Radio New Zealand reports international student visa numbers are down; they blame the high dollar.
The real cost of tertiary education in New Zealand can vary substantially with exchange rates. There isn’t much that any University can do about levels, but we could perhaps be doing more to reduce uncertainty.
Who is better placed to mitigate the risk of currency fluctuations: a family sending their kid abroad for study, or large enterprises with budgets in the hundreds of millions and with finance departments?
A first step in mitigating that risk would be exchange-rate-sensitive international student fees. We could offer tuition packages allowing international students a few ways of offloading currency risk:
- Pre-paying multiyear tuition to lock in current exchange rates, with guaranteed refund in home-currency dollars if the student drops out [the University then forward contracts or buys options to limit its exposure, enjoys earning interest on the pre-paid fees];
- Tuition guarantees: for an up-front fee, guarantee that the per-course tuition fee as measured in the student’s home-currency will not vary upwards by more than some amount. Set the up-front fee so that it’s enough to buy options to lay off the risk. So long as the University can buy those option contracts more cheaply and with fewer hassles than can a student, this should be a worthwhile proposition;
- Exchange rate insurance: the University sells to incoming students contracts that give them a cash bonus if their home currency drops by a set amount. Tuition is maybe a third to a half of an international student’s total cost of study. If the home currency tanks or the NZD jumps, living here gets a whole lot more expensive. Universities can use the up-front fees to buy option contracts on foreign currency that would let them pay out the students in case of dramatic currency fluctuation. Again, so long as large institutions have cheaper access to these kinds of contracts, this should work.
I work in what is perhaps the most competitive and successful sector in the most competitive and successful economy of all time.
And yet what I see around me is a total, total mess. And I believe my school to be considerably above average in terms of how well it is run.
Update: Luis suggests some reasons:
— Luis A. Apiolaza (@zentree) March 12, 2013
Management costs per student shouldn’t be that high – when the student purchases the contract, you buy the option contracts, then forget about it until you need to execute. Risks of screwing it up are large though if universities are incompetent at this kind of thing. The link Luis provides points to the temptation to overmanage and earn on the hedge rather than just keep it as insurance. I doubt that any university’s portfolio of international students includes enough home-government funded students to make the packages not worth offering, but it could be true in some places.