This report does not constitute a rating action.
Leaders of Australia's top universities will feel a sense of tempered relief. Following its re-election in May 2025, the Labor government plans to quickly reverse the sharp influx of foreign student numbers. This will dampen universities' revenue growth and consequently erode rating headroom. But the opposition's proposals would have been tougher.
What's Happening
Labor plans to curb international student flows by :
- Hiking the visa fee to a world-leading A$2,000 (US$1,300);
- Slowing visa-processing once foreign applications reach certain thresholds (a de facto cap); and
- Lowering the maximum age for holders of temporary graduate visas.
The opposition Liberal-National Coalition pitched hard caps on foreign enrolments and a higher visa fee of up to A$5,000 (US$3,200).
Chart 1
Why It Matters
Dependence on international fee revenue has continued to grow. Foreign students account for one-third of total enrolments (which includes commencing and returning students). And rated universities tend to have higher dependency ratios than the national average (see chart 1). Revenue from high-margin international students cross-subsidizes research and helps to boost performance in closely watched league tables.
Inflows are already decelerating. The number of new student visas granted in the first quarter of 2025 was down 13% on the previous year. But it will take time for this downtrend to reduce the total stock of onshore visa-holders, given the large number of continuing students on multiyear courses.
A slowdown in fee revenue could further squeeze operating margins, and therefore credit ratings. Our base case assumes most rated universities will report small net operating deficits for 2024 (after our adjustments for nonrecurring items and unrealized gains/losses). This means four out of five rated universities are now running persistent deficits. Financial performance is weak compared with 'AA'-category global medians.
What Comes Next
We think universities will still have considerable operating flexibility. To help balance budgets, several have announced headcount reductions, hiring freezes, or course closures. Top-rated metropolitan universities, which will be hit hardest by changes to visa processing prioritization, also have the strongest pricing power. Some will hike international tuition fees by about 7%.
But universities have few options to rein in costs without sparking backlash . In November 2024, 88% of staff polled at Australian National University (AA+/Stable/A-1+) voted against a proposal to forego a scheduled 2.5% pay increase. Employees at RMIT University (unrated) participated in at least five strikes in 2024.
Universities aren't immune to geopolitical tussles. In early 2025, several Australian researchers on American grants reported receiving an urgent U.S. government questionnaire on topics that included their Chinese partnerships and gender ideology. This was part of the White House's crackdown on institutions it sees as antithetical to its "America First" views. Some universities have also quietly shuttered their Beijing-backed Confucius Institutes in recent years.
Higher education reform will be a priority in Labor's second term. The creation of an Assistant Minister for International Education portfolio signals a sharper focus on the sector. The government wants to fund more domestic student places through a new Managed Growth Funding System. The government will also legislate to reduce domestic student loan debts by 20%, cancelling A$16 billion (US$10 billion) nationwide. This follows earlier debt reductions in 2023 and 2024, which were applied by retroactively changing the inflation rate at which principal is indexed.
Greater policy predictability will be welcome. Labor's policy aims to address community concerns that Australia's high concentration of international students has eroded teaching standards, strained parts of the housing market, and imperiled universities' social license. In our view, the new visa processing allocations will be financially detrimental but at least give universities a clear target to plan to.
Related Research
- Australian Universities: Collapse Of Student Caps Bill Offers Little Respite, Dec. 9, 2024
- Not-For-Profit Higher Education Outside Of The U.S. Outlook 2025: Credit Stability Amid Market Turbulence, Dec. 5, 2024
- Australia, Canada, Mexico, And U.K. Public University Fiscal 2023 Medians: Credit Stability Holds But Cracks Are Beginning To Appear, Nov. 12, 2024
- U.S. Not-For-Profit Private College And University Fiscal 2023 Medians: Inflated Expenses, Deflated Support Contribute To Weaker Margins, July 18, 2024
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