Australia's push to curb migration remains a thorn in the side of its higher education sector. We anticipate tighter migration settings in 2025 will suppress international student flows and constrain a key revenue source for universities. That's despite the government's recent failure to pass a law to limit new overseas student commencements next year.

We rate five Australian universities, all between 'AA+' and 'A+'. We believe meaningful reductions in international student numbers could erode operating margins, diminish research funding supporting strong global university rankings, and increase downward pressure on credit ratings.

Table 1

Unis At Center Of Migration Row

The Education Services for Overseas Students Amendment (Quality and Integrity) Bill 2024 would have given the federal minister of education powers to cap new international student enrolments at Australian universities at a provider level. The bill did not receive support from the main opposition party or crossbenchers. Under the draft legislation, new overseas student commencements would have been limited to 175,000 students across Australian higher education providers, similar to 2023 levels. This could have caused many universities to reduce or rescind offers to new international students.

Chart 1

New Restrictions Are Likely

We expect the government will introduce new measures or tweak existing measures to curb the flow of international students into Australia. This could include invoking powers under the Migration Act to limit the number of student visas issued or a new ministerial directive striking to limit student numbers more equitably across the sector. The government is under political pressure to rein in migration before a federal election in 2025.

Some politicians have sought to tie low rental stocks and increasing rents to a surge in migration, including the return of international students after the pandemic. In response, the government pledged to slash net annual overseas migration to 250,000 people by June 2025, less than half the level in the year to June 2023.

International students typically account for about one-third of inbound migrants annually. To meet its ambitious migration targets, the government will need to cut the intake of international students, one way or another.

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A Small Win For The Big Players

We believe the abandonment of the proposed caps will primarily benefit Australia's prestigious Group of Eight (Go8) universities. The government proposed more stringent caps on universities with a higher concentration of international students. Go8 universities are among the most heavily dependent on international students. Across the Go8 in 2023, some 46% of new students were international students.

Table 2

International students generate lucrative revenue. International students can pay as much as three times as their domestic counterparts for some courses. They contribute a disproportionate amount to student revenue, relative to their size, and allow universities to invest heavily in research activities and fund scholarships to low socio-economic and underrepresented groups. Even small disruptions to this productive revenue stream can dent operating margins and put downward pressure on very strong credit ratings.

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Little To Cheer About For Regional Universities Under Ministerial Direction 107

We foresee challenges for regional universities under the current settings. While student caps may not take effect, Ministerial Direction 107 remains in place for now. Introduced in December 2023, the directive prioritizes processing student visas based on the assumed risk on an education provider enrolling a non-genuine student.

The directive is particularly tough for regional universities, whose student visa applications have been deprioritized, frustrating international student recruitment efforts. The Regional Universities Network, comprising seven universities with campuses in regional Australia, expects new overseas commencing students to plummet by 40% in 2024.

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The directive has created a two-class system. Indeed, Go8 universities with high admission standards, international student fees of more than A$50,000 for some courses, and strong global rankings, are unlikely to attract non-genuine students seeking a backdoor entry into Australia. The directive has therefore led the government to prioritize Go8 universities student visas at the expense of other providers.

The removal of Ministerial Direction 107 would have helped level the playing field. The proposed caps would still have limited regional universities to a smaller new overseas commencing cohort than they would have otherwise been able to recruit. However, the caps would have been less restrictive than Ministerial Direction 107 and would have allowed some growth in new overseas student commencements relative to 2023 levels.

Some Relief Possible

Still, there might be some relief in sight for regional universities. Education leaders speculate the government is poised to replace Ministerial Direction 107 with a new directive. This new directive is said to recognize the disproportionate impact Ministerial Direction 107 has had on smaller metropolitan and regional universities.

The proposed caps would have gone some way toward levelling the playing field. They would still have limited regional universities to a smaller new overseas commencing cohort than they would have otherwise been able to recruit. However, the caps would have been less restrictive than Ministerial Direction 107 and would have allowed some growth in new overseas student commencements relative to 2023 levels.

