The three threats to Australian universities and the ten most exposed

Press/Media: Expert Comment

Description

Across the sector, surpluses have not been used efficiently to establish reserves or safety margins, thus eroding resilience

We have just finished our major piece of research titled “On the resilience of Australian public universities:  Why our institutions may fail unless Vice-Chancellors rethink broken business models“.

We established a database from all the public sector universities annual financial statements 30th of December 2019 and crunched the financial numbers for these organisations from 2008 to the 2019 and observed the dramatic increase in revenues from 2008 to 2019 overseas students studying onshore. However, we find that this increase in revenues has been more than offset by increases in non-academic salaries and general expenses. Across the sector, surpluses have not been used efficiently to establish reserves or safety margins, thus eroding resilience. By our measure, ten universities are at high risk of financial default as a result. With a different government mindset and university leadership, surplus monies could have contributed towards building a more resilient Australian Higher Education System (AHES).

The empirical study of Australian public sector universities scrutinises the 2008-2019 audited financial statements, focusing on their financial disclosures. We seek to answer three key research questions (RQ):

  1. What is the state of the financial sustainability Australian public universities using 2008- 2019 annual reports data?
  2. What are the characteristics of the resilience of Australian public sector universities?
  3. What can vice chancellors do to rethink broken business models?

Also, in this paper, we evaluate future AHES resilience considering the neoliberal policies of the past.

Our paper highlights the impacts of these shocks – both past and potential – by analysing Australia’s public universities’ financial statements and drawing on empirical research by Irvine and Ryan (CMM August 19 2019).

In addition to measuring each university’s overall financial health, the model considers Merton’s probability of default, a function of debt ratios and revenue stream volatility, to create a new measure of resilience AHES.

Our analysis reveals a dramatic increase in universities’ revenues from 2008 to 2019, mainly from onshore overseas students. However, this surplus income was not converted into sufficient reserves to face an exogenous crisis, such as COVID-19. Therefore, we find Australian public universities are now facing a triple threat.

First, they are over-reliant on international onshore student revenue, which, as shown by the pandemic, is easily disrupted.

Second, they are operating on a failed funding model for domestic undergraduate teaching that typically results in substantial per-student losses in financial terms for universities.

Third, the rise in Chinese universities’ number and quality could substantially reduce students’ flow to Australian universities.

Our analysis suggests that ten Australian universities are currently highly vulnerable financially: Central Queensland University, Deakin University, Macquarie University, Monash University, Murdoch University, RMIT University, the University of Adelaide, the University of New England, the University of Technology Sydney, and the University of Wollongong,

We publicly share our three broad future scenarios for the sector. At the same time, the exact future developments of the AHES cannot be predicted and is contingent on several factors (e.g., uptake and effectiveness of the vaccine nationally and internationally; subsequent revisions of border closure and travel restrictions; the relations with China and the appetite of international students to study in Australia).  We can nonetheless try to generate insights into the sector’s future by examining an optimistic, probably, and pessimistic scenario. We use these scenarios as a discussion point for our recommendations for the future of the AHES.

In conclusion, the Australian higher education system should be a public good, and a civil right and civic responsibility, not a market commodity. Its government funding level should be determined through public discourse, not arbitrary budget decisions made by a Minister.   Like the military, police and health care, universities should not raise their funding as has happened with fee-paying onshore international students.  Submitting young Australians’ education to international recruitment has lowered academic quality to meet marketing demands and commercial targets.

Students should not be made “ready” for “jobs” that likely will not exist in the future.

They should be prepared to create and confront the challenges of the future.  Universities should provide various transferable fundamental skills in a fast-changing technological environment, rather than limited and restricting professional training.

The current crisis in the AHES, caused by large-scale academic and professional redundancies, is excused by the precipitous drop in international students’ numbers. However, universities had not previously expanded their academic staff to meet the preceding rise in international enrolments.  Australian universities used these fees for internal research purposes and self-funded about 70 per cent of research expenses.

The full Macquarie University Business School working paper can be found here

***

Distinguished Professor James Guthrie AM, and Professor Tom Smith, Macquarie Business School

Period4 Feb 2021

Media contributions

1

Media contributions

  • TitleThe three threats to Australian universities and the ten most exposed
    Degree of recognitionNational
    Media name/outletCampus Morning Mail
    Media typeWeb
    CountryAustralia
    Date4/02/21
    DescriptionAcross the sector, surpluses have not been used efficiently to establish reserves or safety margins, thus eroding resilience

    We have just finished our major piece of research titled “On the resilience of Australian public universities: Why our institutions may fail unless Vice-Chancellors rethink broken business models“.

