COVID-19 could have a high fatality rate in the private higher education sector

If things look bad for public universities in the COVID-19 era, they look much worse for many providers in the private higher education sector.*  Not all are likely to survive a significant downturn in the international student market.

Although there are some commercially very successful players in private higher education, that is not the universal experience. When TEQSA reported on financial risk last year, it rated 12 per cent of for-profit providers as high risk, and 44 per cent as moderate risk. For not-for-profits, the corresponding risk ratings were 5 per cent and 40 per cent. This equates to more than 60 providers at high or moderate risk. As of April 2020, there are 134 non-university higher education providers.

The private higher education sector is diverse, with 37 providers having no international students in 2018 (based on not having a CRICOS registration). Generally speaking, however, the private higher education sector is more exposed to the international student market than public universities. About half of private sector students are internationals, compared to 31 per cent in the public universities. The true number is likely to be higher, as the statistics only include providers that have signed up for FEE-HELP, a domestic student loan program.  Providers aimed exclusively at the international market have no need for FEE-HELP.share of internationals


Even among the providers with domestic students, many are heavily reliant on the international market. Of the 94 eligible for FEE-HELP in 2018, nearly 40 per cent had an international student enrolment share of half or more (chart below). Twenty-one providers relied on international students for 80 per cent or more of their enrolments.reliant on international students


When international students stop coming, whether due to travel restrictions or because they can no longer finance study overseas, numbers will fall more rapidly in private higher education than in the public universities. With undergraduate students, if they can afford to do so (not as certain now as previously), a commencing student will often stay for three years.  Private pathway colleges focus on one-year diploma courses, which means that a commencing student will often also be a final year student. They are a large share of private sector enrolments, as shown in the chart below.

Postgraduate coursework degrees are usually one to two years. Both the public and private sectors are exposed to this market, but the public universities have a greater share of their international enrolments in three or four year bachelor degree courses.short course

The private sector is not constrained by the funding caps on domestic undergraduate students that restrict the options of public universities. But like the public universities, they have had problems with soft domestic demand. In 2018, the latest year for which enrolment statistics are available, their commencing domestic numbers fell for the first time since they entered the statistical collection. FEE-HELP lending, a lead indicator, suggests a recovery since then but not the strong growth of preceding years (chart below).

If caps stay on the public university undergraduate the private sector might pick up some 2021 overflow demand, and there is potential growth in people sitting out the COVID-19 recession in a postgraduate course. But I cannot see a scenario in which this could offset a significant international education downturn, especially for the providers focused on the international market. FEE-GHELP slide

For all the financial problems public universities face right now, and for all the concern that some are too exposed to the Chinese international student market, they run diversified businesses. They have substantial government, domestic student and international student revenue sources, along with income streams from commercial activities, investment earnings, and philanthropy. None of these revenue sources look very promising in the near future, but only one, international students, looks terrible.

Many small private higher education institutions are highly specialised – they teach only or mostly international students and/or offer a narrow range of courses. If their specialised market suddenly contracts they are in deep trouble. And that, unfortunately, is what we now see happening. Many private higher education providers will, I fear, feature among the corporate victims of COVID-19.

*  Classifying institutions is never easy. The numbers in the post’s slides include publicly-owned institutions, for example TAFEs, or public-university subsidiary institutions, such as some pathway colleges.

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