Inside Labor’s decision on student caps

On February 8 this year, the vice-chancellors of 16 Australian universities jointly wrote to then home affairs minister Clare O’Neil complaining that new visa restrictions on international students were killing the institutions financially.

Their “conservative” estimate of the consequence of the arrangements put in place less than three months before, under an instrument called Ministerial Direction No. 107, would be “a collective revenue downturn of approximately $310 million in 2024 alone, akin to the impact of the pandemic”.

These were not the big sandstone universities, but smaller, mostly regional institutions. They complained that MD 107 unfairly discriminated against them.

The way it worked was by assessing the risk profile of their student bodies and making it harder for potential students to get visas. The intent was to shut off the flow of non-genuine students coming to Australia for work rather than education, to close down fraudulent providers and cut the number of people claiming asylum.

The Group of Eight – the “sandstone” universities that drew wealthier students, heavily skewed to those from China – were deemed to be at low risk, so MD 107 did not trouble them. At the other end of the spectrum was a growing number of education establishments, mostly private providers of short courses, many of them essentially fraudulent operations that brought people in to work on the pretext of education. They were the real target of the policy.

In between were institutions such as the 16 whose vice-chancellors wrote the letter – genuine providers but with diverse student bodies, many from higher-risk source countries and less-privileged backgrounds.

“We support the objective of the Migration Strategy to reduce the number of non-genuine students entering Australia through high-risk provider institutions,” they said.

They noted, however, “these are defined in the strategy as ‘private providers in the Vocational Education and Training sector’.” That is, not them.

“Since the prioritisation of Level 1 institutes, visa processing times at many institutions year-to-date have been significantly delayed compared to those experienced in 2023,” the vice-chancellors said. MD 107 was a threat not just to them, but to the sector as a whole, which “tarnishes the reputation of Australia’s largest service export”, according to their letter.

They sought a meeting with O’Neil – and eight days later, on February 16, they got one.

“And it was in that meeting that she floated for the first time the idea of caps [on student numbers],” says one of the VCs who was in attendance.

“She wanted to know would we prefer caps to the current visa arrangement? And I think we said – I know I was amongst those who said – we don’t think caps are a good idea, but even caps would be better than what’s happening with visas, which is just arbitrary and unmanageable and unpredictable.”

The vice-chancellor has no idea what bureaucratic process led to that offer – a couple of inquiries had identified problems with the integrity of some student visas but had not suggested any measure like MD 107.

The VC has no doubt, though, about the political imperative that drove it.

“It came from the anxiety about cost of living and housing, which were political issues that were hurting the government,” they say.

In the 12 months to September 2023, net overseas migration hit a record of almost 550,000, largely driven by overseas student numbers. The opposition was hammering the government, claiming Labor had lost control of immigration. It was blaming migrants, and overseas students in particular, for steep rises in rents and the cost of homes.

A letter to Treasurer Jim Chalmers from Universities Australia described the government’s first attempt to deal with the ballooning numbers of both legitimate and fraudulent students, MD 107, as a “brutal mechanism to drive down the number of international students entering Australia”.

Brutal is a strong word, but it was certainly a blunt instrument, and it inflicted damage disproportionately on the second-tier universities.

Says the VC: “In the first six months of 2024, commencements at the Group of Eight universities increased by 36 per cent compared to 2023. In the same period, Regional Universities Network members have had a reduction of 38.5 per cent. In some cases the refusal rate was 50 per cent.

“It’s been calamitous for us, and the regional universities are all in the same boat.”

Another vice-chancellor, Professor George Williams of Western Sydney University – who was not at the February meeting because he had not then taken up the role – gives a couple of examples of the way in which the cuts to overseas student numbers will have negative consequences for Australian students and for society as a whole.

“In our case, 24 cents in every dollar [in fees] from international students goes to subsidising things like food for domestic students,” says Williams. “A survey showed up to 52 per cent of students in any week may struggle to find money for a meal.

