The billion-dollar question: how much does student attrition cost Australian universities every year?

The billion-dollar question: how much does student attrition cost Australian universities every year?

  • Undergraduate attrition costs Australian universities more than $1 billion dollars per year
  • The median Australian university is losing more than $20 million every year from undergraduate students withdrawing in their first year
  • Regional universities are most at risk, but metropolitan universities have plenty to gain from a renewed focus on student retention.

 

In our previous blog ‘Australian Higher Education funding freeze: international growth becomes ever more critical’ we discussed some of the levers Australian universities can pull to grow their revenue in light of recent changes to higher education funding.

In this post, we’ll talk about the flipside of that coin, student retention, and how a focus on student engagement and retention can make a huge impact on university budgets, as well as individual students.

So, why should universities be focusing on student retention? There are lots of good reasons! Universities have a core mission to educate and develop the life skills of citizens and visitors, and retaining students through to successful completion of their qualifications is absolutely crucial to this mission.

Moreover, universities have a responsibility to provide the pastoral care and support that students need to flourish, and student engagement and retention is not just about first year undergraduates. Younger students who are still learning to be independent and critical thinkers ready to succeed in their goals do often need pastoral care and support, but that support matters to all students whether transitioning into higher education via pathways, international students, non-school leavers and mature-age students, and people returning to study.

And if those reasons haven’t convinced you, this should: because the costs of student attrition are huge.

Undergraduate attrition costs Australian universities more than $1 billion dollars per year

We estimate that universities in Australia are foregoing more than $1 billion (AUD) per year in lost fee revenue from undergraduate students who withdraw from their studies in their first year.

Our estimate is based on the Australian government’s New Adjusted Attrition Rate, which is the proportion of students who commenced a course in a given year, who neither complete in that year or the following year, nor return in the following year. These are students who withdraw from study completely, rather than switching to a different institution.

We believe this estimate is extremely conservative, and the actual figure is likely to be much higher

The $1 billion figure only includes one year of the course revenues: the year they withdrew. The actual foregone revenue is much higher: for example, a student withdrawing from a three-year bachelor’s degree early in first semester means the university will forego three times the figure we have used.

Because we don’t have national data on students withdrawing in later years we have not factored them in to our estimate (for example a student withdrawing halfway through a bachelor’s degree is not included in the attrition rate statistics, but still costs the university more than a year of revenue). Also consider students withdrawing from four-year bachelor’s degrees and double degrees, and from postgraduate programs, for which national attrition rate figures are not publicly available.

This is why we believe our $1 billion figure is well below the actual dollar value universities are losing from student attrition. The $1 billion figure is the best we can accurately estimate using the available data, and we still think it’s a staggering amount of money.

Most of the lost revenue is from withdrawing domestic students

Over $780 million of this foregone revenue is from domestic students, based on a national average attrition rate of 15% (New Adjusted Attrition rate for 2015 commencing students) and an estimated revenue per student per year of $18,500.

$250 million of this is from international student fees, at a national average New Adjusted Attrition Rate of 9.3% and an estimate revenue per student per year of $29,000.

We believe these estimates of the value of a student in annual revenue terms are also conservative, with the real value for many institutions likely to be much higher (especially for international).

International students are 14% of withdrawn students, but worth 24% of the lost revenue

While overall attrition rates are lower for international students, and they make up a smaller proportion of student numbers, the average revenue per student is significantly higher for international students.

International students should therefore be a clear focus for retention activities.

We believe attrition rates are lower for international students because international students have made a huge commitment to come to Australia to study. They face enormous pressures, financial, academic and personal, in a new environment, but the cost of dropping out, in personal and financial terms, is higher than for domestic students.

Providing the right support services for international students (see our forthcoming International Student Survey 2018 data for more information on the right types of services) and actively ensuring students know how and when to use them is a win-win for the university and the student.

The median Australian university is losing more than $20 million every year

Based on QS Enrolment Solutions estimates, first-year undergraduate attrition costs the median Australian university at least $20.8 million per year (domestic and international).

This estimate combines publicly available national attrition rate data for individual universities with published commencement data to estimate the number of students withdrawing from each institution per year, then multiplies that by a standard estimate of revenue per student.

What are the institutional risk factors for attrition?

Most universities have a higher attrition rate for domestic students than international, but there are a handful of exceptions, and these are more likely to be regional universities.

By plotting attrition rates against demographic triggers such as average ATAR for that institution, and whether they are located in city or regional areas, some high-level trends emerge.

Attrition is clearly more challenging for regional universities, in both domestic and international, with most of the universities with high attrition being located in regional areas.

We can also see that attrition rates tend to be higher for universities with lower average ATARs. On the charts below, we’ve plotted attrition rate against average ATAR for every university in Australia, with the size of the bubbles representing the estimated total revenue lost to attrition per year.

 

For international attrition, while it’s clear that ATAR isn’t directly relevant to international admissions, we have used it as an imperfect proxy for institutional prestige, and to keep the comparison with domestic clear. Interpret the charts with this caveat in mind.

The data shows that regional universities and those with lower ATARs are working into a retention headwind, but several of the universities bearing the highest overall cost from international student attrition are prestigious city-based institutions, including Group of Eight universities.

 

Metropolitan universities tend to be forgoing more revenue

Just because regional universities tend to have higher attrition rates doesn’t mean city universities can ignore the attrition problem: because the metropolitan universities tend to be larger, the loss of students and the consequent revenue loss still averages more than $20 million per university.

If you’d like to see how your university compares when it comes to student retention and the dollar value we’ve estimated your institution is seeing walk out the door, please reach out.

What should you do about this?

Act now.

We know universities are planning longer-term strategies, but you can still take strides to make an impact on enrolments immediately.

At QS Enrolment Solutions, we have been supporting our university partners for over 6 years to proactively engage and provide 1-1 guidance to domestic and international students as they navigate through the personal and academic hurdles they face during their studies.

A well-executed and timely intervention and/or prevention campaign can make a huge difference to students’ experience with their university and positively impact their study outcome.

You might be surprised how easy it is to demonstrate a strong return on your investment.



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