Lower education: will the government let universities fail?

La Trobe University could be the first victim of the pandemic’s brutalisation of the higher education sector, with the institution reportedly weeks away from going broke.

Vice-chancellor John Dewar reportedly told staff yesterday that the university has “no money tucked down the back of the sofa”. The next step could be a 10% salary reduction, and the possibility of forced redundancies, The Age reports.

La Trobe has rejected The Age’s report, saying bluntly in a statement: “the university is not at risk of going broke.”

La Trobe isn’t the only university that has been hit particularly hard by the sudden loss of international student revenue. But as other institutions desperately try to cut costs, what happens there could be an important signal to the rest of the sector about how the future might look.

Why is La Trobe so screwed?

Universities knew they were in trouble back in February when the first travel restrictions limited the flow of international students. Now, with borders closed and no sign of when international students will return, latest modelling has universities braced for losses of up to $16 billion by 2023.

And to compound the sector’s pain, the federal government has effectively locked public universities like La Trobe out of its JobKeeper package, by implementing changes to the eligibility tests.

But even with all that in the background, La Trobe has always been particularly vulnerable. A recent paper by Ian Marshman and Frank Larkins from Melbourne University’s Centre for the Study of Higher Education found La Trobe was one of seven universities at the greatest financial risk from the loss of overseas students. Dewar quoted the paper to staff when explaining the university’s position. 

And La Trobe isn’t the only university getting out the knife. Deakin University is cutting 400 staff roles, while the University of the Sunshine Coast began offering staff voluntary redundancies to plug a $44 million black hole this week. 

What happens next?

Other universities, all feeling a financial strain like never before will be anxiously watching what happens at La Trobe over the next month. But at this stage, it’s hard to say how things will pan out. 

“There’s no precedent for a public university going broke,” Australian National University higher education professor Andrew Norton told Crikey. 

Like all public universities, La Trobe is established by a state government act, although it is a legally separate entity. The bulk of La Trobe’s public funding comes from the government. But there is no obligation on the state or federal government to bail out La Trobe. 

However, Norton suggests the federal government might have an implicit obligation to keep the university afloat. And there’s another caveat to all this — allowing a university to go under could be too politically risky for the government.

“A university insolvency would be a bad political look that no education minister would want to have on their political record,” Norton said. 

While a potential insolvency would be highly unlikely, Norton concedes, ultimately that’s a call for the government to make. 

But even if the government did let La Trobe go, the country is in such uncharted waters that the question of what happens next is pretty unclear, according to insolvency law expert Michael Murray.

“Universities are special cases. We don’t have a precedent for a university going insolvent, and I don’t think the law in its current form addresses that,” Murray said.

“I think it would be a matter for government, for parliament.”

Either way, La Trobe’s future is in the government’s hands.