Tertiary education and COVID-19 recovery

Dr Hazel Ferguson, Social Policy

Key issue

COVID-19 created severe problems for education and training providers and students alike. Considerations for the new Parliament may include the recovery of international education, the structure of higher education funding, and priorities for vocational education and training reform.

What is tertiary education?

Tertiary education comprises 2 sectors:

Tertiary enrolments include students studying for certificates, diplomas, and degrees as set out in the Australian Qualifications Framework, as well as VET programs and subjects not delivered as part of a qualification- most commonly cardiopulmonary resuscitation and first aid courses.

In 2021–22 (pp. 150; 168), the Australian Government invested an estimated $7.1 billion in VET, and $10.7 billion in higher education, not including student loans or competitive research grants, such as those provided by the Australian Research Council (ARC).

The majority of Australian Government recurrent funding for VET is distributed via intergovernmental agreements with the states and territories. States and territories are responsible for VET delivery in their own jurisdictions, and contributed an additional $3.9 billion to the system in 2020. In contrast, the Australian Government is the primary funder of grants to approved higher education providers, apprentice incentive payments to employers and apprentices, and student loans for VET and higher education (which are generally paid directly to the provider, on behalf of the student).

Tertiary education during the pandemic

Border closures and the international education downturn

Prior to the COVID-19 pandemic, Australian education, particularly higher education, was increasingly internationally engaged. Total overseas students studying in Australia had nearly doubled between 2012 and 2019, from 513,083 to 952,163 (Figure 1), and by the end of this period international students made up 32.4% of higher education students (and a smaller proportion of other sectors, including 5.4% of VET students). International education constituted a major services sector with strong year-on-year growth, worth $40.3 billion to the Australian economy in the 2019 calendar year. In 2018, Australian universities reported participating in over 10,000 international agreements involving student and staff exchange, academic and research collaboration, and other forms of mobility.

COVID-19 travel restrictions, beginning on 1 February 2020, and increasing on 20 March, had an immediate impact on student visa holders, many of whom were outside the country when restrictions were introduced. Despite a regulatory response allowing students to continue studying from outside Australia, many faced barriers to taking up this option, and instead deferred or cancelled their studies (just over 25,000 more in the first quarter of 2020 compared with the same period in 2019).

By the end of 2021, compared with the peak in 2019, total international student numbers had declined by 24.7% to 716,921, primarily driven by falls in higher education and English Language Intensive Courses for Overseas Students (ELICOS). Enrolments from China, Australia’s largest source of overseas students, fell by 63,092 students (24.3%) between 2019 and 2021, while falling enrolments from India (12,964 or 9.1%), Nepal (9,095 or 13.2%) and Brazil (18,940 or 46.5%) were also substantial. In 2020, the economic contribution of international education was $31.7 billion, around three-quarters of its 2019 peak.

Figure 1          International education enrolments by sector, 2012–2021

Chart - International education enrolments by sector, 2012–2021

Source: Department of Education, Skills and Employment (DESE), International Student Monthly Summary and Data Tables (Canberra: extracted 17 May 2022).

In November 2021, the Morrison Government released a ‘roadmap to recovery’ as part of the Australian Strategy for International Education 2021–2030, citing 2022 as the year international education is expected to regain ground. Under the strategy, a review of the Education Services for Overseas Students (ESOS) Act and National Code of Practice for Providers of Education and Training to Overseas Students 2018, which set out the standards for Australian international education, was initiated. Measures were also developed to diversify international student cohorts and support online delivery for a sustainable recovery.

In the first quarter of 2022, there were some indications of recovery in the higher education sector. Commencement data show 67,080 international students started a higher education course in March 2022, compared with 61,171 in March 2021- a 9.7% increase. However, this equates to only a 1.7% increase in total commencements, due to falls in ELICOS, VET, and schools.

Enrolment data for the same period shows reductions in total international student numbers across all sectors, and from all major source countries. In part, this is due to the cumulative effect of lower commencements in 2020 and 2021. The reduced number of students starting a course during these 2 years now means lower than usual enrolments in the later years of courses.     

Higher education

For higher education providers, the pandemic has accelerated many trends that were already in progress, including online and blended delivery, and the diversification of international student delivery to include hybrid, online, offshore, and third-party arrangements.

Although students experienced a range of challenges (p. 9) associated with learning during the pandemic, graduates from this period have so far been, on the whole, well received by employers (p. 4).

The policy conversation has been largely dominated by concerns about funding:

  • In 2020, revenue from overseas student fees and investment income declined due to the pandemic. Total sector revenue from overseas student fees decreased by $755.8 million (7.6%), and investment income decreased by almost $1.2 billion (57.7%) in 2020, compared with 2019 (Table 1).
  • Commencing in 2021, Australian Government funding and fees for Commonwealth supported domestic students changed as part of the Job-Ready Graduates Package (JRG). JRG included complex changes to student and government contribution amounts, with the intent of increasing enrolments in priority fields, while also reducing average Australian Government per-student funding.