Preserving Ratings: Cuts To Capex, Jobs, Or Using Large Financial Asset Holdings

Demonstrating financial flexibility will be important for maintaining our strong credit ratings. Currently, we rate five Australian universities between 'AA+' and 'A+'.

Universities have several options to counter a decline in international student enrolments. Several plan to trim staff numbers, tighten operating budgets, reduce capital expenditure, or draw down on substantial financial asset holdings. Australian National University (ANU) proposes to cut up to 650 jobs, while La Trobe University will defer about half its proposed capital expenditure in 2025.

Cutting costs could be hard for some universities given their collegial and nonprofit nature, and that many have already undertaken such measures during the pandemic. For instance, proposed job losses at the University of South Queensland (unrated) led to a rare vote of no-confidence against the vice-chancellor. Likewise, staff at ANU decisively rejected a proposal to forgo a 2.5% pay rise as part of the university's cost-cutting measures.

Universities might also be tempted to further increase high international student fees. The University of Melbourne and the University of New South Wales for example, plan to raise international student fees by 7% in 2025. Even regional universities with a more price-sensitive international student cohort may contemplate fee hikes or reductions in scholarships.

The experience of the COVID-19 pandemic, where international students could not enter Australia, revealed that universities have some financial flexibility. In some cases, universities realized significant cost savings by offering voluntary redundancies and cutting headcount. Following the pandemic, universities emerged as leaner organizations.

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Australia's Reputation As A Study Destination Is At Risk

The uncertainty surrounding policy settings is alone damaging. Universities face the dilemma of recruiting a diminished international student cohort to satisfy anticipated policy settings, or withdrawing offers already extended to international students. The University of New South Wales for example, rescinded international student offers not yet accepted from November to meet its proposed student cap.

There are also wider implications for the Australian economy. International education is Australia's fourth largest export, contributing about A$47 billion to Australia's GDP in 2023. This includes universities, vocational colleges, and English-language institutions.

Diversification Efforts Are At Risk

We believe diversification of source markets is important in mitigating against market shocks, geopolitics, and exchange rate movements. The Universities Accord and Australian Strategy for International Education identify diversifying source countries as key to supporting sustainable growth.

Current migration settings would constrain efforts to diversify international source markets, in our view. Chinese students have accounted for about 42% of higher education student visas granted year to date. This is higher than all other source countries combined, excluding India, and highlights their significance as the primary source market for Go8 universities.

Regional universities tend to be more diversified across India and Southeast Asia. By deprioritizing visa applications at smaller universities, the influx of new international students has become increasingly concentrated to Chinese students.

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Thinking Caps Needed

Closing the funding gaps while preserving credit strengths will be a struggle for all tiers of universities. But some will invariably fare better than others.

Definitions

New overseas student commencement: Is a new concept introduced in the Education Services for Overseas Amendment (Quality and Integrity) Bill 2024. An international student will count as a new overseas student commencement when they are onshore and at their first provider. Calculations for the statistic are not yet fully settled, and this statistic should be considered as indicative only.

Related Research

• Not-For-Profit Higher Education Outside Of The U.S. Outlook 2025: Credit Stability Amid Market Turbulence, Dec. 5, 2024.
• Australia, Canada, Mexico, And U.K. Public University Fiscal 2023 Medians: Credit Stability Holds But Cracks Are Beginning To Appear, Nov. 13, 2024
• Australian National University 'AA+/A-1+' Ratings Affirmed; Outlook Stable, Oct. 21, 2024
• University of Melbourne 'AA+/A-1+' Ratings Affirmed; Outlook Stable, Aug. 30, 2024
• La Trobe University Ratings Lowered To 'A+/A-1' On Weaker Debt Profile; Outlook Stable, Aug. 29, 2024
• University of New South Wales, July 30, 2024
• Australian Universities: Would International Student Caps Spur A Course Correction?, June 12, 2024
• University of Wollongong 'AA-/A-1+' Ratings Affirmed; Outlook Stable, June 8, 2024
• A$10 Billion University Reform Deal Leaves Australia's Go8 Untouched For Now, March 4, 2024