“So we have a food pantry. We provide breakfasts and dinners. If international students are reduced, we will have less ability to support Australian students who need services just to stay at uni,” he says.

As to the societal consequences: “One of our biggest programs is nursing. And most of our nurses, that was 1350 last year, went into Western Sydney hospitals and other forms of nursing.

“So you can draw a direct line between this policy and what will be a deterioration in healthcare, because the domestic students aren’t wanting to do it.”

When O’Neil met with the vice-chancellors on February 16, says the source, “it looked to us like they realised [the policy] was a disaster” and were looking for a plan B.

“But they didn’t want to be seen to be taking a backward step. Clare O’Neil was never going to say she’d got it wrong.”

On April 5, a second letter was sent to the home affairs minister, in which some of the VCs reluctantly outlined how a cap option might work, noting that MD 107 was, in any case, a de facto cap. Just a very clumsy one.

Six weeks later, on May 11, the government released a “Draft International Education and Skills Strategic Framework” flagging its intent to cap international students. And just five days after that, legislation – the Education Services for Overseas Students Amendment (Quality and Integrity) bill 2024 – was introduced into parliament.

Why the urgency? For two reasons, say the experts: there was a real problem to be fixed, and Labor has been so frequently and successfully wedged in the past on immigration issues by the opposition.

And Peter Dutton, ever the opportunist, was trying to do it again. In his budget reply speech that month, he explicitly linked high immigration to the housing crisis, saying a Coalition government would “rebalance” (meaning: slash) numbers, which he claimed would “free up almost 40,000 additional homes in the first year”.

Among the changes he promised: “[W]e will reduce excessive numbers of foreign students studying at metropolitan universities to relieve stress on rental markets in our major cities.

“We will work with universities to set a cap on foreign students,” he said.

No doubt the government saw this coming; it gazumped Dutton by a few days with its announcement of student caps. In August, the government announced that, subject to the passage of its legislation through parliament, it would set an overall cap of new commencements at 270,000 for 2025. It has also set numbers for every individual institution.

Curiously, though, the government did not rescind MD 107, and said it would not do so until the legislation passed.

There is no certainty about when that might happen, for the caps legislation remains stalled in the parliament. The day it was introduced, it was sent off for an inquiry by a Senate committee. Initially, the committee was to report by August 15. That deadline was extended to September 6, then September 16, then September 26.

The report is now expected to come down on Tuesday. Depending on what its recommendations are, this could well result in further frustration for the government. There are only a few sitting weeks left this year.

Perhaps the Senate will be accommodating; the fact that MD 107 continues to wreak havoc on the sector puts pressure on the universities in turn to exert pressure to get the legislation passed.

The opposition seems more intent on inflaming the situation than resolving it, however.

Only last week, in an interview with 2GB shock jock Ray Hadley, Dutton described foreign students trying to extend their stays in Australia as “the modern version of the boat arrivals”.

Hadley cited The Australian newspaper, based on data from the Administrative Appeals Tribunal (AAT), showing the number of international students who lodged appeals against their student visa refusal or cancellation in the year to August 31 was 15,754, compared with just 2244 the previous year.

Dutton said those people were “exploiting … a weakness in the system” and conflated the students with “these people that Andrew Giles and Anthony Albanese have let out of immigration detention”.

He claimed this was costing “hundreds of millions of dollars a year – money that should be spent on Australians and not on people who are here illegally. And the government is happy for it, Ray, let’s be clear about it, because they don’t believe in a strong border protection policy.”

Dutton continued: “[T]he fact that the prime minister’s brought in a million people over the last two years and only 300,000 homes being built, shows that, I just think, they’ve lost control of the migration program.”

It was an egregious misrepresentation of the reality in several ways.

First, as student advocates point out, they are not here illegally. They came to Australia with valid visas.

Second, it was the High Court that ordered the release of a comparatively small number of non-citizens from indefinite immigration detention, not the government. And that has nothing at all to do with overseas students.

