Australian universities are navigating sustained financial pressures tied to domestic student funding, with real per-student support declining amid rising enrolment demands and policy shifts. The sector, regulated by the Tertiary Education Quality and Standards Agency (TEQSA) and supported through the Department of Education’s Commonwealth Grants Scheme (CGS), faces ongoing challenges in maintaining quality while expanding access.

Background on Domestic Funding Mechanisms

Domestic students in Australia primarily access higher education through Commonwealth Supported Places (CSPs), where the government contributes a portion of costs via the CGS and students pay the remainder through the Higher Education Loan Program (HELP). Recent policy changes, including the Job-ready Graduates package implemented in 2021, have altered funding rates across disciplines. Universities Australia has highlighted that real average funding per Commonwealth-supported student has fallen by around six per cent since 2017, even as student numbers grew.Universities Australia report

This decline occurs against a backdrop of the Australian Universities Accord recommendations and the introduction of Needs-based Funding from January 2026, which provides additional per-student contributions for students from low-SES backgrounds, First Nations students, and those at regional campuses.Department of Education

Current Scale of Financial Strain

Over 40 per cent of Australian universities have operated in deficit for most of the past five years, according to sector analysis. The misalignment of approximately 33,000 student places with available funding creates inefficiencies, particularly under the Managed Growth Funding system that caps domestic enrolments while international student settings tighten.

Universities rely on domestic and international fees for nearly two-thirds of revenue. With domestic per-student funding in real terms lower than in 2017—the last year all places were fully funded—the cross-subsidisation of research and infrastructure has become more difficult.

Impacts on Institutions and Operations

Many universities report constrained investment in campus facilities, staff development, and innovative teaching. Regional institutions and those with higher proportions of equity students face amplified pressures, as the new Needs-based Funding aims to address but does not fully offset broader shortfalls.

Disciplines with lower funding rates under the Job-ready Graduates model, such as humanities and social sciences, often require internal reallocations that affect program viability and academic workloads.

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Stakeholder Perspectives

University leaders, through Universities Australia, emphasise that sustained underfunding per student undermines the sector’s ability to meet national targets, including 80 per cent tertiary attainment by 2050. They note that international revenue has historically buffered domestic shortfalls, but policy uncertainty now heightens risk.

Government officials highlight the Accord reforms and Needs-based Funding as steps toward a more sustainable, equitable system. Student groups and equity advocates welcome targeted supports but call for broader increases in base CSP funding to prevent quality erosion.

Academic staff unions have raised concerns about workload intensification and job security amid deficit-driven reviews.

Effects on Students and Equity

Domestic students may encounter larger class sizes, reduced tutorial support, or delayed infrastructure upgrades. Equity cohorts benefit from the 2026 Needs-based Funding, yet overall per-student resources remain stretched.

Regional and outer-metropolitan campuses often serve higher proportions of underrepresented students, making funding alignment critical for completion rates.

Research and Innovation Implications

Australian university research and development investment has reached a 20-year low in some metrics. Universities continue to subsidise research from teaching revenue, a model strained by domestic funding trends and tighter international student controls.

Collaborations with industry and participation in programs like Horizon Europe association offer partial offsets, yet core capacity remains pressured.

Policy Responses and Reforms

The Australian Tertiary Education Commission is allocating additional domestic places for 2026, though without corresponding increases in per-student government funding in all cases. The Demand-driven Needs-based Funding model seeks to better match resources to student needs.

TEQSA continues enhanced financial monitoring, focusing on liquidity and sustainability indicators across providers.

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Case Studies from the Sector

Institutions with strong regional footprints have reported particular challenges balancing growth targets against per-student funding realities. Larger metropolitan universities have pursued efficiency measures, including program reviews and shared services, while maintaining research output.

Examples of adaptation include expanded online and hybrid delivery models and targeted partnerships with TAFE for pathways.

Future Outlook and Recommendations

Without adjustments to base funding rates, universities anticipate continued pressure on surpluses and investment capacity. The sector advocates for stable, indexed per-student funding aligned with cost increases and student demand.

Longer-term solutions discussed include refined funding clusters, enhanced performance-based elements, and greater recognition of the full cost of delivering high-quality education across diverse student cohorts.

Stakeholders agree that a predictable policy environment is essential for workforce planning, infrastructure decisions, and Australia’s global competitiveness in higher education.