to cap international student numbers, in an ironic twist they have already started to fall. AFR Weekend reported last October that Australia had hit peak migration.

The cancelling of the so-called COVID visa, stricter policing of poachers and dodgy agents and colleges, rising visa rejection rates, stricter rules around English-language proficiency and money in the bank, and a raft of other policies started to deliver results towards the end of the year, when Home Affairs Minister Clare O’Neil announced even more restrictions.

By March, new arrivals hit a 10-year low and departures were at five-year high. A survey of 11,500 prospective, applied and current students by recruitment firm IDP Education found a sharp increase in the popularity of the US, as more restrictive policies in Australia, Canada and the UK began to influence decision making.

Jane Li, IDP Education’s area director for Australasia and Japan, said the US used to rank last on a preference list of four major student destinations but had now leapt to first. Canada has gone from first to last.

“I don’t blame students for changing their preferences. It’s an important decision, and they are facing strong headwinds in terms of policy changes across the three major destinations,” Li said.

Australia is not the only country attempting to put a lid on its international student sector. Canada kept an open door policy during the pandemic and numbers surged. Now, a cap of 360,000 students – a 35 per cent decrease on 2023 – has been imposed.

In the UK, stricter visa settings resulted in enrolments crashing by 30 per cent in early 2024 compared to a year earlier.

But in the post-COVID world, demand for an education from an English-speaking destination is outstripping supply. While some predict numbers will plateau, others say that is unlikely.

Study hubs in Singapore, Dubai, the UAE and emerging education destinations in Europe will be unlikely to mop up excess demand. If supply can’t keep up, will there be a return to a pre-pandemic ‘normal’?

The Albanese government is proposing that more universities offer offshore and online alternatives to onshore courses. But the history of transnational campuses is complex and peppered with expensive failures.

While the allure of online education, with its promise of scalability, is promising, the fact is too many students fail to thrive in online environments and astronomical drop out rates are common.

As consultant Alex Usher says: “The first half-way competent university with at least some global prestige who figures out how to do this properly is going to make a mint.”

As for the future of this powerhouse export sector, the feeling is one of doom and gloom. Some say the brouhaha over international students is politics over policy, sensationalism over sense.

One thing is for sure. If numbers are diminished to levels proposed by the government and opposition, there will be a day of reckoning when education institutions start going out of business, when skill shortages ravage business viability, when Australia starts tumbling down the university rankings and, perhaps, most of all, when the government of the day finds it has to dig deep into its pockets to fund teaching and research.