Tertiary sector to feel effects of Covid for years to come

It’s still too early to know the full extent of Covid’s impact on the tertiary education sector, but universities alone are looking to lose $400m, Laura Walters reports

New Zealand’s tertiary sector is expecting to lose hundreds of millions of dollars due to Covid-19.

Universities alone are expected to forgo about $200 million in 2020, with that figure rising to $400m by the end of 2021. This is almost entirely as a result of lost international student fees.

Ahead of Covid, the university sector was expecting a collective surplus of $155m, now it’s looking at a collective loss of $397m.

And the loss of direct spend in communities from international students is estimated to be $700m a year.

The impact on the sector as a whole, including private training establishments, and institutes of technology and polytechnics, is not yet known.

However, it is expected to be significant.

The same goes for foreign fee-paying students at high schools.

The international education sector is New Zealand’s fifth largest export market and is worth $5 billion a year. But with the borders closed, the education sector - particularly tertiary education providers - are feeling the pressure.

In a bid to mitigate the impacts of Covid-19, the Government announced initiatives in the Budget, including $334m to fund additional tertiary enrolments, $320m to make a range of training and apprenticeship programmes free for learners and $141m to maintain the quality of learning opportunities.

And later this week, the Government will announce a new financial support package for those in the sector hit by the loss of international students.

“Longer term, the loss of income will have serious implications for the sector.”

Universities NZ chief executive Chris Whelan said the financial benefits of international education were considerable, and the loss of income from Covid-19 would have serious long-term effects.

“For universities, the loss of international students this year would have considerable financial implications, with a shortfall of about $200m likely in 2020, rising to $400m in 2021, if students were still unable to take up places in New Zealand at the start of the academic year.”

New Zealand would also suffer the loss of social and cultural benefits international students bring, including the connections they made and took home, Whelan said.

In order to mitigate the impacts, universities were taking action to deal with the financial shortfall, including delayed or deferred recruitment, voluntary pay cuts by senior managers, reductions in hours, salary freezes, and cutting back capital expenditure.

“Longer term, the loss of income will have serious implications for the sector.”

“It remains unclear when borders will reopen for international students, however it is unlikely that international students will be able to return in significant numbers for quite some time.”

Ministry of Education deputy secretary of graduate achievement, vocations and careers Andy Jackson agreed the sector had been significantly affected by the pandemic and ensuing border restrictions.

“The full impact is not yet known, but it does include a significant reduction in international student volumes and in the revenue generated from international student fees. 

“It remains unclear when borders will reopen for international students, however it is unlikely that international students will be able to return in significant numbers for quite some time.”

But Jackson said the university sector was well-placed to deal with the effects in the short-to-medium term.

The sector, as a whole, had access to more than $1 billion in cash (cash reserves or potential borrowings) to deal with the negative impacts in the short-term. 

And all universities had strong balance sheets and significant access to liquidity to appropriately respond to the drop in revenue, he said.

Universities hit

The amount of revenue lost due to Covid, and a lack of international fee-paying students, varies between the universities, but most are looking to lose tens of millions of dollars.

Victoria University of Wellington expects to lose $30m to $40m in 2020, compared to its budgeted surplus of $13m.

That loss in revenue is expected to get bigger next year.

Before the pandemic, the university had been looking to exceed enrolment targets for the first trimester, but was now down 6 percent from trimester one in 2019.

Meanwhile, Massey University estimates an impact of between $30m and $50m, resulting in a $20m to $40m deficit in the 2020 financial year (5-9 percent of revenue).

Waikato University's Vice-chancellor, professor Neil Quigley, said the university was projecting lost revenue of $21.9m this financial year, and it would have 300 fewer full-time international students than its 2020 target.

At the start of the pandemic, the University of Auckland said it expected to lose about $40m in revenue in the first half of 2020. Newsroom has not heard back from the university on its updated estimates.

“New Zealand’s handling of the crisis has further developed our reputation as a safe and welcoming study destination."

The University of Canterbury said until the semester two withdrawal period closed it was too early to know the effect in terms of student numbers or lost revenue, but the university was working hard to mitigate the overall financial impact. 

Meanwhile, University of Otago director of strategy, analytics and reporting David Thomson said the university was currently expecting a loss of up to $17m.

This included $10m in lost international fee income, $2m in domestic student income and $3-5m in student accommodation income

Otago was also projecting a loss in investment income due to the impact of Covid-19 on the financial markets, but Thomson said it was impossible to estimate this with any real confidence.

In terms of student numbers, final enrolments were down 1.3 percent for 2019, and Otago expected 2020 enrolments to be 2.5 percent below pre-Covid forecasts.

But Otago had been spared the same massive impact some other universities were facing due to its cap on international enrolments, Thomson said.

The cap allowed international students to make up a maximum of 15 percent of Otago’s total student roll, with no more than 25 percent of international students from any one country. 

The university's research in the sciences, biomedical sciences and health sciences means it has significant research income streams, making it less financially reliant on enrolments than some universities.

“The financial impact for Otago is probably best described as somewhat challenging rather than catastrophic,” Thomson said, adding that the university was currently forecasting a small deficit for 2020 rather than the modest surplus it had budgeted for. 

The overall impact on the sector, in terms of enrolments and finances, remains unknown, but will likely be felt for years to come. All of the universities that spoke to Newsroom said the duration of the effects largely depended on how long the border remained closed..

In the meantime, universities have been supporting students through online learning, and helping with scholarships and hardship grants.

And for the international students who remain in New Zealand (about half of the normal expected number of students), universities and the Government have been working on safeguarding their learning opportunities and wellbeing.

Domestic enrolments on the rise

As part of its regular forecasting, the Ministry of Education released its tertiary education sector estimates in May. The forecast shows full-time equivalent student numbers rising across the board (universities, polytechs, wānanga and private training establishments) over the next few years.

The ministry said it based its predictions on Treasury’s unemployment forecasts, and Treasury's prediction that the economic downturn would be short-lived. It also used the GFC experience to help with its estimations.

Historically during economic downturns, tertiary enrolments significantly increase as people struggle to find work or are forced to retrain.

This already appears to be happening in New Zealand, with domestic enrolments on the rise.

For example, Victoria University has seen a 40 percent increase in domestic students for the second trimester.

Most of these students are older students rather than school-leavers and many are choosing to study part-time. 

Waikato, Canterbury and Otago have also seen a slight increase in domestic student numbers, and all universities said they expected the economic downturn to move mature students their way.

But Universities NZ’s Whelan said the increase in domestic students would not be enough to offset the lost fees from international students. 

The tuition subsidy paid by the Government for domestic students supplied just under a third of universities’ income across the sector. Another 18 percent came from fees paid by domestic students themselves. 

The Government sets the subsidy and currently limits domestic fee increases to 2 percent yearly - a rate which Whelan said lags behind the rise in universities’ real costs per student.

Future of international education

Universities are keen for the border to re-open as soon as it is safe to do so. And when that happens, the ministry believes New Zealand will be well-placed.

“New Zealand’s handling of the crisis has further developed our reputation as a safe and welcoming study destination," Jackson said.

And research showed international students would still want to travel to and study in New Zealand, when the time was right.

There was also an opportunity for New Zealand to provide more diverse products and services to grow student numbers and increase resilience and sustainability through offshore online delivery and new pathways to study in New Zealand, he said.

These potential opportunities could help to rebuild the sector, but it was likely to take time and any recovery would not fully offset the losses currently being experienced.

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