University economics: The curious case of international students and their enormous fees
The deregulation of Australian universities has to be the most controversial topic in the higher education sphere at the moment. The government stated that this move will help to increase Australia’s international competitiveness. ‘Universities only see us as cash cows!’ you say. And you may be right! Universities may just see you and me as nothing more than a way to raise their revenue. However, there’s a huge target market for Australian universities, and it doesn’t comprise local students. As the government talks about our universities’ ‘international competitiveness’, let us discuss this market. Of course, I’m talking about international students.
In the last two decades or so, the demographics of Australian universities have changed considerably. While there weren’t too many international students in the past, one can see a marked difference right now. Whenever you walk around your campus, there are always people of different nationalities speaking different languages. This is wonderful for cultural diversity, but also wonderful for a university’s bottom line.
Simply put, international students are big business for universities and for the economy. The average international student pays around $30,000 annually, 3 to 4 times as much as domestic students. International students inject $15b to the Australian economy annually, making higher education the third biggest export after iron ore and coal.[1] As an example, Monash University makes around $430m in course fees per year.[2] From that amount, $382m or 89% of these fees are paid by international students! That is just insane. This is the curious case of international student fees—why are they paying so much for their education in Australia? And why are they okay with paying such enormous fees?
Now, one may think that they’re paying enormous fees because of Australia’s quality of education, and they are able to afford it. While this may be true, there are international students who come from Singapore or USA where the quality of education is comparable to that of Australia. Here are just some of the weird, random and perfectly logical reasons why international students gladly fork out tens of thousands of dollars just to attend our institutions.
1. Prestige and social standing
That’s right, this is an actual reason. If you’re a Monash or Melbourne student, you may have come across this ‘Melbourne v Monash debate.’ It’s no different with international students. International students, whose families who are financially well off, may choose to enrol overseas to increase their standing in their social circles, where their own friends are also likely to attend universities overseas. For an added effect, having attended a top 100 university sounds much cooler than attending a no-name local university in the student’s home country. Do not scoff at this reason—social standing is quite important in certain countries, especially in Asia.
2. Intense competition
Intense competition for university spots in some countries like Japan or China has forced many international students to seek education somewhere else. For example, the gaokao system[3] in China ranks students by academic ability, and that determines whether they are accepted by the top universities in China. Fail miserably and they risk being left behind socially and financially in life. Some students who perform badly on the gaokao may choose to enrol in a university overseas instead of facing another year to study for this university entrance exam.
3. Permanent residence in Australia
Many international students in Australia come from a less developed country. As a result, a fair few try to stay in Australia permanently via the Skilled Independent Visa (subclass 189).[4] One of the easiest ways to get this visa is to study in Australia and be employed in an occupation that is classified as a skilled occupation after graduating. Many international students that I know have stated that this is one of the biggest reasons why they study in an Australian university.
4. Quality of education
For a lot of international students, their home country may not house a well-known university. For example, universities in Indonesia and Vietnam are not ranked very highly even in Asia, let alone the rest of the world. Having a degree from a well-known university overseas (as well as improved English skills) may give international students a leg up in the job market when they come back to their home country.
What does this tell us about University Economics, and more importantly, the Australian economy? If we go back to the basics of Economics 101, these international students demand overseas education for the reasons stated above, and Australian universities supply the education to meet this demand. While the costs of overseas education is great, this doesn’t seem to have a big effect on demand, as most international students are actually happy to pay these fees. I found that other issues have a greater impact on the demand for Australian university education, such as exchange rates or Australia’s proximity to the student’s home country. It seems that university fees are simply not that big of an issue to most international students, as they have excess funds to satisfy their demand. The Australian government is very happy to accommodate these international students, as an increase in net exports means a higher annual GDP.
It’s clear that higher education is a huge economic export in Australia, and the Australian government is not going to let that diminish anytime soon. Any threat to this particular export is treated as a serious manner, as Australia strives for stable economic growth, particularly at a time when the current outlook for the mining industry is bleak. I’m convinced that Australia will do its best to keep international students coming to study here, and that may include strategies such as deregulating universities. It remains to be seen whether this move comes at the expense of domestic students. Ultimately, international students are part of the Australian university demographic, and their fees are also a permanent fixture in the Australian economy.
References
[1] http://dfat.gov.au/publications/tgs/index.html#exports
[2] http://www.monash.edu.au/about/glance/publications/annual-report-2013.pdf Page 64
[3] http://sydney.edu.au/ab/committees/admissions/2011/AEI_Gaokao_Report.pdf