Background to the Funding Pressures

Australian universities have navigated a decade of policy shifts, economic volatility and rising operational costs that have placed sustained strain on their financial foundations. The sector, which educates hundreds of thousands of domestic and international students while driving research and innovation critical to national productivity, now faces calls for targeted reforms to achieve sustainable funding.

Universities Australia, the peak body representing the sector, has outlined these challenges in detail through its recent analyses and pre-budget submissions. The issues stem from a combination of reduced real per-student funding, misalignment between student demand and government allocations, and uncertainty around international education revenue.

Current Financial Indicators Across the Sector

In 2024, the collective operating surplus for universities stood at 4.7 per cent, an improvement on prior years yet still masking underlying vulnerabilities. Thirteen institutions remained in deficit that year, following peaks of 26 in 2022 and 25 in 2023. Liquidity concerns affect 22 universities where current liabilities exceed current assets, while salary and related costs continue to rise faster than inflation.

These figures reflect a broader pattern of constrained capacity. Capital expenditure has declined from around $4.5 billion in 2019 to approximately $3.86 billion in 2024, limiting investments in laboratories, teaching facilities and digital infrastructure essential for modern higher education delivery.

Domestic Student Funding and the Job-Ready Graduates Legacy

Domestic teaching revenue, primarily through Commonwealth Supported Places, forms a core but increasingly pressured income stream. Real average funding per Commonwealth-supported student has fallen by around six per cent since 2017, even as student numbers grew modestly. The Job-ready Graduates package, introduced to align fees with workforce needs, has been widely criticised for creating a broken system that increases costs for students in key disciplines while reducing university revenue.

Recent government measures, including the introduction of Needs-based Funding from January 2026, aim to provide additional support for students from low socio-economic backgrounds, First Nations students and those at regional campuses. This represents a step toward addressing equity gaps, though sector leaders argue more comprehensive adjustments are required to restore fairness and viability.

International Education Revenue and Managed Growth

International student fees have historically buffered funding shortfalls, yet this revenue stream faces new constraints. After recovering to roughly its 2019 real value in 2024, growth is expected to slow under tighter visa settings, higher living costs and the government's managed growth framework for overseas student commencements.

International students now account for just over one-quarter of university revenue, leaving institutions exposed to policy volatility. Universities Australia has emphasised the need to protect this $52 billion export industry sustainably to support jobs, research and regional economies.

Universities Australia has detailed these pressures in its February 2026 media release.

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Research Funding Shortfalls and Full Economic Costs

Research activity remains a cornerstone of Australian universities, yet the funding model is widely regarded as unsustainable. Institutions contribute approximately $1.06 of their own funds for every dollar of research income received. Government investment in research and development has fallen below two per cent of total expenditure, while Australia's overall R&D effort sits at a 20-year low of 1.7 per cent of GDP.

The Group of Eight universities have called for a transition toward public funding that covers the full economic costs of research, beginning in the 2026-27 Budget cycle. This aligns with recommendations from the Strategic Examination of Research and Development and the Australian Universities Accord.

The Go8 submission outlines specific recommendations for research sustainability.

Infrastructure Investment and Campus Modernisation Needs

Declining surpluses directly constrain universities' ability to maintain and expand essential infrastructure. Since the abolition of the Education Investment Fund in 2019, direct government support for capital works has been limited, forcing reliance on operating margins that many institutions no longer possess at previous levels.

Seven universities currently spend less than five per cent of revenue on capital investment, hindering the modernisation of facilities required for high-quality teaching, research and student experience. Sector advocates have urged restoration of a dedicated infrastructure fund to support skills development, innovation and economic growth.

Stakeholder Perspectives from Peak Bodies and Government

Universities Australia Chief Executive Officer Luke Sheehy has stressed that universities are critical national assets delivering skilled graduates, research outcomes and economic contributions. The organisation's 2026-27 pre-budget submission proposes a practical package including fixing the Job-ready Graduates package, growing Commonwealth supported places, implementing Indigenous reforms from the Accord, cutting red tape and securing international collaboration through Horizon Europe access.

Government responses in the 2026-27 Budget have included positive steps for research and innovation alongside redirection of some funds and winding up of programs such as Trailblazer Universities. The establishment of the Australian Tertiary Education Commission signals ongoing efforts to align university activities with national priorities, though sector representatives note the need for greater certainty and investment.

Impacts on Staff, Students and Regional Institutions

Funding pressures have led to workforce adjustments, including shifts toward fixed-term and permanent positions while casual employment patterns evolve. Students face higher costs in certain disciplines and uncertainty around course availability, particularly in regional areas where delivery costs are elevated.

Regional universities and those with higher proportions of equity students experience amplified challenges. The introduction of Needs-based Funding seeks to mitigate these disparities, yet broader per-student funding restoration remains a priority for many providers.

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Proposed Solutions and Reform Pathways

Key recommendations from sector leaders include restoring real per-student funding levels, implementing full economic cost recovery for research, protecting sustainable international education growth, and establishing mechanisms for infrastructure renewal. Additional priorities encompass raising PhD stipends, supporting parental leave for researchers and lifting public R&D investment toward OECD averages.

These measures aim to provide the stability required for long-term planning, workforce development and global competitiveness. The Australian Universities Accord and related reviews have identified many of these pathways, with implementation now dependent on budgetary commitments.

Future Outlook for Australian Higher Education

Without targeted intervention, the structural pressures facing universities risk undermining their capacity to meet national skills needs, drive innovation and contribute to productivity growth. The 2026-27 Budget cycle presents an opportunity to begin stabilising the system through a combination of funding adjustments, regulatory streamlining and strategic investments.

Continued dialogue between government, peak bodies and institutions will be essential to translate reform proposals into actionable outcomes. A sustainable funding framework would position Australian universities to deliver enduring benefits for students, researchers, industry and the broader community.