Go8 submission to Senate Inquiry into Education Services for Overseas Students Amendment (Quality and Integrity) Bill 2024 [Provisions]

July 1, 2024

Senator Tony Sheldon
Chair, Senate Education and Employment Legislation Committee

In responding to the Education Services for Overseas Students Amendment (Quality and Integrity) Bill 2024 [Provisions] (ESOS Amendment Bill) the Group of Eight (Go8) states up front that it is absolutely committed to adopting a more sophisticated approach to international education that backs in integrity and quality and takes a nuanced approach to managed growth in the system.

The Go8 consents to this submission to be published and has no wish for any of it to be treated as confidential.

The Go8 supports the Ministers stated aspiration to remove the ‘shonks and crooks’ and ‘dodgy providers’ from the system. Indeed, the Go8 has endorsed several measures already undertaken by the Government such as increasing the accountability of education agents, cutting down on “poaching” of international students between providers, capping working hours for international students and introducing a Genuine Student requirement for student visas. The Go8 also endorses Parts 1 to 6 of the ESOS Amendment Bill which seeks to increase the integrity of the international education system.

Parts 7 & 8 of the ESOS Amendment Bill provide the Minister with the power to apply caps on international student enrolments at universities and high-quality public providers, down to the course level, with attendant draconian penalties. This does not address the behaviour of shonks in the system. It does, however, put at risk the bedrock of Australia’s economic and soft-diplomacy future for the sake of a “sugar hit” in addressing Net Overseas Migration (NOM) targets as a knee jerk reaction to a short-term bubble of pent-up international student demand following Australian border restrictions during the COVID-19 pandemic.

In the context of the NOM target, it is worth noting that in 2023 there were over 83,000 international students enrolled at non-Government higher education providers and another 317,000 enrolled at non-Government VET providers.

The central command and control regime for international education that caps represent simply will not work. International students have too many quality options in a global context and will not be reallocated around Australia at the whim of the Government. This is particularly the case in the rush to a 2025 implementation for the ESOS Amendment Bill.

What will be achieved is the undermining of Australia’s most successful and largest services export industry.

 In 2023 international education was worth $47.8 billion to Australia and, according to a National Australia Bank (NAB) analysis, spending by international students was responsible for a 0.8 percentage point increase in GDP in 2023, over half of the recorded economic growth for that year.[1] Go8 indicative estimates suggest that if Go8 members are capped to a pre-COVID 2019 level of international students, then conservatively benchmarking against 2023 figures this would have a potential immediate negative impact of over $5.3 billion in lost economic output and over 22,500 fewer jobs in the economy.

Under the provisions of ESOS Amendment Bill this impact would start to be felt in the first half of 2025 with an economy already with slow growth and high cost of living. This sits in the broader context where there will be an estimated Government deficit for the financial year 2024-25 and all years of the forward estimates.[2]

The threat of the ESOS Amendment Bill is already having an impact with potential students in important partner nations in the region who are perceiving a “cold shoulder” from Australia.

This is not what was promised by the Government in terms of “sustainable, managed growth in international student enrolments.”[3]

The overreach that the ESOS Amendment Bill represents must be tempered by the Parliament if the government refuses to do so.

Discussion

As noted, the Go8 is fully supportive of increased integrity and quality in Australia’s higher education industry and the need for strategically managed growth in the sector.

The Go8 also endorses many of the aspirations expressed in the Draft International Education and Skills Strategic Framework released by the Government on 11 May 2024. This includes increasing diversity in source countries of international students and in the courses they study, more consistent levels of integrity and quality across the entirety of the system, increased diversity in location and type of international education offerings including transnational and online delivery, a focus on the best interests of the student, and alignment with Australia’s current and future skills needs.

However, introducing caps on international student enrolments through the ESOS Amendment Bill will result in the unintended yet foreseeable consequence of making these aspirations impossible to realise.

Significant financial damage to the Australian economy and Australia’s higher education sector

Recent analyses of the performance of the Australian economy have evidenced the key contribution of the international education industry.

In particular, a National Australia Bank (NAB) analysis shows that spending by international students was responsible for an 0.8 percentage point increase in GDP in 2023, over half of the recorded economic growth for that year.[4]

Additionally, the National Accounts released for the March 2024 quarter by the Australian Bureau of Statistics (ABS) partly attributes low GDP growth for the quarter of 0.1% to a fall in exports of services of 1.1% “in line with below average arrival of international students in the March quarter”.[5]

As the growth of the Australian economy slows, the risk posed by the implementation of caps on international student enrolment is one that should not be countenanced.