Third, the admittedly large increase in the number of appeals to the AAT is not evidence that the Albanese government does not believe in regulating the flow of migrants. Quite the reverse.

As Abul Rizvi, a former deputy secretary of the Department of Immigration, points out, the number of appeals is a direct consequence of the visa crackdown.

“The refusal rate for people applying for further student visas onshore in Australia now is around 25 per cent. It used to be about 5 per cent,” he says.

“And those people are now appealing their refusals. The number who have applied for such student visas onshore is in excess of 100,000. And it was the big surge in AAT appeals that got Dutton excited.”

Fourth, the problem of overseas student numbers was largely of the previous, conservative government’s making.

“What happened towards the end of Covid and when the international borders reopened, was the Coalition stomped on the student visa accelerator in a way that no government has ever stomped on that accelerator before,” says Rizvi.

“They did unprecedented things like bringing unrestricted work rights for student visa holders, which effectively made the student visa into a work visa. They introduced, for a brief period, fee-free applications for student visa applicants. And they established what was known as the Covid visa, which gave students the opportunity to work unlimited hours without having to pay a student tuition fee,” says Rizvi.

So, for the Coalition to now point the finger at the Labor government, says Phil Honeywood, “is incredibly hypocritical when that party was front and centre in causing much of the problem with the international education sector.”

Honeywood, it should be noted, is no Labor apologist. He is a former Victorian Liberal MP and chief executive of the International Education Association of Australia. He is also co-convener of the federal government’s National Council for International Education, in which capacity he has served under the past four prime ministers – Tony Abbott, Malcolm Turnbull, Scott Morrison and Anthony Albanese.

So he is well aware of the history – as is Peter Dutton, who was formerly ministerially responsible for immigration, border protection and home affairs.

Honeywood reckons the former government “cranked the student visa machine”, as one former minister put it, not out of concern for struggling universities or struggling students.

“They ignored the fact that international students are here primarily to study … and without any reference at all to the international education sector – and, I strongly believe, in order to support business interests in the tourism and hospitality industries – they announced uncapped work rights for full-time international students.

“This measure led to a lot of non-genuine young people applying for student visas.”

The same applied in relation to the Covid visa, says Honeywood.

“Officially, the narrative was to help young people that couldn’t afford to go home and needed to work to survive, but unofficially – again, the suspicion has always been that it was just to provide low-skilled workforce …

“And there was also pent-up demand from students who had taken Morrison’s advice at the start of the pandemic and gone home, who were coming back to do the second and third, fourth year.”

To the extent that the current government is to blame, say both Honeywood and Rizvi, it is for being too slow to turn off the gushing tap.

Luke Sheehy, chief executive of Universities Australia, says the tertiary sector has become “cannon fodder” in the political battle over migration levels, which has been “cleverly entwined” with the housing crisis.

“We watched the Dutton budget reply closely as he upped the ante on this and created a bidding war. I saw those recent comments from Dutton [about overseas students] and I thought, ‘Well, we’re in election season, aren’t we?’ ”

And Labor was not going to cut the refugee intake. It was not going to cut family reunions, because it would play badly in marginal electorates. Not going to cut skilled migration, or Kiwis, or working holiday-makers, whose labour is needed.

“So you’ve got a very limited pool of people that you can actually go after,” he says.

He acknowledges that international students do contribute to housing demand – somewhere between 4 per cent and 7 per cent. He also acknowledges there was “some rorting, and there was some inappropriate and potential criminal behaviour”.

But the combination of opposition opportunism and Labor’s ill-considered response has proved very expensive, both in reputational and dollar terms.

“We saw over six months between that direction [MD 107] coming in place and the end of the financial year, 55,000, nearly 60,000 fewer visas granted. Our calculation is that’s about a $4 billion hit to the economy. And our estimation is that every day this directive sits in place, it’s a $19 million hit to the economy,” he says.

Even if the university sector doesn’t much like it, they mostly concede that the new policy – if and when it gets through the Senate – is better.

One might describe what went before as cheap politics, but it has been anything but cheap.

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