New normal? Not just yet for Australia's universities

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Australia's higher education sector has faced significant challenges over recent years.
Australia Corporate/Commercial Law
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Australia's higher education sector has faced significant challenges over recent years.

The loss of international students during the pandemic severely impacted university revenue models, with many initiating significant and often blunt cost cutting programs to address the resulting financial shortfall.

As the immediate effects of the pandemic fade, Australian universities continue to confront an uncertain financial future. Reduced attractiveness internationally compared to other countries, such as Canada, combined with a softening of domestic student numbers and embedded high-cost structures and legacy operating models, mean the outlook remains clouded.

International students' return gathers pace

For many universities, the opening of Australia's international borders after the pandemic has provided much needed relief as international students are again able to travel.

China's recent re-opening of its borders, combined with improved visa processing by Australian authorities, has resulted in visa applications being 40 per cent higher than in 2019.

Despite concerns regarding the potential for international students to take advantage of recent changes to how many hours student visa holders can work, the outlook for international students appears weighted to the upside.

Domestic student outlook less positive

The real cause for concern is the rate at which domestic students are returning to study. With strong labour markets and a 14-year low in youth unemployment rates across the country, many school leavers are opting out of further study in favour of directly entering the workforce.

This depressed rate of domestic students, which is the core revenue source for most universities, is playing havoc with budgeting and forecasting for 2023 and beyond. Although the state of the international student market receives the majority of media coverage, it is this domestic student market that will continue to have a significant impact on the financial health and sustainability of higher education providers in the short- to medium-term.

Hybrid learning – here to stay?

A further complicating factor is the ongoing question mark over university pedagogy and operating models. The rapid rollout of alternative models during the pandemic, including online course delivery, means many universities are seeking to make long term plans in a particularly uncertain environment. It also means their legacy cost structures may not be fit-for-purpose and need robust challenge in line with strategy, revenues, hybrid learning and growth opportunities.

The need to balance traditional, campus-based learning with new, online delivery models means clarity of strategy becomes particularly important. Without a clear and specific strategy and point of difference to guide key decisions and determine organisational priorities, there is a risk that many institutions will find themselves trying to be ‘all things to all students' and become fragmented, unnecessarily complex and inefficient in the new operating environment.

Multi-dimensional response required

Australian universities continue to face a multi-year challenge with a reduced pipeline of students and new delivery models. Despite many universities working to diversify revenue, with a shift away from an overreliance on international students the changing domestic student market means the pain is not over. This also has implications for legacy cost structures established and maintained for a different operating environment.

Furthermore, duplicated technology systems and misaligned data sources make agile and commercial decisions near impossible. This is especially challenging for many leadership teams who do not have deep experience in complex cost restructuring and commercial viability modelling.

To address the immediate challenges facing higher education, rapid action is required, and not just from finance departments. Universities' responses must be delivered at pace and incorporate new revenue opportunities, asset utilisation and margin improvement through sustainable and nuanced cost initiatives.

All of these actions need more robust financial modelling, commercial planning and negotiation capabilities than most universities are resourced to deliver. Universities that rise to this challenge most effectively will have greater flexibility and capacity for innovation, research and enhanced student experience. They will rebound more strongly and shape the new normal.

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