Australia’s university sector says it faces economic catastrophe and massive job losses unless it receives more help from the government during the coronavirus crisis. It is begging the federal government to immediately extend interest-free loans, as institutions – large and small – devise plans to slash hundreds of millions of dollars from their 2020 budgets in anticipation that foreign student income will dry up in the second semester. Education is Australia’s third-biggest export industry; at stake are up to 21,000 jobs, $23bn in export income and Australia’s hard-won reputation as a top destination for foreign students. Universities have also warned their economic woes will ricochet through other parts of the economy as they put construction projects on hold in a bid to preserve cash. The University of New South Wales vice-chancellor, Ian Jacobs, says the crisis is “immediate”. “There is the risk of a downward spiral, where we are forced to lay off staff because of the financial cash flow crisis and that, of course, means then our educational offering suffers even more. Then students don’t want to come and international students don’t return and we have to lay off more staff,” he says. “So there is a real immediate crisis.” An issue of cash flow Universities have struggled to access the jobkeeper program – they have not been included in the more generous thresholds for charities, even though they are registered charities. That means the big universities – those earning $1bn or more a year – will be required to show declines of 50% in revenue to qualify. The chancellor of the Australian National University, Julie Bishop, has told Guardian Australia the university expected no more than a 40% decline. Universities say they will benefit from a federal government pledge to preserve commonwealth funding at $18bn even if domestic student numbers fall, and the offer of $100m in regulatory relief (shared with vocational colleges), both announced on Sunday, but they are unlikely to be enough. Labor has warned that some universities are at risk of financial collapse. The Group of Eight universities, some of which derive 40% of their income from foreign students, will have to explore eye-watering cuts in anticipation of steep falls in foreign students in second semester, and possibly beyond. International students as a percentage of university total The issue for the universities is cash flow, which is why the sector is continuing to urgently seek more help in the form of low- or zero-interest loans. Universities Australia has estimated the overall declines in revenue at between $3bn and $4.6bn, and warns the government’s package will not be enough to prevent 21,000 job cuts in the next six months. The University of Sydney says it will need to prune $470m from its budget for this calendar year to meet the shortfall in revenue from foreign students. Its original forecast for 2020 was for revenue of $2.8bn, of which $1.2bn would come from foreign students, mainly from China. Students still need teaching The University of Sydney’s vice-chancellor, Michael Spence, would not speculate on what would happen to revenue in 2021, saying it depended on the course of the Covid-19 pandemic and the speed with which a vaccine was developed. The university’s monthly wage bill is $120m, and while it may be able to put some building projects on ice and prune non-academic jobs, the enrolled students still expect their courses to be offered, albeit most likely online for most if not all of 2020. “One of the unusual things about the university, when people have stopped flying, is that our campus is open, scientific research is continuing and almost every single unit of study is online,” Spence says. “Here’s the tricky thing: if you have 100 students and 25 are international, you take a significant financial hit, but you still have a significant amount of students who need teaching, and you have more work, not less, to get all of that material online.” Spence says staff are also finding students require more attention as they grapple with study away from campus. The University of NSW, which also relies heavily on international students, has modelled the impact at between $500m and $700m, and plans to cut $600m from its budget. Jacobs says the government’s response so far has been “extremely disappointing”. “I am hoping that as the scale of the crisis becomes clearer, the treasurer will make changes and include us in the charities provisions.” Banking on foreign students a risky business The universities appear to be battling a long-standing distrust of the sector among the conservative wing of the Coalition as well as a perception they have somehow done the wrong thing by pursuing foreign student income. Yet both Labor and Liberal governments have encouraged or even required universities to become more self-sufficient. In 1990, 86% of the universities’ funding came from the commonwealth and 14% from other sources, including state governments. Now the federal figure is 30%, Spence says. “I don’t hear the same criticisms of our airlines, that they took risks in expanding into international markets,” Jacobs says. The government has offered support for the airlines in recognition that they provide essential services and are crucial to another important export industry: tourism. “I think it’s partly due to a lack of recognition of the role universities