Debt Financing is the Name of the Game If You're in Charge of a Public University. (September 9, 2005)

    A report issued by the credit ratings agency Standard & Poor's this week -- Report Card: International Higher Education Sector -- examines the higher education markets in Australia, Canada, Japan the United Kingdom and the United States.

S&P find that while universities "continue to benefit from strong government funding these public sources are becoming insufficient in supporting investment in infrastructure and staff in an increasingly competitive national and international market.

    "This has resulted in a trend of universities seeking to diversify their sources of revenue, thereby making them more exposed to market forces."

With regard to the position in the UK, Standard and Poor's say the British universities' "generally thin financial margins and limited financial flexibility" are influencing them to increasingly recruit students from overseas [and while this] can improve [the] cash position in the short run, over reliance on such income could lead to long-term instability due to the inherently more volatile nature of overseas student income."

In Australia say S&P the increased contributions required from Australian students together with "continued reliance on revenue sources from full-fee-paying international students" are forcing universities to invest in capital infrastructure.

The "Report Card" highlights that Australian universities almost universally  are aggressively seeking the funding gained from full fee paying international students, but it warns Asian universities are developing their campuses and investing in infrastructure to create their own reputable higher-education sector within the next 10 to 15 years (see Professor Allan Luke's contribution to the "Degree Factories").

S&P's blunt warning, "By this creation of domestic supply in Asia, Australian universities will face the risk of a massive decline of international students, which may have severe financial … implications."

Also drawing criticism are the efforts of Australian institutions in embracing the risky business of establishing offshore campuses. "This trend is continuing despite the fact that many are experiencing serious financial losses overseas."

Nevertheless S&P rated highly the financial health and performance of the three of Australia's 38 public universities requesting to be assessed. Melbourne University and the Australian National University received AA+ ratings while  La Trobe was given an AA- rating, and if you're going to be increasingly driven to debt financing that's useful -- Harvard gets a AAA rating, which considering its endowment isn't unexpected.

Finally, Standard & Poor's make the prediction that were the governmental push towards separating teaching only from research emphasising institutions realised, higher credit ratings for strong research universities would result.