Higher education institutions around the world are facing extensive economic hardships as a result of the COVID-19 pandemic. To understand why they are struggling, we must first look at how universities generate and spend income.
Universities usually generate income through tuition fees, funding body grants, research grants and contracts, and other sources such as trading activities. For the vast majority of universities, tuition fees are their primary source of income, but this is not the case for all. In terms of spending, around 45%-55% of most universities annual income covers the cost of teaching and research, and the remaining money collected is usually spent on a range of other services including accommodation, administration, and infrastructure costs. It is also essential to consider that a majority of universities in the UK are charities rather than private or limited companies. This essentially means that they have no shareholders who expect any return on investment and therefore require the company to make a profit. This brings up the question of why universities are at risk if they do not have to create profit?
While public universities do not need to generate profit, they do need a surplus of income because the operating income every year needs to be higher than our operating expenses for that year. This allows institutions to generate cash reserves that are used for reinvestment in university facilities to achieve their long-term academic and structural needs (including buildings, equipment, and IT facilities). Reinvestment is also vital for institutions to remain competitive and attract students.
All of this leads into how Covid-19 is disrupting university micro-economies. Over the past few years, the number of international students, particularly from China and India studying in countries such as the United Kingdom, the United States, and Australia has increased significantly. This mass influx of international students puts these countries’ universities at risk since a large part of their revenue comes from international students. The pandemic has created various social and economic obstacles for businesses, including universities, to overcome, such as travel restrictions which affect their current and prospective international students. If the number of international students applying and attending these institutions deviates too far from the norm, tuition revenue will take a considerable hit which will greatly impact university reserves and reinvesting opportunities.
To appreciate the economic effect international students pose on universities, we can observe the results of a survey conducted by the Chinese British Business Council. This survey stated that 1/4 of all international students who study in the UK are Chinese and that these students inject approximately £1.9 billion in spending in each academic year and support an estimate of 17,600 jobs in the UK alone.
Furthermore, the Institute for Fiscal Studies predicts that universities may lose between 7.5%- 50% of their yearly incomes over the next four years. It is also believed that educational institutions will struggle to recover from the effects of COVID-19 without making redundancies. Unfortunately for many academics, universities have placed them on short-term contracts which are being left to expire. This will significantly affect the unemployment rate and will reduce the capacity of departments to run various courses and the level of support for students provided to students. Despite this, universities stated that they would rehire academics the following academic year if the number of students increases again.
Perhaps this pandemic may spark innovative thinking in us all; many universities have already faced issues and successfully navigated moving exams teaching and assessments online. But only time will tell if higher education institutions will learn from to take vital pre-emptive measures to protect their staff, students and resources, and if they can survive the economic toll of losing international student revenue.