play in the economy,” Jacobs says. A report commissioned by the Group of Eight in 2018 put the contribution of the sector at $70bn once its broader economic impact on sectors such as real estate, construction, retail and tourism was taken into account. UNSW is a major partner in the $2bn Randwick health campus, which is being developed with the NSW government. Most of the expenditure is 18 months away, but Jacobs warns the crisis may jeopardise the university’s future contribution. The university sector has recorded stellar growth over the past decade, and with the extra funding for research flowing from foreign student income, five Group of Eight universities have muscled their way into the top 100 universities in the world. But some warned it was risky. “Australia’s universities are taking a multibillion dollar gamble with taxpayer money to pursue a high-risk, high-reward international growth strategy that may ultimately prove incompatible with their public service mission,” wrote University of Sydney associate professor Salvatore Babones last July. Regarded as a maverick among the university elite, Babones warned that the high dependence on Chinese students in particular exposed the sector to risks such as a trade war, political shifts or an international downturn. But even he did not predict it would be a virus that would pose an existential threat. “As long as their bets on the international student market pay off, the universities’ gamble will look like a success. If their bets go sour, taxpayers may be called on to help pick up the tab,” he concluded. So just how critical is the financial situation? “We are a large organisation,” Spence says. “We do have cash reserves but they are not huge and we don’t think we should use them to ride through this thing, because we think we should keep a couple of pay runs in cash reserves, in case there is a real disaster. “We have limited reserves,” Jacobs says. “We have built up a future fund and increased our reserves. But we still have a gap and limited ability to deal with the cash situation.” For smaller universities, the package announced by the government could actually mean more competition for short courses. The vice-chancellor of Central Queensland University, Nick Klomp, acknowledges the “desire to support the university sector” but warns the package “is not likely to significantly assist” the university because it is already meeting its commonwealth grant scheme-funded caps on domestic students. Nor would a proposed shift to short courses assist. “The university awaits the details of [the] short-course funding announcements, but in the longer term this initiative may introduce even more competition online – a market upon which many regional universities rely to be able to provide for communities and in thin markets,” Klomp says. “In 2020, the decline in commencing international students at CQU equates to a loss of income of over $100m. “Current modelling suggests significantly fewer international students in 2021 and 2022, even if the Covid-19 pandemic is brought under control soon.” The government has two bodies that oversee the sector’s financial health. The Tertiary Education Quality and Standards Agency 2018 report found 83.8% of universities were rated low risk. But it is unlikely TEQSA modelled for such a seismic event. The Department of Education also publishes financial information on universities. Its 2018 report reveals that 10 universities were operating either in deficit or with operating margins of less that 1%. It also hints at how slim some of the university reserves are. The report says the University of Technology, Sydney, has less than 11 weeks’ cover in cash and investments against expenditure. The same report says UTS derived 19% of its income, or $362m, from foreign students. An uncertain future Vice-chancellors are trying to envisage what their institutions might look like when they emerge from this crisis. Politicians of both persuasions have talked about a more differentiated university sector. This means making choices such as whether to concentrate the research dollars in some institutions rather than spreading them more widely. “If the international education market is seriously affected for Australia, we will have two choices: either not to have what is regarded as world-class universities, or to sink significantly more funds into the higher education sector,” Spence says. “If it does decide to put in more public funds, then it will need to decide where it will get more bang for its buck, and it might mean the sector has to become more differentiated. “They will be challenging conversations. Every government says it wants that; no government has articulated that.” Jacobs says a silver lining from the crisis is that universities have rapidly put their courses online and were quickly learning what works well. “We will have a very different way of educating the world, after this,” he says. The ANU vice-chancellor, Brian Schmidt, believes higher education will be transformed by the coronavirus, telling the Sydney Morning Herald: “What do we want our domestic course offerings to look like? What is the research that we need done for the short- and long-term? And how do we ensure this system – which had grown a fairly large dependency on international student income, which is going to be less in the future – what does that system need to look like?”