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It now seems clear that Australian universities have relied too heavily on international student income as a significant financial cushion. This revenue has also created substantial wealth in some institutions, with net asset holdings now at record levels. For many other smaller institutions, it has been the lifeline for sustainability.
However, this reliance has also resulted in a financial dependency, which may have inhibited efforts to diversify income streams and fully develop the capacity for breakthrough research, industry engagement, and research commercialisation.
Furthermore, characterising higher education as one of Australia’s largest export industries, which, according to the Department of Education, contributed $24.1 billion to the economy in 2022-23, risks reducing its broader societal perception as a commodity industry akin to iron ore, coal, and natural gas.
Such a framing can overshadow the sector’s pivotal public good role in delivering national, state, and regional benefits through education, research, and engagement and contributing to “soft diplomacy” through international cultural linkages.
But going too far down the education export services track, with some universities becoming very large export businesses, creates sovereign risk. Some providers, driven by a growth objective, may prioritise the export market over the domestic market – as has happened with the natural gas export market (to follow the commodity analogy).
The risks of this deepened as providers lifted the proportion of international student enrolments towards, and potentially beyond, 50%. What constitutes an appropriate proportion is currently a matter of intense political debate.
The international student market grew organically within universities, driven by global demand and domestic funding constraints; the universities were actively encouraged by state governments, which saw flow-through economic benefits (while largely ignoring infrastructure costs, particularly in urban services). However, until recently, the nexus between education, immigration, and infrastructure policies has received minimal attention.
The current policy climate demands a more coordinated and strategic cross-portfolio approach to international education, necessitating close collaboration between the ministers for education, immigration, and home affairs and the treasurer.
For years, policymakers have cautioned universities about the risks of over-reliance on a single, unstable revenue source – such as international student fees, which are vulnerable to global economic shifts, geopolitical tensions, and crises like the COVID-19 pandemic. These warnings have been amplified by increasing fiscal pressures on the Commonwealth Budget, with universities expected to contribute to public expenditure restraint as part of a broader fiscal policy imperative.
Policy risks are also associated with national security, economic and trade relations, and labour, employment and industrial relations settings. There are also confusing narratives about addressing domestic skills shortages, enticements of permanent residency, and “work rights” (casual labour) for students during their studies in Australia.
Two decades ago, universities were exhorted to prioritise commercialising research outputs and deepen industry engagement. A library of reports followed, underscoring the importance of universities in the national innovation system. However, despite these exhortations, most institutions favoured the immediate financial security of enrolment-driven revenues from domestic and international students.
A few universities pursued research commercialisation efforts, with impressive results through well-managed Technology Transfer Offices and a portfolio of successful start-ups and industry collaborations. But, most sidestepped the complexities and (manageable) risks associated with this long-term focus.
Transforming academic research into value-added products and services for industry, government, and the community requires significant investment in institutional culture, partnerships, and infrastructure. This often involves years of commitment before returns are realised, which many universities have been reluctant to undertake.
Despite the growing and high-risk reliance on international student revenue, data in the attached profile suggest that universities have made limited efforts to explore other revenue streams: philanthropy remains underdeveloped and transactional, and bespoke teaching opportunities are not fully exploited. The knowledge, skills and capabilities to do this effectively are in short supply.
Furthermore, state and territory governments contribute far less to universities than they receive, particularly through payroll taxes. This has been a long-standing issue that has not been successfully resolved. However, a strong case can be made for a much greater commitment by state and territory governments to Australia’s public research effort.
There is also little evidence of sustained commitment to other core business commercial income sources such as university presses, rentals, and sponsorships. Generating revenue from these avenues also requires expertise and investment, which universities have largely avoided. But it can be done.
Notwithstanding the very substantial amounts generated by international student income ($54 billion over 2018-2023), none of it was assigned to a “national sovereign wealth fund” that could have been allocated to big bets in science and research, such as building Australia’s artificial intelligence capability.
For the future, a proportion of international student revenues could be used to support cross-institutional strategic research to build scale and critical mass that aligns with national priorities and future industries, such as robotics and AI, big data and analytics, quantum science, advanced life sciences, cybersecurity, nanomaterials, and renewable energy.
To date, no such national strategy exists. Instead, the academic environment has continued with a “science as usual” paradigm, driven by a publish-or-perish mentality in pursuing international rankings principally through the citation metric.
The result has been that only seven or eight Australian universities are in the top 100 ranked universities — depending on which ranking system is being used —and none are in the top 10. This is despite a 2015 goal set by then Education Minister Christopher Pyne for Australian universities to have at least one institution in the top 10 global rankings by 2025.
Pyne’s challenge was motivated by the belief that Australia’s universities had the potential to compete with leading global institutions like Harvard, MIT, and Stanford, provided they could attract more funding, foster world-class research, and improve teaching outcomes. Arguably, the funding came with the boom in international student revenue, but the goal is still elusive.
Australian universities’ over-reliance on international students to finance operational activity has created vulnerabilities, as demonstrated during the COVID-19 pandemic when travel restrictions severely impacted enrolments. The government’s current goal of managing net migration more sustainably further exposes these vulnerabilities.
The demand for international education is expected to grow, especially in emerging economies with limited higher education opportunities. However, the market faces challenges, including competition from non-traditional destinations, shifting demographics, geo-political issues, and policy complexity.
Increasingly, countries have become prominent in inviting and hosting foreign universities to establish branch campuses. These include the UAE, Malaysia, Qatar, Singapore, South Korea, and Hong Kong. Several Australian universities have succeeded in this strategy, including Monash, RMIT, Swinburne, James Cook, and Wollongong, with the last-named having recently been approved to establish a branch campus in India.
This development follows a pattern in other export industries, where “production” and delivery are undertaken within target markets. This approach does not create a visa problem, although the economic benefits to Australia may be less tangible.
To regain financial stability, universities must diversify their income streams. The government is unlikely to replace the lost international student income, leaving universities with little choice but to pursue one of two alternatives: to face the harsh reality of expenditure reductions, which will focus mostly on staff cuts, “efficiency dividends”, and cutbacks in purchases of financial assets and property investments.
Or, they could decide to pursue an investment strategy in which they exploit the opportunities they have to commercialise research outcomes through technology licensing, research contracts and consultancy, create lasting, valued partnerships with businesses and government, pursue philanthropic opportunities, and build the capability for genuinely breakthrough research across the sector.
In hindsight, the international student revenue could have been seen as a “bonus”– an opportunity to invest in future capabilities. Failing to do this at scale has constrained universities’ potential to drive research excellence, innovation, industry development, and broader economic growth.
Nonetheless, many institutions, especially larger ones, still possess significant financial buffers, providing some capacity to transition towards more sustainable business models. Assistance to small universities in the form of adjustment assistance must be considered.
These reflections do not suggest that universities should not have exploited the international student market. Rather, a more prudent approach would have prioritised moderation and risk management, a commitment to long-term planning, and using the revenue windfall to invest in new capabilities and secure long-term financial sustainability.
Download a full version of The Australian Higher Education Industry A Financial Profile