Why Western universities risk losing out to international competitors

Will Walter

September 7, 2020

The British government’s A-Level grades U-turn might have alleviated the immediate discomfort of despondent 18-year-olds venting their anger on the national news, but this short-term fix will come at a heavy price. Ultimately, it risks driving highly lucrative international students to newer, more agile challenger universities overseas.

The government’s decision to abandon Ofqual’s “mutant algorithm” is just the thin end of the wedge. Relying instead on teachers’ more generous predictions has caused grade inflation, meaning a much higher proportion of 2020 school leavers will be able to go to their first-choice universities. As a result, institutions which typically offer “higher-tariff” courses will find themselves oversubscribed, while “lower-tariff” institutions will face a shortfall. To survive, they will have to go cap in hand to the government.

On top of this, the government has lifted the cap on the number of students that universities are permitted to enrol. This will exacerbate the tilt towards high-tariff institutions, and it will mean higher numbers of domestic students at the expense of higher fee-paying international students. In combination, these factors present a serious financial challenge to Britain’s higher education system.

Even before the pandemic, the finances of many universities were in a parlous state. The admissions cap was itself a fix to prop up the system by preventing too many students enrolling at more desirable institutions. In so doing, the cap drove up demand for lower-ranking universities. Now the cap has been lifted, many lower-ranking universities will face closure. So much for the government’s “levelling up” agenda.

Nor are the higher-ranking institutions free of financial difficulties. The HE industry as a whole is having to contend with steady demographic changes. The number of 18 year-olds in the UK population has been declining for a decade. Meanwhile, many institutions also face mounting debt obligations as a result of poor historic decision-making on funding models. The Higher Educational Statistical Agency estimates 119 out of 194 UK universities are in deficit.

More worrying is the uncertainty surrounding international student numbers, the financial cash cow for so many universities. According to the Institute for Fiscal Studies, students from overseas contribute £3bn to the sector each year. Surveys suggest the number of international students taking up places in UK universities could fall by more than 50 per cent, meaning a loss of £1.5bn in annual revenues. London Economics estimates Covid-19 could cost the sector as much as £2.6bn next year, and result in as many as 30,000 job losses.

Covid-19 is not the only cause of this exodus of overseas students. Brexit is also exerting a toll. Numbers coming from mainland Europe are down. And nor is it just a UK or even a European problem. In the US, international student enrolment declined by ten per cent between the academic years 2015 and 2018. Tougher immigration policies are one cause.

But perhaps the most important contributing factor in the long run will be supply-side competition. Countries like China, whose young people ordinarily account for the highest proportion of US and UK overseas intakes, are witnessing a boom in their own domestic HE provision. The number of mainland Chinese institutions appearing in the QS World University Rankings rose by 25 per cent in the last three years alone. Standards are rising too.

Countries closer to Europe are also opening state-of-the-art learning institutions. Next month, a brand-new, STEM-focussed campus university will open in Georgia in the South Caucasus. In time, Kutaisi International University (KIU) will seek to recruit international Asian, Russian and even European students whose previous preferred options would have been the UK, Europe and the US. The opportunity to access world-class teaching at a $1bn hi-tech campus university much closer to home could prove attractive for many students from these regions.

Certainly KIU hopes so. Next year it will start opening a series of ultra-modern medical and scientific research centres, including the Caucasus region’s first Proton Therapy Clinic, a combined diagnostics and treatment facility for treating cancers using state-of-the-art proton beam therapy. Providing a cheaper “gateway” into European medical practice is a stated objective of KIU.

Coronavirus is undoubtedly accelerating a trend in HE provision – a shift away from older, established European institutions, to newer, more agile and cheaper competitors. The effects of this are already beginning to show. Our own education leaders will need to formulate a coherent response to adapt to the changing market. If they don’t, the UK’s historic dominance in HE, and all of the economic and cultural benefits that flow from it, will come under increased threat.

Author

Written by Will Walter

Will Walter is a consultant to higher and further education institutions in the UK and Europe.

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