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Growing Comprehension

Growing Comprehension

In early 2019 I decided to try to understand the University of Melbourne a little better. I have recorded some observations here in case they are useful for other academics. For updates in early 2020 see down the page. The notes are taken from various University of Melbourne (UoM) official documents, primarily

To a first approximation, if you want to understand the University I think you should read the report, ignore the glossy bits, and pay close attention to the statistics on p.13 and the financial data reported beginning on p.124. All references in this section are to the report, unless specified otherwise.

  • (Student Demographics) The percentage of international students has increased from 28.9% in 2013 to 39.8% in 2017. The overall number of students has increased from 40,455 in 2013 (median ATAR 94.30) to 50,270 in 2017 (median ATAR 93.65). Australian Tertiary Admission Rank (ATAR) is a rank used in Victoria to show a student's achievement in relation to other students. International students are not represented in the ATAR figures.

  • Note for foreign readers: Higher Education Loan Programs (HELP) is the principal way that the Australian government subsidises higher education for citizens. Under some conditions, students can access a HECS-HELP loan to pay their student contribution amount. Roughly speaking, citizens do not have to repay these loans until their income reaches a certain threshold (usually once they find post-study employment) which was $51,957 in 2018-2019. The government also subsidises student tuition through the Commonwealth Grant Scheme (CGS).

  • Note: we use the "consolidated" budget figures (i.e. for the University plus other subsidiaries, like UoM publishing, and various other entities) because it's easier.

  • (Income) From p.121. The primary funding sources are: 40% Australian government (56% of which is from government-funded undergraduate degrees HELP and CGS, 9% from the ARC for research, and there is a mysterious looking 19% for "Education research" which seems to be where funding for PhDs etc. is accounted for, including Australian Postgraduate Awards and Research Block Grants) 37% fees and charges (79% of which is from fee-paying onshore overseas students), 7% investment income (the vast majority being dividends) and then a variety of smaller sources. So in summary the majority (67%) of the University's income comes from the following four sources, in decreasing order:

    • 29% from overseas student fees
    • 23% from government funding for undergraduate teaching
    • 8% from government funding for postgraduate training
    • 7% from investment income
  • (Expenses) From p.125. The primary expenses are: 52% employee related expenses (43% of which is academic salaries and 33% non-academic salaries) and 37% other expenses (22% of which is scholarships, grants and prizes and 29% of which is contracted and professional services). So in summary the majority (58%) of the University's expenses come from the following four sources, in decreasing order:

    • 22% academic salaries
    • 17% non-academic salaries
    • 11% on contracted and professional services (casual teaching staff?)
    • 8% on scholarships, grants and prizes (this blows my mind, sounds like Customer acquisition cost?).
  • (Financial sustainability) From p.69: "In the last five years, government funding has declined by 12% and is now at 32% of total income representing negative compound annual growth of 0.8 per cent, and the current Commonwealth higher education policy environment presents further challenges. This reinforces the need to diversify revenue sources, effectively manage resource allocation, and leverage the asset base to remain financially sustainable." From the 2018 opportunities and challenges for financial sustainability on p.74 "Diversify income streams to ensure greater self-efficiency in an environment where dependency on government funding is likely to decline".

  • (Business Improvement Program) From p.110: "A clear demonstration of the University’s commitment to efficiency is the major business improvement program implemented in 2015 which has delivered a reduction in administrative costs of approximately $190 million over a three-year period that has been repurposed to academic activities."

  • (Notable movements in underlying expenditure) From p.111 "Academic salary expenditure increased by $51 million or 8.1 per cent due to the growth in student load and research activity. Professional salary expenditure increased due to a combination of increases specified in the University’s Enterprise Agreement and growth in investment in core teaching and research activities in support of the University’s strategic goals. Underlying non-salary expenditure increased by $81 million or 8.3 per cent due to a combination of increased activity relating to the growth in student load, such as scholarships and student fee remissions, growth in costs associated with University software and systems, and increased contracted and professional service costs associated with the development of new student and innovation precincts."

Higher education as an export market

Nothing in this section is specific to the University of Melbourne, it addresses the general situation of higher education in Australia. The basic questions here are: where are the international students coming from and what kind of study are they undertaking (e.g. undergraduate vs. masters). The best resources I could find on this are some reports by Frank Larkins (Professor Emeritus and former Deputy Vice Chancellor at the University of Melbourne and Professor of Chemistry) and the Australian government website.

In the second of these articles, Larkins gives in Appendix B a list of the largest contributing nations to international students in higher education in Australia in 2017 (these statistics are from the Commonwealth Provider Registration and International Student Management System (PRISMS) released monthly by the Department of Education and Training). The top five nations are:

  • China (38.1%)
  • India (15.5%)
  • Nepal (6.1%)
  • Vietnam (4.3%)
  • Malaysia (4.2%)

NOTE: We can therefore estimate that Chinese students are responsible for 11% of the University's income.

The Australian government website allows you to drill into these statistics, for example higher education enrolments by nation and level of study (for example, the Chinese students are 45% masters degree by coursework, and 35% bachelor degree, with the vast majority in management and commerce and the largest minority in engineering and information technology). International student survey results seem to indicate high satisfaction with Australia.

A few quotes from Larkins:

  • Australia has excelled as a provider of educational opportunity for international students at all levels. Educational services are now Australia’s third largest export after the commodities iron ore and coal.

  • The flow of international students to Australia is very strong and increasing markedly in all sectors except schools. There are clear benefits and risks linked to the recruitment successes. The higher education sector is financially the most vulnerable because of the high proportion of the student community coming from overseas (27%) with the profile being dominated by two nationalities, China and India, providing 54% of all enrolees... The prominence of Chinese students in all sectors does represent a significant strategic risk. Plans to mitigate this potential risk are warranted.