Table 1            University revenue from continuing operations by source, 2019 and 2020

Revenue 2019 ($m) 2020 ($m) Change ($m) Change (%)
Australian Government 17,782.6 18,186.3 403.7 2.3
Grants 11,976.4 12,122.3 145.9 1.2
Student loans 5,806.2 6,064.0 257.8 4.4
State and local government 725.4 763.7 38.4 5.3
Upfront student contributions 459.1 455.5 -3.5 -0.8
Overseas student fees 9,978.8 9,223.0 -755.8 -7.6
Other fees and charges 1,814.3 1,454.2 -360.1 -19.8
Investment income 2,191.3 927.4 -1,263.9 -57.7
Royalties, trademarks and licenses 136.1 139.6 3.5 2.5
Consultancy and contracts 1,567.8 1,628.8 61.0 3.9
Other income 1,863.9 1,872.6 8.6 0.5
Total revenues 36,519.2 34,651.1 -1,868.2 -5.1

Source: Parliamentary Library calculations based on DESE, University finance data, (Canberra: extracted 17 May 2022).

Notes: Student loans include HECS-HELP, FEE-HELP, VET FEE-HELP, VET Student Loans, and SA-HELP. Other fees and charges include: fee-paying domestic students, Student Services and Amenities Fee payments, and other fees and charges. Other income includes donations and bequests, non-government grants, and share of the net result (overall profit) of associates and joint ventures.

Many universities responded to financial pressures by pursuing savings measures, especially staffing cuts. While there are a number of challenges in accurately estimating job losses, the Australian Government’s university staff data collection indicates a reduction of 9,050 permanent and fixed-term contracts in the 12 months to 31 March 2021, the majority in non-academic roles. Casual staff losses began earlier. In 2020, in full-time equivalent (FTE) terms, 4,258 fewer casual staff were employed than in 2019, a decline of 17.5%. Estimated casual FTE figures for 2021 (which are the latest available, but provide only a preliminary count) indicate a further decline of 3,641 (15.2%) in 2021 compared with 2020.      

The latest higher education research expenditure data from the Australian Bureau of Statistics reveals universities also reduced discretionary spending on research from ‘general university funds’ as income from international student fees fell. Although overall expenditure increased slightly from $12.2 billion in 2018 to $12.7 billion in 2020, contributions from general university funds fell slightly from $6.8 billion (56.1% of total expenditure) to $6.7 billion (53.2% of total expenditure), while funding from all other sources grew.

However, analysis of university financial reports by the Melbourne Centre for the Study of Higher Education suggests the financial impact of COVID-19 on universities was not as significant as predicted early in the pandemic. The study acknowledges ‘severe challenges to on-going financial sustainability’ but finds that universities were ‘resourceful and resilient’ in 2020, with 8 institutions improving their financial position, even while others experienced significant deterioration in operating results.

Based on 2021 financial reports released to date, universities have continued to report better-than-expected financial results, including significant surpluses at the University of Sydney ($1.0 billion, p. 44), Monash University ($410.6 million, p. 89) and theUniversity of Queensland ($341.9 million, p. 44). These results are largely driven by lower expenditure, increased investment income, and the sharing of an additional one-off $1 billion in funding for university research in 2021 distributed among universities by the Australian Government.

Skills training

VET policymaking in 2020 and 2021 was characterised by attempts to balance long-term reform priorities with rapid responses to safeguard the domestic skills pipeline during COVID-19.

Like in higher education, the pandemic caused a rapid shift to online learning in VET. However, in early 2020, the apprenticeship system seemed the most at-risk part of VET, as businesses closed or reduced staff. In the June 2020 quarter, compared with the same period in 2019, total apprentices in-training decreased 3.9% to 266,565. Larger falls were seen in commencements, which dropped 35.8% to 21,115, and completions, which dropped 24.4% to 14,820. 

New training was also rapidly developed and approved in response to pandemic-specific skill needs. This included new skill sets in infection control, digital skills, and pharmaceutical manufacturing, to assist workers needing to upskill in response to the health crisis, as well as those displaced by the economic effects of the pandemic, and those whose work had moved online.  

In response, 2 major Australian Government funding sources were introduced to temporarily support the VET sector:

According to the latest program enrolment data to September 2021, uptake of government-funded training, including courses taken by apprentices, increased by 7.2% in 2021, compared with the same period in 2020, to 1.3 million (Figure 2).

Figure 2          Government-funded program enrolments, January–September 2015–2021

Chart - Government-funded program enrolments, January–September 2015–2021

Source: National Centre for Vocational Education Research, VOCSTATS, (Adelaide: extracted 30 May 2022).

However, the Morrison Government’s broader skills reform agenda was not realised during the 46th Parliament. After a Heads of Agreement for Skills Reform was finalised with the states and territories in 2020 as a condition of access to JobTrainer funding, jurisdictions did not reach agreement over the expected replacement for the National Agreement for Skills and Workforce Development (NASWD).