An economic analysis undertaken for the Go8 by leading European specialist policy and economics consultancy London Economics has estimated that in 2020 alone, international students commencing at Go8 institutions had an aggregate economic impact of $16.11 billion and supported a total of 69,195 jobs throughout the Australian economy.

Conservative estimates by the Go8 indicate that capping international student enrolments to pre-pandemic levels of 2019 for Go8 members against 2023 post-pandemic enrolment figures would cost the nation over $5.3 billion in economic output and over 22,500 jobs in the economy. More detail on this analysis is provided in the appendix to this submission.

International education revenues also underpin the operation of Australia’s higher education sector. For Go8 members – who are not for profit organisations in which all revenue is invested in teaching and research activities, in 2022 (latest available complete figures) – almost 33 per cent of revenue was sourced from fee paying overseas students.

University financial data published by the Department of Education from the same year indicate that despite the contribution of international student revenue 26 of 38 universities (Table A providers only) reported a negative operating result and the sector a collective loss of $1.2 billion.[6]

This same trend continued in 2023 with annual reports available to date indicating that two-thirds of universities have reported a net operating loss.

Enrolment caps impacting international student revenues will further and significantly weaken the financial position of many Australian universities.

In practical terms, international student revenue is essential to cross-subsidise much of the operations that allow Go8 members to be globally leading research-intensive universities that undertake $7.7 billion in R&D annually and provide a world’s “top 100” education experience to over 265,000 Australians.

In particular, international student revenue is used in the following contexts:

• Government research grants through the Australian Research Council (ARC), National Health and Medical Research Council (NHMRC), and Medical Research Future Fund (MRFF) typically support less than half the full economic cost of undertaking the research. International student fees are currently needed to make up the shortfall. The research – including world-leading medical research – supported by international student fees across all disciplines is of immense value to the Australian community.
• In the absence of dedicated Commonwealth funding for capital projects, universities are heavily reliant on discretionary income from international students to fund major teaching and research infrastructure projects.
• Under Job Ready Graduates (JRG) changes, funding for universities to deliver key courses in engineering and science was reduced by 16 per cent. Many of these courses – key to the future economy and national undertakings such as AUKUS – now require cross-subsidisation from international student revenue in order to be delivered.
• Any activity that does not include explicit government funding – such as comprehensive student and staff support resources and an ever-increasing regulatory and reporting burden – are subsidised using income from international students.

It is important to note that increasing international student fees to compensate for the potential loss of institutional income from the introduction of caps will not be a viable strategy. A detailed Go8 analysis shows that international students are sensitive to price, and this will be a significant factor in their decision of whether to study in Australia.[7]

Lack of evidence for success of a cap-based approach to managing international education

A centralised approach that tells students where and what to study does not work. Job Ready Graduates (JRG) attempted to do exactly this with domestic cohorts. Changes to maximum Student Contribution Amounts (SCA) attempted to dictate to students what they should study, and geographic specific Commonwealth Grant Scheme (CGS) loadings attempted to direct the where. It is now clear that both approaches failed.

The Government opposed the introduction of the JRG package when in opposition and through advice from the sector and the Universities Accord report has been repeatedly advised that the JRG initiatives are causing damage. Nevertheless, reform of the JRG is not scheduled to commence until the Australian Tertiary Education Commission (ATEC) commences operation on 1 January 2026 – five years to the day after the JRG was implemented. This shows the difficulty in unpicking bad legislation once passed.

Attempting to implement a similar command and control regime for international education will be even more damaging and harder to remediate than the JRG.

International students are extremely sensitive to where and what they study. QS 2024 World University rankings indicate that over half (54) of the top 100 ranked universities in the world can be found across Australia, Canada, New Zealand, the US and the UK, with nine from Australia. While this is an outstanding result that demonstrates the quality of our higher education sector, it also demonstrates the choice of quality institutions that is available to international students.

And they do not just target a particular country. Many international students are specifically interested in particular locations within that country. The recently released QS Best Student Cities 2025 ranking lists only 7 Australian cities in the top 100 – the mainland state capitals, Canberra and the Gold Coast.

