The 2021-22 budget has added salt to universities' COVID wounds

The federal government’s budget announcements this week included nothing new for universities — an industry hit particularly hard by the pandemic border closures and loss of international students.

Treasurer Josh Frydenberg on Tuesday night confirmed Australia’s border is likely to remain closed until mid-2022. Research from the Mitchell Institute found a third academic year of few new international students (2022) would cost Australia about A$20 billion a year — half its pre-pandemic value.

Read more: As hopes of international students' return fade, closed borders could cost $20bn a year in 2022 – half the sector's value

In his budget speech, the treasurer said only this about universities:

[…] we are also providing more than $19 billion in funding for our universities in 2021‑22. And as a result of decisions made during the pandemic, this year there are 30,000 more places at Australian universities.

This $19 billion is the continuation of previously announced higher education funding, including some temporary additional funding announced in 2020 as part of the government’s COVID response.

This temporary money will quickly phase out. Tuesday’s budget shows a reversion to the previous policy of keeping total higher education funding broadly stable.

Flat funding for university teaching and research

The budget papers show some falls in the next financial year in the main teaching and research grant programs. But this is mainly due due to the end of a special $1 billion COVID-related boost to research spending and the phasing out of $550 million in temporary student places intended to meet an expected increase in demand driven by the COVID recession.

The main recurrent programs for teaching, research and equity are stable at around $11 billion a year from the 2020-21 financial year through to 2023-24, which is unchanged from last year’s budget. Once inflation is taken into account, this implies a decline in real funding.

Read more: Big-spending 'recovery budget' leaves universities out in the cold

HELP loans are the main potential source of funding growth

A full picture of government support requires also considering HELP loans. This is the money students borrow from the government to pay for their tuition.

In the 2021-22 financial year, HELP could be the largest single source of university revenue, possibly just exceeding teaching subsidies and overtaking fast-diminishing international student fee revenue. The $19 billion the treasurer referred to includes HELP revenue.

In a surprising omission, the budget papers never directly tell us how much the government is lending through HELP. To work out what this number might be requires us to reconcile figures that appear in different budget documents. These suggest a government estimate that just under $7.6 billion will go towards HELP loans in 2021-22. That’s up about $340 million on the previous year.

Unlike other government higher education programs, outlays on HELP are not capped. This means they have growth potential that is missing for teaching and research grants.

Under the Job-ready Graduates Package announced in June 2020 HECS-HELP lending will go up.

Under this policy, students will pay less for degrees considered job-relevant such teaching, nursing and languages. But student contributions for most arts subjects will more than double. There are also significant increases for business and law students.

On average student contributions will be higher, pushing up average annual per student borrowing under HELP.

Read more: Fee cuts for nursing and teaching but big hikes for law and humanities in package expanding university places

No official enrolment data yet shows the 30,000 additional student places mentioned by the treasurer. But early signs are that university enrolments are up in 2021, and a baby boom cohort of students will arrive in the next few years. More students will equal more borrowing.

Some universities are also reporting spikes in full-fee domestic postgraduate enrolments. These courses do not get any subsidies from the government, but the students can borrow under the FEE-HELP scheme.

What about funding for research?

University research is facing a crisis with no real precedent. Australia’s research boom was fuelled by the profits on international students that are now disappearing. It was helped by some domestic undergraduate courses making profits, but Job-ready Graduates will require that money to be spent on new student places instead.

In the 2020 budget, the government injected an extra A$1 billion into the Research Support Program, effectively doubling it for a year.

The goal was to to ease the financial pain caused by the COVID-19 pandemic and loss of international student fee revenue.

If Australia’s borders had re-opened to international students in the second half of 2021 or early 2022 there would not have been a strong case for another $1 billion. But unless safe travel zones on the New Zealand model open for major international student source countries, the budget suggests no major international movements until mid-2022.

With the temporary research grant increase not offered again in Tuesday’s budget, university research output will inevitably decline significantly. There are no major public funding increases on offer, other than for research infrastructure from 2023-24 – after the international student market is expected to be in a recovery phase.

Read more: Coronavirus and university reforms put at risk Australia's research gains of the last 15 years

New programs for non-university providers

The government says it will provide $74 million to support Australia’s international education sector, but none of this is going to universities.

It includes funding for non-university higher education providers and English-language colleges.

The money will go into an additional 5,000 Commonwealth-supported undergraduate certificate and graduate certificate short-course places at non-university higher education providers in 2021.

Unfortunately this money is unlikely to make much difference. Many of these non-university providers rely entirely or largely on international students. Funding for domestic students, a market they don’t usually target, cannot compensate for the loss of international students.

The closure of these colleges would hit universities in coming years, since many of them offer preparatory courses for students seeking university entry.

Read more: For most universities, there's little point to the government's COVID-19 assistance package

Assistance should have continued until borders open

It would not be reasonable to expect government to fully insure universities against the loss of international student revenue. Although nobody could have predicted two or more years of closed borders, universities were pursuing international strategies they knew were high risk.

But nor is it reasonable to expect a small number of industries, especially international education and international tourism, to incur massive losses to protect all Australians from the risk of COVID. There is a strong case for assistance to continue until the borders re-open.