Australian universities are likely to mark up tuition fees as well as cut costs to compensate for a significant loss of government funding, according to analysis by agency Standard & Poor’s Ratings Services.
However, competition will keep a lid on the fee rises.
The May federal budget reduced subsidies and removed caps on students’ fee contributions for Commonwealth-supported places. These reforms will take effect in January 2016 if the Senate passes them.
Standard & Poor’s credit analyst Anna Hughes says universities have more than a year before the implementation of the reforms but large fixed costs will limit efforts to slash expenses.
Staff salaries comprise about 60% of total expenses and infrastructure costs are also a substantial portion.
Universities that are nimble — able to raise fees, attract research grants, and cut costs sufficiently — can maintain their financial profiles and their credit quality, Hughes says.
However, she says universities generally don’t score highly on the agility factor.
“A university may not be able to cut staff numbers severely as that could risk its education quality and reputation,” she says. “Moreover, it will be difficult to reassign staff to courses facing greater demand and requiring technical skills.”
But removing the student contribution cap provides greater leeway for some universities to raise revenues.
“In addition, higher education demand remains robust, albeit stiff competition will keep a lid on tuition fees,” Hughes says.
“We consider larger universities are likely to benefit most, as they have the capacity to accommodate more students. Smaller and medium-size universities are less likely to be able to attract additional students given their capacity constraints.”
The report, For Australian Universities, Steep Funding Cuts Could Trigger A Hike In Tuition Fees, says financial assistance from the Australian government, despite the cuts, will remain an important part of universities’ revenues.
Of the three universities rated by Standard & Poor’s — Australian National University, University of Melbourne, and University of Wollongong — the University of Wollongong should be best placed to take on a greater increase in student numbers due to its larger base.
Both Australian National University and University of Wollongong are likely to see stable growth due to a larger localised student base sourced from the surrounding vicinity.
NOW WATCH: Briefing videos
Business Insider Emails & Alerts
Site highlights each day to your inbox.