Private universities facing major financial crisis, need help

Private higher education is largely overlooked in the current debate on reform of higher education in Malaysia. Nonetheless, private higher education institutions (HEIs) account for almost half of the student and academic populations and absorb large amounts of government subsidised loans through the PTPTN loan system. In 2016, PTPTN allocated RM2.6 billion or 60% of its funds to private HEIs which made up around half of the revenue for the sector.

The lack of attention to private HEIs is concerning because of the number of students and the public resources involved, but even worse is the urgent need to address reform of the private sector because of significant financial distress, which is impacting tens of thousands of students, graduates and staff.

We have recently completed and updated our research on private university finances, presented at a public lecture at Monash University on Nov 27, 2018, which shows the current financial landscape for private universities based on audited financial accounts from Suruhanjaya Syarikat Malaysia (SSM) for 75 out of 96 private HEIs. The results show that our private universities are struggling and need help and support if they are to survive and thrive in the coming years.

The majority of private HEIs are loss-making with 53% making losses before tax and 55% making losses after tax. The proportion making losses has risen from 41% before 2013 to 55% after 2013. Even for those that are profitable, times are tough. Average profits before tax fell 54% and profits after tax fell 78% since 2010.

This has caused massive financial stress which grinds down pay and conditions for thousands of staff and impacts the quality of education for tens of thousands of students. Around 121,000 students, 5,800 academic staff and a similar number of non-academic staff are in institutions affected by the financial stress in loss-making institutions.

Many private HEIs are struggling to pay their bills. Around 44% of all private HEIs are technically insolvent, with insufficient current assets to pay their current bills. This has become much worse since 2013 with average insolvency of 26% before and 40% after. Around 137,000 students and 7,000 academic staff are in private HEIs that are technically insolvent and in risk of financial failure.

In the face of poor profitability and under-resourced cash-flows, many private HEIs are increasing their debt levels, particularly with short-term debt. In 2016, 64% of private HEIs were in some form of debt distress: either their debt exceeds their assets or they have negative equity and high debt. These are normally indicators of severe financial stress, possible default and bankruptcy. Around 151,000 students and 7,800 academics are in these institutions.

Many years of accumulated losses, poor financial management and increasing levels of debt have increased negative equity among private HEIs. Around 42% of all private HEIs had too few assets to cover their debt levels in 2016.Whilst the situation improved for local private HEIs, for the foreign branch campuses the proportion with negative equity doubled from 30% before 2013 to 59% on average afterwards.

In fact, overall, foreign branch campuses perform much worse in financial terms than their Malaysian counterparts. Two-thirds are loss-making and 67% are technically insolvent. This has risen from 21% before 2013. In 2016, 78% of foreign branch campuses were holding below market cover of current assets over liabilities. Around 56% of foreign branch campuses had too few assets to cover their debts in 2016.

The financial landscape is putting a great deal of stress on private universities, and if things get worse, many may not survive. We conducted some stress tests as a form of vulnerability analysis on profitability and solvency. These show that private HEIs are extremely vulnerable to small changes in revenue due to fluctuating market conditions.

If there was a 5% cut in their income, 69% of HEIs would be loss-making. All of the foreign branch campuses would become loss-making with a 10% cut in income, and 75% of their local counterparts. A 15% cut in income would make half of all HEIs insolvent. In 2014, the previous government cut PTPTN allocations by 15% for private HEIs so these types of shock are not unknown.

Private universities and colleges have played a huge role in the development of higher education in Malaysia, and this role must be acknowledged and supported. Hundreds of thousands of Malaysians have obtained diplomas and degrees because of the private universities, which they otherwise would not have been able to achieve. The private sector is also the home to some of our best academics, leaders and educational pioneers.

So far, the private universities have been left much to their own devices and have survived or failed according to the market, but now they need and deserve more help and support. With a new government, we hope that they will not be ignored and that we will see a new vision for the private sector to set the foundation for the future generations to come.

Source: FMT