S&P Global warns international student cuts could damage Australian universities’ credit ratings

As the federal government plots a new way to cut international student visas, S&P Global has flagged issues with universities’ strong credit ratings. See which universities are hardest hit.

Cuts to international student numbers are putting pressure on universities’ credit ratings. Photo: iStock

Credit rating agency S&P Global has cautioned that cuts to international student numbers will “increase ratings pressure’’ on Australian universities.

S&P Global – previously known as Standard & Poor’s – has issued AA+ credit ratings to the University of Melbourne, University of NSW and Australian National University, along with an AA- rating for the University of Wollongong and an A+ rating for La Trobe University.

Any rating downgrade would increase universities’ borrowing costs – and S&P Global is warning the strong ratings are “under downward pressure’’.

“Lower numbers of international students and reduced fee revenue could weaken enterprise profiles and operating margins, leading to increased ratings pressure,’’ S&P Global Ratings credit analyst Frank Dunne said in a research report released on Tuesday. “International students generate lucrative revenue (and) can pay as much as three times as their domestic counterparts for some courses.

“Even small disruptions to this productive revenue stream can dent operating margins and put downward pressure on very strong credit ratings.’’

S&P Global has warned that cuts to international student numbers could weaken universities’ strong credit ratings.

The Albanese government has failed to pass legislation to cap the number of international students commencing at Australian universities and private training colleges next year at 270,000, with individual quotas set for each institution. It is relying instead on Ministerial Direction 107 to slow approvals of student visas.

The S&P analysis shows the directive has led to a concentration of students from China, who favour the city sandstone universities, at the expense of regional universities which enrol more students from other countries.

“We believe the abandonment of the proposed caps will primarily benefit Australia’s prestigious Group of Eight universities,’’ the analysis states.

“Across the Go8 in 2023, some 46 per cent of new students were international students.’’

The S&P analysis says Ministerial Direction 107 – introduced a year ago to prioritise processing of student visas based on the assumed risk they are “non-genuine students’’ – is “particularly tough for regional universities”.

“The directive has created a two-class system,’’ the S&P report states.

“Chinese students have accounted for about 42 per cent of higher education student visas granted year to date.

“Regional universities tend to be more diversified across India and Southeast Asia (so) by deprioritising visa applications at smaller universities, the influx of new international students has become increasingly concentrated to Chinese students.”

“We believe diversification of source markets is important in mitigating against market shocks, geopolitics and exchange rate movements.’’

S&P notes that the Albanese government is under political pressure to “rein in migration before a federal election in 2025’’.

“International students typically account for about one-third of inbound migrants annually,’’ it states.

“We expect the government will introduce new measures or tweak existing measures to curb the flow of international students into Australia.

“This could include invoking powers under the Migration Act to limit the number of student visas issues or a new ministerial directive striking to limit student numbers more equitably across the sector.

“Australia’s push to curb migration remains a thorn in the side of its higher education sector.’’