Financial health of Australian universities

Recent years have seen Australian’s higher education sector undergo a period of change, particularly in regard to student fees and university cost structures.

While the media has canvassed considerable concern about how universities will survive under the new structure, the reality is that our universities are financially robust and likely to survive and thrive.

Most Australian universities are achieving annual surpluses and, using US Department of Education methodology, rate highly on measures of financial health. However, while this is good news, complacency is not an option. Our data also tells us that margins have been eroded over recent years and there is a need for greater capital investment.

The optimum level of tertiary funding has generated much commentary – what is undeniable is that our current arrangements have allowed universities to compete domestically and internationally. Although we only have two Australian universities in the top 50 of the Times Higher Education World University Rankings, we have five in the top 100. From an international perspective our universities are equipped to compete.

Like most countries we finance the higher education sector with a mix of public spending and domestic student fees, and, by OECD standards, our funding levels are well within range.

Most OECD nations ‘tax and spend’ to finance their higher education sector. In Australia, we also ‘spend then tax’ in the form of the Higher Education Contribution Scheme (HECS) known as the Higher Education Loan Program (HELP). However, unlike many other countries, we also treat the sector as an export industry, so a much higher share of enrolments are international students, which in turn generates private fees feeding into and funding the sector.

Regardless of what happens in the future regarding fees and cost structures, universities need to ensure they are as efficient as possible and that they consider their market position to ensure ongoing growth. While the sector is relatively robust, reform is required. A degree of deregulation should be embraced, because this encourages competition which, in turn has the potential to raise standards. With the government reluctant to engage the Senate on sector reform, universities have the opportunity to drive the debate. Only this way will they be able to get the outcomes they seek.

Read our review of the university sector to understand the financial position of Australian universities and what they can do to ensure a sustainable future.