Covid-19 ‘threatens viability of half of Australian sector’

Some universities lack the reserves to shoulder this year’s losses, let alone a half-decade slump

May 29, 2020
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More than half of Australia’s universities face a major challenge to their viability as losses from the Covid-19 crisis accumulate, according to a study.

Modelling by University of Melbourne researchers suggests that most universities have sufficient cash and investment reserves to withstand the loss of income from international students this year. But the situation will deteriorate as the losses mount.

The report, by Ian Marshman and Frank Larkins of the Centre for the Study of Higher Education, says the developments pose a “huge challenge” to a higher education system that has changed little since the late 1980s.

“Some universities are likely to face existential ‘going concern’ challenges which, without additional funding, will lead to major institutional restructuring and potentially extend to mergers and takeovers. Other universities will be severely compromised in terms of their research missions.”

The analysis found that 38 Australian universities would collectively be able to cover their 2020 international tuition fee losses with some A$3.3 billion (£1.8 billion) left over, assuming that they could quickly free up one-third of their reserves.

And provided that they were able to free up another one-third of their cash and investments by 2023, they could offset an estimated A$11.5 billion in accumulated losses from international tuition fee revenue, with some A$2 billion left over.

But under a more pessimistic scenario, where the losses mounted more steeply and continued into 2024, universities would find themselves almost A$5 billion short of the reserves needed to fill the gap.

The report says Australian universities have collectively managed their finances to create “some reserve capacity specifically to deal with a sudden downturn in revenue”. But it questions the durability of this spare capacity.

“The robustness of the sector will in part depend on the financial health of each of its constituent parts,” the report says. “Extreme financial vulnerability on the part of a small number of universities has the potential to have consequences that ramify across the whole sector.”

The analysis concludes that seven universities are at particularly high risk from a combination of low financial reserves and generally high reliance on international tuition fee income. They are Central Queensland, La Trobe, Monash, RMIT and Southern Cross universities, the University of Canberra and the University of Technology Sydney.

At six of these seven institutions, 2018 expenses were more than triple their accumulated cash and investment reserves, while four of the seven derived 33 per cent or more of their 2018 revenue from international students.

The report deems another 13 universities to be at “medium” risk, facing “major challenges” under the more pessimistic international enrolment scenario.

The researchers acknowledge that universities have many ways of compensating for income shortfalls as well as cashing in their reserves. But the report stresses that universities also face potential losses in domestic fees, funding and commercial income, as well as extra costs imposed by the pandemic.

“For some of those most at risk, the scale of the adjustment required may be too great for solely an internal response,” it says. “Some government assistance will most likely be required if the current sector-wide fabric is to remain.

“The absence of some form of government intervention also risks compromising the international competitiveness of individual universities and in aggregate Australia’s higher education sector.”

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