What will happen if the overseas students stop coming (or Julia Gillard’s big policy gamble)

A story in this morning’s Australian drew attention to this Access Economics report on international students, commissioned by the Australian Council for Private Education and Training, the largest peak body for private education providers.

Because they don’t take into account the paid work overseas students do while living in Australia, I think the Access report overstates their contribution to export earnings and understates their contribution to GDP. But the report does do a service in pointing to the consequences for the economy of a decline in demand from overseas students.

Of more pressing concern for those of us attending or employed by universities is what happens to us if the overseas student market goes into serious decline. Universities depend on international students for their survival.

Julia Gillard as Education Minister is also relying on a strong international student market. Her current policy approach is actually high-stakes politics, with her policies putting the higher education system at significant risk.

She has already ruled out the most obvious way to improve university revenue, which is to increase charges for domestic students. The signs are that the budget will provide nothing of consequence on recurrent funding for existing students in 2010, and indeed it is more likely that it will impose another real cut (which applies to student contributions as well, which operate under the same indexation system). Universities have already taken a big hit on investment earnings.

So it is conceivable that in 2010, while university costs continue to rise, the two main revenue sources will be shrinking and a third revenue stream will already have been lost. For institutions on tight margins already, this is a potentially disastrous scenario. While Gillard can be allocated no blame for investment earnings or international students, her ideological opposition to tuition fee deregulation is a huge risk factor for universities, and her own legacy as Minister.

15 Responses to “What will happen if the overseas students stop coming (or Julia Gillard’s big policy gamble)

  • 1
    Jc
    April 1st, 2009 22:12

    Andrew:

    Haven’t they in their wisdom stopped private tuition students? The budget constraints alone will put enormous pressure on university funding and if the supply of international students gets cut down you guys have a serious funding problem.

  • 2
    Andrew Norton
    April 2nd, 2009 06:05

    JC – They banned full-fee undergraduate students at public universities – a stupid change, but not catastrophic in the way a major decline in international students would be.

  • 3
    conrad
    April 2nd, 2009 06:18

    Apart from the obvious (funding), another big effect that a decline in OS students would have in the medium term is due to the fact that they enroll in courses in a non-random way (in both courses and universities), and there are many marginal courses which exist because of them that probably couldn’t otherwise. Unfortunately, I imagine a lot of these marginal courses are crucial for the Australian economy (most electrical engineering, many other types of engineering, many business courses, almost all IT courses, many science courses, some allied health courses — indeed, across universities, only social sciences and humanities are probably safe). So, apart from not getting some of these kids via skilled migration, the closure of courses would also mean many Australian students couldn’t study them any more.

  • 4
    Pedro S
    April 2nd, 2009 06:30

    What happened before will happen again….

    Wasn’t there a considerable reduction in foreign students during the 1998 Asian Financial Crisis? What was the decline like then? How was it handled, could another reduction be handled the same way?

  • 5
    Andrew Norton
    April 2nd, 2009 07:50

    Pedro – There was not actually a decline during the Asian financial crisis, and in posting this scenario I should have noted that the international student market has defied endless prophets of doom – Asian financial crisis, Pauline Hanson scaring them away, SARS, quality concerns, the high dollar etc etc.

    Asian families considering sending their kids overseas tend to rate education highly, so the perception is that it is the last thing to be cut, but if parents have no money…

  • 6
    Rajat Sood
    April 2nd, 2009 09:04

    When are international student fees in respect of an academic year required to be paid? Most Asian sharemarkets bottomed in November (thus far), so to the extent parents are paying fees out of savings rather than earnings (which I would expect), the bulk of the impact on enrolments could have already occurred.
    Also, the Australian dollar has fallen by 10-20% against most Asian currencies since the start of 2008, so that must help.

  • 7
    Andrew Norton
    April 2nd, 2009 09:43

    Rajat – I think payment dates vary. Numbers will be up on 2009 compared to 2008, with the $A a plus.

  • 8
    Brendan Duong
    April 2nd, 2009 20:32

    I wonder whether these Asian families are paying the tuition fees straight out of their income/savings or are they borrowing to finance their child’s education.

  • 9
    Pete
    April 3rd, 2009 03:35

    Brendan Duong @8: “[…] Asian families are paying the tuition fees straight out of their income/savings or are they borrowing to finance […]”

    I spent much of last year working at an Aussie uni (uni’s name withheld to protect the innocent) and had a friend in the international students dept. The majority of overseas students borrow to finance their studies, but, they do have to put a significant amount down as a deposit. Often it’s the parents actually taking out the loans, of course.

    While the current credit crisis might create a few more hoops to jump through, I expect this type of loan is considered relatively safe.

    The real problem the Australian uni sector will face is Asia has spent the last decade investing heavily in its own university sector and Australia is now considered an expensive alternative to going local; where once Australia used to be the cheaper university alternative to the UK or the US. Australia is still considered worthwhile (exposure to Western culture is good and it polishes up their English language skills) but might be a bit extravagant for the times.

    Overseas students actually make up a majority of the students you see milling around on campus (I presume the natives study by correspondence as current Austudy rates for full-time students wouldn’t even pay fortnightly rent, let alone food and the rest; everyone but the extremely wealthy are most likely on the dole or working part time). It’s fair to say a significant drop in the overseas market would easily cripple our unis.

  • 10
    Andrew Norton
    April 3rd, 2009 07:40

    Pete – Unfortunately the part-time/full-time statistics are not broken down on any useful way, but overall 70% of students are full-time. About half of teenage uni students living at home are in households earning more than $100K a year, so there is no mystery as to how they support themselves while studying full-time.

    That said, Australian universities have always been commuter campuses, so overseas students would make up a disproportionate number of those on campus, particularly at night and weekends.

  • 11
    Rajat Sood
    April 3rd, 2009 07:47

    Pete, borrowing, against what collateral? I didn’t think Asian students in particular literally ‘paid back’ their parents for funding their education. The parents must have access to a decent source of wealth or income to get such loans.

  • 12
    Andrew Norton
    April 3rd, 2009 08:19

    There are some complicated financial relationships, though I have never seen a survey of them. I had a Pakistani taxi driver last year who told me that his family had invested heavily in his education (denying his sister even school education), and that he was now obliged to stay in Australia to earn money to support them. Even driving taxis here was better than working in Pakistan.

  • 13
    Sinclair Davidson
    April 3rd, 2009 08:51

    When I took a loan to pay for my Uni studies, my parents signed surety but I actually paid back the loan. The surety allowed me to get a reduced interest rate, but I could have gotten the loan at a much higher rate without the surety. Having spoken to some students another model used is for the parents to pay for one year in Australia and the student being expected to work in that year to raise money for the second year and so on.

  • 14
    M
    April 3rd, 2009 11:43

    I’m inclined to agree with Conrad.

    I think the institutions that will really suffer are the 2nd tier, especially those focused on engineering/IT/business. There are a lot of subject areas with well over 25% international students, some over 50%. Those courses can’t be run economically if they lose half their students.

    It could be argued that it doesn’t matter because those skills were going back OS anyway. I’m not convinced that is true. A lot of international students get degrees as a pathway to residency.

  • 15
    animalmother
    April 3rd, 2009 15:47

    surely the education market strengthens in a recession

    guy who sold brittanica once told me that – parents first priority in a recession is thier kids upward social mobility

    so stop fretting everyone

    PS a lot of full-fees were having thier often post grad degrees handed to them on a platter – anything to improve academic standards please