Higher education expert Professor Andrew Norton points out that a system of caps that does not reflect international student demand will lead to the stranded student places problem where “many education providers will end up with unusable institution or course-level allocations”.[8]

Evidence from 2022 enrolment data shows that of the international students who chose to study at a member of the Regional Universities Network over half of them (52 per cent) were based at a capital city sub-campus.

If enrolment caps for international students are introduced, a 2025 implementation schedule is unworkable

While the Go8 is opposed to caps on enrolments by international students, given the urgency of these matters it is important to comment on the implementation timeframes presented in the ESOS Amendment Bill with new arrangements commencing from 1 January 2025.

In practice, Go8 members must begin their recruitment processes well in advance of the academic year. It is estimated that across the Go8 over 4,000 unconditional offers and over 50,000 full and conditional offers to international students for 2025 have already been made. Approximately three-quarters of full offers and acceptances are registered by the end of November.

If the ESOS Amendment Bill is passed with changes, then there is the potential that providers may not know their caps until 31 December 2024. While this may not be the intention of the Government, this would be the legislative reality that universities would be required to plan for as a matter of due diligence.

To indicate the scale of the challenge, currently across the Go8 members there are over 4,000 individual courses on the Commonwealth Register of Institutions and Courses for Overseas Students (CRICOS). Under the provisions of the ESOS Amendment Bill the Minister for Education may institute a cap for commencing international students or all international students for each course. Breaking any one of these over 8,000 potential caps by a single student could bring sanctions under the Bill.

The ESOS Amendment Bill is already having a negative impact

We are already seeing that the Draft Framework and ESOS Amendments Bill is having an impact on the global reputation of Australia’s international education industry. Ratings agency S&P have very recently published a report Australian Universities: Would International Student Caps Spur A Course Correction? outlining that the politically motivated policy to cap international student numbers, in response to a post-COVID increase in temporary migration, threatens to unravel a thriving industry and curtail critical institutional autonomy.[9]

Anecdotally, both Australian Missions abroad and education agents in the region are reporting that there is now a perception that Australia as a provider of international education carries a sovereign risk due to the Government commitment to caps. Many students who are able are considering pivoting away from Australia as a provider of international education services.

In this context, attention is increasingly focusing on the US market with 25 universities in the top 100 globally and a September 2024 intake that can substitute for the 2025 academic year in Australia for early moving commencing students.

Additionally, former US President Donald Trump has recently pledged as a “day one” promise if elected in the 2024 US Presidential election, that

“What I want to do, and what I will do, is you graduate from a college, I think you should get automatically, as part of your diploma, a green card to be able to stay in this country.”

and

“That includes junior colleges too. Anybody graduates from a college — you go in there for two years or four years. If you graduate, or you get a doctorate degree from a college, you should be able to stay in this country.”[10]

In this context, Australia cannot afford to take its hard-won international education success for granted.

[1] https://www.nab.com.au/content/dam/nab-email-composer/nabmarketsresearch/economics/pdf/2024-03-07%20thematic%20-%20Students.pdf

[2] Budget 2024-25, Budget Paper No. 1, Page 7

[3] https://ministers.education.gov.au/clare/next-steps-ensuring-integrity-and-sustainability-international-education-sector

[4] https://www.nab.com.au/content/dam/nab-email-composer/nabmarketsresearch/economics/pdf/2024-03-07%20thematic%20-%20Students.pdf

[5] Australian National Accounts: National, Income, Expenditure and Product, released by the Australian Bureau of Statistics on 5 June 2024: https://www.abs.gov.au/statistics/economy/national-accounts/australian-national-accounts-national-income-expenditure-and-product/latest-release

[6] https://www.education.gov.au/higher-education-publications/finance-publication

[7] Go8 Policy brief: A damaging international student tax https://go8.edu.au/policy-brief-a-damaging-international-student-tax

[8] https://andrewnorton.net.au/2024/05/27/a-cap-and-trade-system-for-international-student-places/

[9] https://www.spglobal.com/ratings/en/research/articles/240612-australian-universities-would-international-student-caps-spur-a-course-correction-13139717

[10] See for instance https://www.independent.co.uk/news/world/americas/us-politics/trump-green-cards-us-universities-b2566737.html

Appendix – National economic impact to caps on international students

Introduction

Limits or caps on the number of international students will have a damaging impact on not only the Go8 universities through, in the first instance, reducing a significant source of revenue, but will also damage the Australian economy.

