The pandemic has brought a financial day of reckoning clearly into focus for Canada’s universities. The immediate crisis comes from a collapse in revenue from declining foreign student enrolment. But the plunge in foreign student numbers is just the revenue side of the challenges; there are significant spending problems as well.
University revenues mainly come from government and tuition fees, according to Statistics Canada’s 2018–19 data. These revenues mainly fund compensation—salaries, wages, and benefits—which amounted to 59 percent of total expenditures that year. With the strength of unions behind them, compensation in universities skyrocketed compared to the private sector.
Within the tuition fee portion of those revenues in 2018–19, over one-third came from international students, who pay substantially higher tuition than domestic students. In 2020–21, foreign undergraduate students paid an average annual tuition of $32,000, compared to just $6,600 for domestic students.
Statistics Canada estimates that foreign students paid nearly 40 percent of all university tuition fees in 2017–18. That year, the number of foreign students in Canadian universities accounted for 14.7 percent of the student population, surpassing 196,500, which was nearly double the approximately 88,000 figure a decade earlier.
Meanwhile, in 2019 the total number of foreign students at all levels of education reached 642,000, an increase of 13 percent compared to the previous year.
In this context, the pandemic could cost Canadian universities losses ranging from $377 million to $3.4 billion in the 2020–21 academic year.
Last month, Laurentian University went into creditor protection and is now facing the prospect of bankruptcy. A court ruling said the university can cut programs and terminate or lay off staff “as they deem appropriate” as long as current students are not affected.
There could be a domino effect as other universities start to deal with the realities of the collapsing economy. The big question for them is, will foreign students return?
The coming financial tsunami will force universities to deal with their problems. Over the past few decades, many industries have faced rapid change brought on as a result of technology. They were forced to adapt to a changing world and created many new models of working and ways of delivering services and products to the marketplace. Universities will have to take a similar approach.
However, government organizations and especially higher learning institutes resisted changes to the status quo in order to maintain stability for their workforce. The end result is out-of-control costs related to human resources.
Many examples of out-of-control spending at colleges and universities exist, one being Memorial University in the bankrupt province of Newfoundland and Labrador. The highest-level staff member could earn an income of over $114,000 a year. These members of the Canadian Union of Public Employees consist of non-teaching staff mainly in support roles such as clerks, technicians, and operators.
Unionization is a key factor affecting compensation, and it’s an area where the public sector contrasts sharply with the private sector. In 2020, about 77.6 percent of employees in the public sector, over 2.96 million workers, either were members of a union or were non-union employees covered by a collective agreement, while in the private sector the corresponding proportion was only 15.8 percent of employees, or 1.8 million workers.
Due to the pandemic, all sources of revenues for universities will be under pressure. Foreign students may stay home, and with job losses in Canada having reached close to 1 million in February, many might expect that young people will have a tougher time finding employment and that the costs of university will not pay immediate rewards in the working world.
The provinces have responsibility for funding a significant portion of universities’ revenue and are under extreme financial duress as a result of the pandemic. With the combined provincial deficit running at almost $100 billion, the provinces will be looking at all aspects of cost savings.
A perfect storm is upon universities, and with a significant drop in revenue, it appears the day of reckoning is here. The good news is that, because universities have not taken advantage of the huge strides forward in technology, now is the ideal opportunity to re-engineer the way they do business.
