Tertiary education provider NextEd Group (ASX: NXD) has forewarned investors that the impending cap on international students to be introduced in 2025 will have an adverse impact on revenue, joining its peers that will face unintended consequences from the legislative change.
The Federal Government is set to introduce caps on the number of new international student commencements under the Education Services for Overseas Students Amendment (Quality and Integrity) Bill 2024. These hard limits, known as the National Planning Level (NPL), will place a ceiling on international enrolments for both higher education and vocational sectors.
The NPL will take effect from January 2025, aiming to regulate the number of international students starting courses each year, with a total limit of 270,000 students for the year. This will be split into 175,000 for higher education and 95,000 for vocational education. The bill is still undergoing a Senate Inquiry, and the exact details of its implementation, including regional versus metropolitan campus quotas or potential adjustments for high-demand courses, remain unclear.
NextEd has already been informed of its specific caps for both higher education and vocational courses for 2025, and the reduction in international enrolments is set to have a significant impact on its revenue streams.
Impact on higher education
NextEd’s cap for new higher education international student enrolments has been set at 100 for 2025, down from 172 commencements in 2023. This 42% reduction in intake is expected to gradually reduce the number of international students in NextEd’s higher education courses, as most students stay enrolled for an average of three years.
Given that 70% of NextEd’s higher education revenue in FY24 came from domestic students, the financial blow may be somewhat mitigated, but the Company still anticipates an overall decline in revenue from its international education arm.
Vocational education caps
The vocational education sector is set to face an even more severe cut, with NextEd’s cap for new international student enrolments set at 1,139 for 2025, a 45% reduction from the 2,078 commencements in 2023.
The drop in vocational enrolments is likely to hit NextEd’s revenue harder, as the average course duration is shorter (1.5 to 2 years), meaning the effects of the cap will be felt more quickly in the second half of 2025. Only 32% of NextEd’s vocational revenue in FY24 came from domestic students, increasing the financial strain caused by the cap on international students.
NextEd’s response
In response to the forthcoming changes, NextEd has stated that it will continue to prioritise revenue growth from its domestic student base and implement cost management strategies to minimise the financial impact of the caps. The Company has reassured shareholders that it is exercising prudent financial and operational management, adding to existing measures to control expenses and optimise its domestic student market.
While English language courses are currently excluded from the proposed caps, the company has not indicated whether it will seek to expand this area of its business to counterbalance losses elsewhere.
Uncertain future
Though NextEd has a strategy to offset some of the potential revenue decline, the long-term impact of the NPL remains uncertain. The full details of how the government will implement the caps beyond 2025 are yet to be revealed. The company will continue to monitor developments closely and provide updates to the market as the situation evolves.
In its preliminary report for the Full Year ended 30 June 2024, NextEd reported $111.4 million revenue which represented an 8.9% increase on the previous years.
This flowed down to EBITDA of $15.0 million but this was a 10% decline on FY23. NextEd had also made provisions as a direct result of future uncertainty created by recent Federal Government actions to reduce international student numbers. As of 30 June 2024, NextEd held $19.3 million in cash.
Mitch Korver is a Business Writer focused on high-growth companies listed on the ASX in the small and medium cap space.
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