This is because of the importance and integration of the Go8 universities into the Australian economy through activities such as not only international education, but domestic teaching, research, and business creation through spin-out R&D based companies. These activities create flow-on net benefits to the Australian economy.

Using scenario analysis, we show the damaging economy-wide impact of imposing international student caps on the Go8 universities.

Caps will ultimately mean that economic activity and jobs across the economy, which on face value appear far removed from the Go8 and the higher education sector, will be hurt.

Scenario of international caps on Go8 international students

We provide a quantitative scenario of the economic impacts of cuts to international student revenue and expenditure from a cap on onshore international students at Go8 universities. These impacts include:

• Direct economic impacts: such as the net tuition fee expenses paid by international students to attend a Go8 university as well as non-fee expenses such as general living expenses and study-related expenses.
• Indirect & induced economic impacts: such as the “flow-on” expenditure through the Australian economy from income from international students (net tuition fees and on-campus non-fee expenditure) as well as the flow on expenditure to other parts of the economy of income derived from off-campus expenditures by onshore international students.

Usually, these economic impacts are measured in terms of economic output ($) and/or employment (headcount).

Our scenario involves a cap on international students whereby each Go8 university were forced to limit its ongoing international student numbers to the pre COVID-19 levels in 2019. The year 2019 is also chosen because we understand it has been canvassed as a potential benchmark point for international enrolment caps.

Utilising institutional data for 2023 (latest available) on the number of onshore international students at Go8 universities, and comparing these to 2019 figures, gives us an estimate of the number of “foregone” international students if a cap is applied at 2019 levels. This amounts to around a 13 per cent cut to the number of onshore international students at Go8 universities. (note this may be a conservative estimate because data for 2024 on the same basis is not yet available).

To arrive at the economic impacts (inclusive of direct, indirect & induced effects), in this scenario, we also we use estimates created by London Economics (from earlier work for the Go8) on:

• International student expenditure: Using expenditure data by a cohort of commencing onshore international students at different Go8 universities from the start of their course until completion. This includes different types of expenditure (net tuition, general expenses, and on-campus/off-campus), and for students at different levels of education, and
• Estimates of economic multipliers (type 2) constructed using ABS Input-Output tables.

The estimated economic impact of a cap on international students whereby each Go8 university were forced to limit its international student numbers to 2019 levels is given in Table 1.

Table 1: Scenario estimates

Our estimates show that under this scenario of international student caps on the Go8, there would be a loss of 20,689 onshore international students at Go8 universities. On face value this may not seem significant, but this loss would hurt the financial position of the Go8 universities and its ability to conduct its mission and activities.

It would also hurt the broader economy, as we can see this loss of international students equates to an estimated loss of economic output across the Australian economy of $5.35 billion in 2024 prices. There would also be a loss of employment in the Go8 universities and across industries, with approximately 22,576 people estimated to lose their jobs.

Some proponents of caps may believe that we can proceed with caps but maintain the revenue from a smaller number of international students by simply increasing the tuition fees – but this ignores evidence that international students are price sensitive. So, hiking up fees will further reduce the number of onshore international students and reduce overall revenue further.

Conservative estimates of the impact

Our scenario is a conservative estimate of the economy-wide negative consequences of international student caps for several reasons.

First, as noted earlier, there has been growth in onshore international student numbers since 2023 the first year of a full return of international students after COVID-19 lockdowns, hence the number of international students that would be caught up in a cap set at 2019 levels would be higher. But official student data for 2024 on the same basis is not yet available.

Second, we limit our analysis to the economic impacts of cuts to international student revenue and expenditure from a cap on onshore international students at Go8 universities. But we know that cuts to international student revenue will force cuts to Go8 research activities. Cutting research activities has negative “spillover’ effects on Australia’s long-term innovation and productivity capacity, and these negative impacts not captured in our modelling. Similarly, cuts to international students would have broader negative ramifications for labour supply and human capital accumulation in the Australian economy from international students that would have stayed on in Australia.

Third, we also do not model the impact of international caps on other universities.

Conclusion

Any caps to international students at the Go8 universities should not be pursued – the economic risks illustrated in our scenario analysis are significant for the Australian economy and far outweigh any intended benefits of the proposed caps.