The NASWD, which, according to a review by the Productivity Commission in 2020, is ‘overdue for replacement’, sets out jurisdictions’ shared responsibilities for VET, and is the basis for approximately $1.6 billion of ongoing National Specific Purpose Payments (SPP) from the Australian Government, to support skills and workforce development each year (p. 45). The 2022–23 Budget allocated an additional $3.7 billion over 5 years from 2022–23 to work with states and territories on a replacement for the NASWD.

In addition to funding provided through the skills and workforce development SPP, the Australian Government also exercises significant influence over the VET system as the funder of VET Student Loans, Trade Support Loans, and apprenticeship incentives. Key bodies also operate under Commonwealth legislation: the National Skills Commission (NSC) under the National Skills Commissioner Act 2020, and the national VET regulator, the Australian Skills Quality Authority (ASQA), under the National Vocational Education and Training Regulator Act 2011.

Three questions for COVID-19 recovery

As tertiary education rebuilds following the shocks of 2020 and 2021, three considerations that the new Parliament may face are sustainable international education recovery, the structure of higher education funding, and priorities for VET reform. These are briefly discussed below.

What does sustainable international education recovery look like?

Although there are early signs of recovery in demand for Australian higher education from overseas students, the long-term impact of declining enrolments signals a need for careful management of international education policy over the medium term.

This encompasses not only education policy, but also visa policy (discussed in the 'Immigration' article elsewhere in this Briefing book). For example, recent diversification efforts among providers, combined with the temporary removal of student visa conditions related to work hours, are thought to have led to rapid increases in visa applications from prospective VET students from Nepal.    

The pandemic has increased attention on university reliance on revenue from international students, as well as the responsibility of governments and providers to support students through challenges during their time in Australia, which were particularly marked during the early stages of the pandemic. Australia is not alone in negotiating how to rebuild international education to better meet the needs of students and education providers. For example, New Zealand’s draft new International education strategy has been described as ‘value over volume’.

Is the structure of higher education funding fit for purpose?

Despite better-than-expected financial performance from some universities in 2020 and 2021, several key questions related to the structure of higher education funding remain.   

Although Labor’s commitment to provide ‘up to 20,000 new university places’ can be achieved under the current funding arrangements, many policy analysts continue to express concerns about JRG that, if addressed, would require larger-scale changes via the Higher Education Support Act 2003. Concerns include that incentives for students and universities to increase enrolments in priority courses will be ineffective, and that the increased gap between the highest and lowest student contribution amounts is not justified.

There is also considerable uncertainty about the future of research funding for universities. In addition to declining investment capacity from general university funds and the end of the temporary additional $1 billion provided in 2021, concerns have been raised about the independence of the ARC. As well, the University Research Commercialisation package announced in February 2022 by the Morrison Government was not legislated despite the introduction of 2 Bills to give effect to different parts of the package. 

Labor has signalled a broad reconsideration of higher education policymaking through an Australian universities accord: ‘a partnership between universities and staff, unions and business, students and parents, and, ideally, Labor and Liberal- that lays out what we expect from our universities.’ This approach has attracted early support from the sector, and may provide a ‘turning point for higher education in Australia’.

What are the priorities for VET reform?

Despite widespread acknowledgement of the need for VET reform to meet specific skill needs as well as the demands of increasingly higher skill, non-routine and cognitive jobs that are not easily replicated by machines (p. 146), recent efforts to renew the NASWD failed to balance the priorities of governments, employers, unions, and the training and education sector. Skills ministers from 6 states and territories reportedly wrote to the Government in early 2022 expressing concern about the proposed new agreement, including potential reductions in funding to TAFEs, and the proposed role of the NSC in setting prices and subsidies.

Labor has signalled a possible shift towards public providers, with a commitment to direct at least 70% of Australian Government VET funding to TAFE and provide fee-free TAFE places in priority fields. It has also flagged the creation of a new body, Jobs and Skills Australia: ‘an independent body to bring together the business community, states and territories, unions, education providers and regional organisations to match skills training with the evolving demands of industry and strengthen workforce planning’. This body could incorporate much of the current work of the NSC.  


Further reading

Hazel Ferguson, Tertiary Education: a Quick Guide to Key Internet Links, Research paper series, 2020–21, (Canberra: Parliamentary Library, 2021).

Hazel Ferguson, A Guide to Australian Government Funding for Higher Education Learning and Teaching, Research paper series, 2020–21, (Canberra: Parliamentary Library, 2021).

Carol Ey, The Vocational Education and Training Sector: a Quick Guide, Research paper series, 2020–21, (Canberra: Parliamentary Library, 2021).

Hazel Ferguson and Harriet Spinks, Overseas Students in Australian Higher Education: a Quick Guide, Research paper series, 2020–21, (Canberra: Parliamentary Library, 2021).

Hazel Ferguson, University Research Funding: a Quick Guide, Research paper series, 2021–22, (Canberra: Parliamentary Library, 2022).

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