Set to face funding issues, Australian universities are in need of new strategies
Universities across Australia are facing growing financial pressures. These institutions face challenges like government funding cuts, rising costs, and competition from online providers, according to a report from Oliver Wyman.
Much like in other countries in the Anglosphere (New Zealand, the UK, and Canada), Australian universities rely heavily on international student fees and partial government funding of research. But those sources of income have proven to not be entirely reliable.
“The nature of the challenges facing universities in these countries means incremental actions won’t be enough – institutions will need to redefine and reorient what they do,” says James Twaddle, partner at Oliver Wyman.
Part of the solution could be to work towards diversifying funding sources, streamlining operations, and creating a more efficient workforce. Universities need to adapt to the changing landscape in order to improve their financial sustainability and to continue providing quality education and research.
Australian universities receive relatively little research funding from the government when compared with universities in countries like the US and Singapore, which receive the majority of their research funding from the government. What’s more, philanthropic contributions to universities in the US dwarf those in Australia.
Another important part of the issue has to do with international students. Anglosphere countries, including Australia, have been relatively successful in attracting foreign students, with a notable increase over the past decade.
In fact, Australia has a high percentage of international students (29%) among English-speaking countries. The US, for example, has a relatively low percentage of international students to domestic students.
But that reliance on international student fees income has become a problem for Australian universities now that a cap on the number of foreign students has been decided for 2025. The number of foreign students will be capped at 270,000, down dramatically from over 700,000 in 2023.
That policy aims to ease some of the stress on rental accommodations and control levels of immigration. For that reason, universities will have to manage significant changes and will likely have to contend with a decrease in income.
“Historically, scale has been a key avenue to drive financial sustainability. The current scrutiny on international education and declining population growth in domestic university-aged populations means scale alone cannot support long-term sustainability,” explains Twaddle.
Besides these primary concerns, there are also other, more peripheral issues that remain a thorn in the side of universities.
“Persistent inflation is driving higher operating costs, reducing the amount of surplus funding available to invest in research and other strategic initiatives,” notes Genevieve Beart, principal at Oliver Wyman. “Similar increases in the cost of research put further upward pressure on the volume of funding required from other revenue streams.”
These problems will require Australian universities to take proactive steps: The report’s analysis suggests they can no longer afford to take a wait-and-see approach hoping for increases in government funding.
Beart notes that a roadmap to financial sustainability should include steps like setting a clear strategy, creating a funding and operating model, and reinforcing change through behaviours and organisational culture. “Universities will need to take a more nuanced view of scale when setting their strategic direction.”
“As scale through natural growth becomes increasingly difficult, universities may choose to grow through a focus on specific disciplines or particular educational outcomes that respond to prevailing societal or economic needs, with the aim to distinguish the university as a leader in these fields.”
Overall, the need for action is clear. Rather than managing financial strain via short-term levers, Australian universities would be better off focusing energy and resources on developing better long-term strategies.