    We established a database from all the public sector universities annual financial statements 30th of December 2019 and crunched the financial numbers for these organisations from 2008 to the 2019 and observed the dramatic increase in revenues from 2008 to 2019 overseas students studying onshore. However, we find that this increase in revenues has been more than offset by increases in non-academic salaries and general expenses. Across the sector, surpluses have not been used efficiently to establish reserves or safety margins, thus eroding resilience. By our measure, ten universities are at high risk of financial default as a result. With a different government mindset and university leadership, surplus monies could have contributed towards building a more resilient Australian Higher Education System (AHES).

    The empirical study of Australian public sector universities scrutinises the 2008-2019 audited financial statements, focusing on their financial disclosures. We seek to answer three key research questions (RQ):

    What is the state of the financial sustainability Australian public universities using 2008- 2019 annual reports data?
    What are the characteristics of the resilience of Australian public sector universities?
    What can vice chancellors do to rethink broken business models?
    Also, in this paper, we evaluate future AHES resilience considering the neoliberal policies of the past.

    Our paper highlights the impacts of these shocks – both past and potential – by analysing Australia’s public universities’ financial statements and drawing on empirical research by Irvine and Ryan (CMM August 19 2019).

    In addition to measuring each university’s overall financial health, the model considers Merton’s probability of default, a function of debt ratios and revenue stream volatility, to create a new measure of resilience AHES.

    Our analysis reveals a dramatic increase in universities’ revenues from 2008 to 2019, mainly from onshore overseas students. However, this surplus income was not converted into sufficient reserves to face an exogenous crisis, such as COVID-19. Therefore, we find Australian public universities are now facing a triple threat.

    First, they are over-reliant on international onshore student revenue, which, as shown by the pandemic, is easily disrupted.

    Second, they are operating on a failed funding model for domestic undergraduate teaching that typically results in substantial per-student losses in financial terms for universities.

    Third, the rise in Chinese universities’ number and quality could substantially reduce students’ flow to Australian universities.

    Our analysis suggests that ten Australian universities are currently highly vulnerable financially: Central Queensland University, Deakin University, Macquarie University, Monash University, Murdoch University, RMIT University, the University of Adelaide, the University of New England, the University of Technology Sydney, and the University of Wollongong,

    We publicly share our three broad future scenarios for the sector. At the same time, the exact future developments of the AHES cannot be predicted and is contingent on several factors (e.g., uptake and effectiveness of the vaccine nationally and internationally; subsequent revisions of border closure and travel restrictions; the relations with China and the appetite of international students to study in Australia). We can nonetheless try to generate insights into the sector’s future by examining an optimistic, probably, and pessimistic scenario. We use these scenarios as a discussion point for our recommendations for the future of the AHES.

    In conclusion, the Australian higher education system should be a public good, and a civil right and civic responsibility, not a market commodity. Its government funding level should be determined through public discourse, not arbitrary budget decisions made by a Minister. Like the military, police and health care, universities should not raise their funding as has happened with fee-paying onshore international students. Submitting young Australians’ education to international recruitment has lowered academic quality to meet marketing demands and commercial targets.

    Students should not be made “ready” for “jobs” that likely will not exist in the future.

    They should be prepared to create and confront the challenges of the future. Universities should provide various transferable fundamental skills in a fast-changing technological environment, rather than limited and restricting professional training.

    The current crisis in the AHES, caused by large-scale academic and professional redundancies, is excused by the precipitous drop in international students’ numbers. However, universities had not previously expanded their academic staff to meet the preceding rise in international enrolments. Australian universities used these fees for internal research purposes and self-funded about 70 per cent of research expenses.

    The full Macquarie University Business School working paper can be found here

    ***

    Distinguished Professor James Guthrie AM, and Professor Tom Smith, Macquarie Business School
    Producer/AuthorDistinguished Professor James Guthrie AM, and Professor Tom Smith, Macquarie Business School
    URLhttps://campusmorningmail.com.au/news/the-three-threats-to-australian-universities-and-the-ten-most-exposed/?utm_source=sendgrid.com&utm_medium=email&utm_campaign=website
    PersonsTom Smith, James Guthrie