Australia's universities are operating on increasingly thin margins while being asked to do more for students, communities and the nation's economy.
A new report from Universities Australia reveals a sector navigating nearly a decade of policy volatility, pandemic disruption and rising costs - with regional campuses, research capacity and future workforce pipelines particularly vulnerable if pressures intensify.
FULL REPORT: Critical challenges in Australia's university sector: securing a sustainable future
Key findings:
- Over 40 per cent of universities have spent most of the past five years in deficit.
- Average funding per domestic student has fallen six per cent in real terms since 2017, despite enrolment growth.
- Around 33,000 student places are misaligned with funding, creating inefficiency and instability.
- Australia's R&D investment has fallen to a 20-year low (1.7 per cent of GDP), while universities continue to subsidise research from their own funds.
- International education faces growing policy uncertainty.
- Regional campuses are particularly exposed, putting local workforce pipelines and access at risk.
Universities Australia Chair Professor Carolyn Evans said Australia's universities exist to back the aspirations of Australians and secure the nation's future, which is worth supporting.
"Our universities are not just economic engines - they are places where people build their futures, where talent is nurtured and where opportunity is expanded for the next generation," Professor Evans said.
"We want universities to be places where students can focus on developing their knowledge, skills and ideas rather than worrying about debt.
"We want our faculty and student support staff to be resourced properly to provide high-quality teaching and student experiences.
"We want our communities to benefit from the employment, facilities and opportunities that local universities bring.
"That's why we need a healthy, financially sustainable university system - to support individuals to grow and succeed and for our nation to prosper."
Universities Australia Chief Executive Officer Luke Sheehy said the report was a reality check.
"There's a myth that universities are awash with money," Mr Sheehy said.
"The numbers tell a very different story.
"When more than 40 per cent of universities have been in deficit for most of the past five years, that's not a comfortable position - it's a warning sign.
"You can't ask universities to educate more students, deliver more research and drive productivity while steadily reducing funding per student. At some point, the maths catches up."
Domestic funding under pressure
Average funding per Commonwealth supported student place has fallen by six per cent in real terms since 2017, even as student numbers have grown.
At the same time, funding and student places have become badly misaligned:
- around 16,000 student places at roughly 14 universities receive no Commonwealth subsidy, and
- funding for at least 17,000 places is being paid to universities that are not delivering that student load.
Recent budget updates have also reduced funding for student places by around $900 million.
"These aren't accounting quirks - they determine who gets access to opportunity," Mr Sheehy said.
"If we want a fair, efficient and sustainable system, funding must reflect where students actually study."
Research at risk
Research accounts for roughly 20 per cent of university revenue, yet universities consistently spend more on research than they receive in direct funding.
Australia's overall investment in R&D has fallen to 1.7 per cent of GDP - a 20-year low.
Universities are carrying a growing share of the nation's research effort because they believe in its value to Australia, but they can't do the heavy lifting alone.
"A country that underinvests in research and innovation ultimately becomes poorer and less competitive," Mr Sheehy said.
"If we want more medical breakthroughs, more clean energy innovation and more sovereign capability, research investment has to keep pace."
Costs rising, investment constrained
University expenses jumped by eight per cent in 2024 alone, driven largely by wages and the costs of delivering high-quality teaching and research.
Salary costs have risen faster than inflation as universities restore staffing levels and convert casual roles to more secure employment.
Meanwhile, capital spending remains below pre-pandemic levels, making it harder to invest in facilities, laboratories, digital systems and student infrastructure.
"If we want more medical breakthroughs, more clean energy innovation and more sovereign capability, research investment has to keep pace," Mr Sheehy said.
International education uncertainty
International students account for about a quarter of university revenue and are a major national export, contributing more than $51 billion to the Australian economy.
However, policy volatility and public debate have created uncertainty around future growth.
In the face of declining government funding per domestic student, international revenue has helped sustain teaching, research and campus infrastructure. With growth now uncertain, universities face additional financial risk.
"International education has helped keep the system afloat as domestic funding has fallen in real terms. That's not ideology - that's arithmetic," Mr Sheehy said.
"Turning a national export success story into a political problem risks weakening one of Australia's strongest economic assets."
Regional Australia at risk
The financial squeeze has real consequences beyond balance sheets - particularly for regional communities.
In many regional towns, the local university campus is more than a place of study. It trains the nurses, teachers, engineers and allied health professionals who keep those communities running.
Regional institutions often operate on smaller margins and serve dispersed populations. Funding uncertainty and tighter growth settings expose them more quickly and more severely.
"When universities are forced to scale back growth or rethink course delivery, regional Australia feels it first and hardest," Mr Sheehy said.
"Australians should be able to access higher education no matter where they live. A sustainable funding model is essential to protecting regional opportunity and workforce pipelines.
"With policy certainty, aligned funding and a long-term commitment to research, Australia's universities can continue to power national productivity, regional growth and social mobility."
