Party Is Over for Australian Universities — Education and the Economy

It’s no secret that education plays a big part in our economy. Especially, international education.

Each and every year, hundreds of thousands of students from overseas flock to our shores. All in search of a formal education. And all paying through the nose for it.

In the 2018–19 financial year, international education reportedly raked in $37.6 billion.

At least, that’s according to our own minister for education, Dan Tehan. Who also noted that the sector had been growing rapidly over the past few years:

‘International education has experienced its fifth year of consecutive double digit growth, highlighting the strength of Australia’s higher education system.’

Even going as far as to claim it is our largest service-based export.

According to some, that may be up for debate.

Either way though, no one will deny that the education sector is a big moneymaker in Australia. You need only look at the profits from our top universities:

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No more free rides

It truly was impressive just how lucrative the education system had become. Whether or not it was scrupulous though, is another matter entirely.

Plenty of people had taken fault with the system as it stood.

But then the pandemic came along. Wiping out the international student market almost entirely.

The losses have been ramping up dramatically. With the industry body estimating a total revenue hit of some $3–4.6 billion in losses due to COVID-19.

As a result, jobs and campus assets are all on the chopping block. All while the universities remained ineligible for JobKeeper benefits.

To say it has been a shambles is an understatement.

But it is no accident either…

We learnt yesterday that Scott Morrison is set to introduce sweeping new foreign power laws. Legislation that is designed to quash deals with other national governments if they pose a risk to our sovereignty. Though it is pretty damn clear that China is the big target for this arrangement.

All the major headlines this morning are mentioning how this will likely see Victoria’s agreement with China scrapped. A partnership that was set to see the southern state become a part of the ‘one belt one road’ initiative.

Now, with these new laws, the federal government has the power to overturn it. Giving the PM total control over what is and isn’t allowed.

You’ll have to make up your own mind as to whether you see this as a good or bad development.

But, the far more important detail (in my view) was Morrison’s particular mention of universities. Because it was very clear that the PM is looking to keep the industry in check. As he commented:

‘While many agreements and partnerships are of a routine nature, it is important that the federal government is notified of all and any agreements, be they state and local governments, or our universities.’

In other words, this is just more fuel to the fire. Adding pressure to the universities and the broader education sector to shape up or ship out.

Like it or not, education in Australia is set for shake-up.

Change that will likely see an end to the cash cow of international students. While also forcing the traditional tertiary programme to adapt to our modern needs…

Learning reimagined

When it comes to the future of our education sector, things will be very different.

As Andrew Charlton, a former economic advisor, recently told the AFR:

‘The old model was for someone to finish school and do a three- or four-year degree — which gave them a debt. Their objective was to stay in work and pay off the debt. The model was characterised by “one big burst of education” with little capacity to return to the classroom and learn new skills.’

This model just doesn’t work anymore though. Nowadays careers don’t last a lifetime.

People change jobs, change industries, and are constantly learning. Our labour market demands a lifetime of learning, not just three or four years of the stuff in your early 20s.

Because of that, the delivery, availability, and cost of education must change. As Charlton posits, we need:

‘Short, online, targeted courses, topping up skills, learning in a practical way, picking up small pieces of education as you go.’

And right now, you can find services that cater to these needs. We’ve seen an explosion of online courses in the past 10 years or so. With sites like Udemy, Coursera, Skillshare, and Khan Academy all becoming hugely popular.

More importantly, they’re also far cheaper and far more flexible than your standard bachelor’s degree. Which is precisely why they will eventually replace it.

That doesn’t mean I expect our universities to just disappear. Far from it.

But, I can guarantee they will look very different. Because this pandemic and the government’s response is forcing them to adapt far faster than previously thought. Pushing the education sector towards this inevitable future.

For investors, this means you need to be looking for ways these changes will impact the broader sector.

Take IDP Education Ltd [ASX:IEL], for example. As one of the preeminent student placement providers, they could be one of the biggest losers from these changes.

That’s not to say they can’t adapt, just that they may need to start soon.

Whereas in contrast, a company like OpenLearning Ltd [ASX:OLL] has some interesting prospects. Not only operating within the online education ecosystem, but also partnering with some of the major universities. Partnerships that could become the cornerstone of a much bigger arrangement.

My point is, there is likely to be a seismic shift in the coming months and years for education. But if you plan accordingly for it, then you might be able to make some serious gains from it.

Because one way or another, I can’t see a future where education isn’t a key part of our economy. Just maybe, not as we know it…

Regards,

Ryan Clarkson-Ledward,
Editor, Money Morning

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