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The Perilous Dependency: International Student Fees and University Finances

Over the last decade, universities in Australia, Canada, New Zealand, and the UK have increasingly turned to international student fees as a critical source of revenue.

This trend has emerged against a backdrop of stagnant or declining government funding, pushing institutions to seek alternative financial resources to maintain and enhance their operations. However, this growing reliance also brings substantial risks and costs that necessitate careful scrutiny.

The financial landscape of higher education in these countries reflects a significant shift towards private-sector funding. OECD data shows that in 2020, government support for higher education in Australia was among the lowest in the OECD, with the private sector's contribution being one of the highest. This trend underscores the critical role that international student fees play in the financial stability of Australian universities.

According to the OECD, in 2021, Australia's expenditure on higher education amounted to 1.7% of GDP. A significant share of this was derived from international student income, which supports various expenditures, including research and development (R&D). Higher education R&D expenditure was 0.56% of Australia’s GDP in 2021, surpassing the OECD and EU averages despite relatively low government R&D support.

However, the heavy reliance on international student fees introduces several risks. Financial vulnerability is a primary concern, as changes in immigration laws, economic conditions, competition from other countries, and geopolitical tensions can drastically impact the demand for international education. Additionally, fluctuations in exchange rates can affect the affordability of overseas education for international students, potentially reducing their numbers and, thus, the revenue for universities.

This dependency also affects institutional priorities. To attract and retain international students in what has become a globally competitive industry, universities must invest heavily in infrastructure and marketing activities, sometimes diverting funds from other essential areas, including academic support services. This shift in focus may increase administrative burdens on academic staff, impacting their research productivity.

The operational costs associated with accommodating more students at scale can be significant. These costs encompass facilities, equipment, support services, and teaching needs. While international student fees provide welcome additional income, the associated costs and the allocation of these funds are not always transparent or well-understood.

Universities allocate unrestricted income from various sources, including international students, to support a range of activities such as teaching, research, industry and community outreach, and corporate support. However, detailed information on how these funds are distributed across different functional categories is generally absent.

Universities are not required to publish detailed budgets and performance reports beyond statutory financial reporting to State/Territory Parliaments, making it difficult to assess the precise allocation of resources.

The benefits of international student income are evident in the significant improvements in university infrastructure and research capabilities. However, the ongoing operational costs of maintaining and modernising campus amenities and laboratories can be substantial.

Additionally, for prudential reasons, universities invest a portion of their revenue in financial assets to maintain financial stability. These investments have led to a very substantial growth in net assets for some universities.

Nevertheless, the over-reliance on international student fees poses risks to financial stability. A heavy dependence on a narrow cohort of international students from countries like China and India increases financial risk. Market disruptions in these countries could lead to significant financial instability for universities.

To mitigate these risks, universities should increase transparency by regularly reporting on the use of international student income to facilitate external scrutiny and work towards diversifying revenue streams, particularly around industry collaboration, research commercialisation and knowledge transfer.

In looking to the future, many universities are demonstrating how to effectively prioritise innovation, digital transformation, entrepreneurial support for students and staff, enhancement of industry and community engagement, knowledge transfer and translation, and delivery of education and training programs aligned with business, public sector, and NGO requirements.

Strong engagement with industry will provide the collaborative environment that businesses need to recover from the collapse in business R&D that has occurred since 2008.

While international student fees have provided essential financial support, universities must carefully manage their dependency to avoid long-term sustainability issues. Strategic diversification, collaboration, and transparent financial practices are crucial for balancing international and domestic student needs and engendering public trust and accountability.

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The Perilous Dependency
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