  • The United Kingdom, United States of America and New Zealand are English-speaking countries competing with Australia to attract international students. The latest 2016-17 higher education data for these countries provide useful comparators. In the UK 81% of all enrolments were domestic, with the European Union providing 6% of foreign students and the rest of the world only 13% (8). For the United States only 5.3% (one million of the twenty million higher education enrolees) were international students (9), while the figure for New Zealand was 15% (10). Australia’s intake was much higher than these countries at 26.8% in 2016 (6). This misalignment does raise important questions regarding the balance of the educational experience being provided to students by Australian universities.

  • Australia has by a considerable margin the highest proportion on international students studying in its universities when compared with other English-speaking nations. The profile is also heavily skewed toward two nations, China and India... A narrow demographic does lead to a vulnerability for higher education institutions due to political and social disruptions. The 2010-12 negative developments involving Indian students and recent concerns by the Chinese government about the safety of its students are examples.

In summary: the remarkable growth in the number of international students in Australian universities does not indicate the development of a broad export market as the increase since 2002 is almost entirely from Chinese and Indian students (see p.5 of the second Larkins paper). The other nations (with the exception of Nepal) have been flat since 2002.

Other literature from the University indicates the management is aware of the financial risk Larkins speaks about, and is actively seeking to diversify the student cohort. For example, some quotes from the 2017-2020 University of Melbourne International strategy (which does not seem to me to contain much actual information):

  • By 2050, China, India and Indonesia are predicted to be three of the world’s largest economies (in purchasing power parity terms), representing a radical shift in global economic power. While this growth has been driven largely by China’s rapid economic rise, as China’s growth slows and normalises, future regional growth is expected to be fuelled by dynamic economies in ASEAN, such as the Philippines, Indonesia and Vietnam and the South Asian region.

  • As in other countries across the region, there are increasing opportunities for local students to study at world-class institutions in China, challenging the established patterns of students travelling abroad, to Australia and other developed economies, for higher education

  • Australia’s proximity to Asia, and the University’s long history of research and educational engagement with countries in the region, present us with significant opportunities and points of differentiation from other top global institutions. Universities will play a key role in the region’s rise and in Australia’s ongoing engagement by training the talented graduates who will drive regional development.

However, the growth rates in the data suggest that (absent large geopolitical or economic changes) the percentage of international students coming from China and India is likely to continue increasing over the next decade.

Updates in 2020

Here are some updates using the 2018 annual report.

  • The percentage of international students has increased (slightly) to 42%.

  • Student numbers are up to 50,270.

  • The University has $5.7bn net assets (p.94).

  • (Income) From p.106. The primary funding sources for the University are: 39% Australian government, 40% fees and charges (81.3% of which is from fee-paying onshore overseas students), 7% investment income (the vast majority being dividends) and then a variety of smaller sources. Note that the percentage that "fees and charges" plays in the overall budget increased from 37%, and the percentage of that category which is international student fees increased (it was 79% in 2017). So the reliance of overseas student income has increased (from $752m in 2017 to $879m in 2018, a 17% increase!). In 2018 a total of 32.5% of the University's income came from overseas student fees (up from 29% in 2017).

  • The expenses have not changed in percentage terms from the 2017 annual report. Note that contracted and professional services seems so large that it can't be all McKinsey - this must be where casuals are accounted for. It mentions on p.48 that these expenses increased due to the growth in student load, so this is consistent.


  • Duncan Maskell message to students: "drop in revenue of around $500million this year, and almost certainly similarly reduced revenue for the next two or three years"... "It is simply not the case that the education that we are offerring online costs any less to deliver, nor is it worth less than a face-to-face education... "

  • In FY2018 the income was $2.5billion (p.92). So that revenue decrease is 20%. Since the government seems to have guaranteed HELP income, that has to come from the other categories. It's plausible donations and bequeths decrease (a big part of the 7% "other revenue") but it seems unlikely that is factoring into current plans heavily. The investment income is primarily dividends, and gains/losses on financial assets (I do not know what these consist of, property? cash?). Let's just guess that this income is halved. That still means that at least 17 of that 20% revenue decrease has to come from fees and charges, which is

    • 81% fee-paying onshore overseas students
    • 5% fee-paying domestic postgraduate students
    • and then other minor items...
  • For all intents and purposes, that means that the 17% comes out of international student fees. But fees and charges makes up 40% of the overall revenue, so this category must decrease by a whopping 42.5%.

  • This $500 million dollar yearly shortfall: where is it going to come from? The expenses listed on p.108 are $2.621 billion, so we're looking at 19% of that. Many expense categories (e.g. pensions) do not seem trivial to cut (perhaps travel, staff development and training?). Salaries (academic and non-academic) account for about 40% of expenses directly, so let's say we need to find at least half of the savings there. That's a one-quarter cut in salaries.

The mean salary (academic and non-academic) is $125,309. To make up half of that $500 million dollar yearly shortfall by firing people at the mean salary, you'd have to fire 2000 (the total number of full-time staff is 8000) which does not seem plausible. But if you fire X staff members, and cut the salary by 20% for Y, where X + Y = 8000, then (in units of thousands of dollars)

250 000 = 125 * X + 0.2 * 125 * Y = 125 * X + 25 * ( 8000 - X ) = 200 000 + 100 * X

which implies X = 500. This is on top of assuming $250 million of savings in other expense categories, including casuals.

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