Update 9/4/20: Since this post was written there was, briefly, some expectation that the revenue loss required for universities would be lower for 15 per cent. That is not happening. 

Update 24/4/20: This story keeps evolving. Due to a loophole in the legislative instrument, which sets the revenue base at GST turnover rather than total income, some universities look like they have a basis for receiving JobKeeper.

Update 25/4/20: Cancel yesterday’s update, the government is moving to block that one. But there may still be other ways that universities can get JobKeeper. A new post updates the story.

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Last night there was some Twitter discussion about whether university casuals would receive the new JobKeeper payment of $1,500 a fortnight. It is to be paid via employers, but casual staff are not eligible unless they have been employed on a regular basis for the last 12 months. Given the on-gain, off-again nature of casual teaching many probably would not be eligible.

But the first issue is whether universities are eligible employers. To qualify, they need to have suffered a significant loss of revenue:

Employers (including not-for-profits) will be eligible for the subsidy if:
• their business has a turnover of less than $1 billion and their turnover will be reduced by more than 30 per cent relative to a comparable period a year ago (of at least a month); or
• their business has a turnover of $1 billion or more and their turnover will be reduced by more than 50 per cent relative to a comparable period a year ago (of at least a month).  (emphasis added)

In 2018 eleven universities had annual revenues exceeding $1 billion. They therefore have the higher 50 per cent drop in revenue requirement, rather than the 30 per cent drop for smaller universities.

The next issue is determining the relevant ‘comparable period’ a year ago. I think this will need to be a teaching period, since students and the government pay for units of study, which usually line up with semesters or trimesters.

So the key question is, for at least the first and probably the second teaching period of 2020, will revenues fall at least 30 per cent below last year’s levels?

I can’t answer that question with any accuracy, but I think there are not-ridiculous scenarios in which many if not most universities will hit a financial crisis, even if it is not driven by a 30 or 50 per cent decline in revenue.

We knew some time ago that there was going to be a substantial financial hit from Chinese students who could not make it to Australia by the start of semester. About a third of those previously stuck overseas did eventually arrive, but presumably significant numbers did not.

I have heard reports of international students who were in Australia heading home. Some may have concluded that if they are going to study online there is no point paying high Australian living expenses. They can continue their course from home. It raises questions about whether they should pay premium prices for an online course, but they will generate some revenue and are likely return when it is safe to do so.

But many international students rely on the student labour market to pay their living expenses, and perhaps their tuition fees. Their most common occupations (chart below) are perhaps a little less exposed to the COVID-19 recession than students in general, but the employment situation is serious. For those who lose their jobs, dropping out may be the only financially feasible option. With the global economy in recession they may not come back.

And then there is the much bigger group of domestic students. Many universities have extended the census dates for students to decide whether they want to take the online version of their subject. That’s good for the students, but it probably escalates the risk of a sector financial crisis – if a student leaves before the census date the university revenue for that student sinks to $0.

There are some financial arguments for a short extension of the census date. It might limit panicked drop outs from people who are apprehensive about online study. And it reduces the chance that a student could later successfully claim a student contribution refund or get a HELP debt remission. But long extensions seem risky. It means that more of the students who would have changed their minds after the census date anyway will not pay, as well as those dissatisfied with their new study mode.

My intuition, and it is not more than that at this point, is that student drop-outs and deferrals will be higher than a normal year on a non-trivial scale. But whether they amount to 30 per cent of revenue is harder to say, and I very much doubt any university is looking at a 50 per cent decline in income for first semester.

Due to the business revenue decline thresholds, it is unlikely that many if any university staff will receive JobKeeper pay. But that does not mean that some other kind of university bail-out will not be needed during 2020.