Declining enrolments, increasing costs and a muddying sense of purpose have put Australian universities under sustained financial strain, with 40 per cent spending the past half-decade in deficit – and new metrics suggesting it’s affecting our ability to produce global AI leaders.

Fluctuating funding, uncertain overseas student numbers, staffing and other issues – and the ongoing lack of a “clear, stable operating framework” – had made it challenging to plan “beyond a one-year horizon,” Universities Australia observed in a new report analysing unis’ challenges.

Whereas seven institutions were in deficit in 2017 and just three in 2019, the “rapid financial recalibration” demanded by the COVID-19 pandemic had left 26 of the country’s 39 universities in deficit by 2022, with one-third still in the red two years later.

Since student enrolments provide two-thirds of university revenues, the report warned they were financially exposed to declining funding and wild fluctuations in student numbers – and despite surging student fees, university finances “deteriorated through the past decade.”

Commonwealth funding per student dropped 6 per cent from 2017, while programs like Job Ready Graduates and Higher Education Continuity Guarantee (HECG) created “a substantial misalignment between where student places are delivered and where funding is provided.”

This misalignment had created “inefficiency and instability”, the report said, with around 16,000 student places at 14 universities receiving no Commonwealth subsidies and 17,000 places funded to universities “that are not delivering that student load.”

High fees, higher costs

The findings are a condemnation of an industrial-academic alignment that’s crucial to the development of business expertise and economic strength, Business Council of Australia chief executive Bran Black noted in a recent address to university leaders.

“If Australia’s future is being made anywhere, it’s being made in and around [universities],” Black said, calling them “core national prosperity infrastructure” and “dynamic catalysts of Australia’s economic growth inextricably linked to a healthy business environment.”

“Australia’s universities are already making our future every day,” he said, adding that “the question is: are we, as a nation, prepared to back them to do so more than ever?”

Financial pressures make that backing even more important: wages and other university expenses jumped 8 per cent in 2024 alone, with capital spending still below pre-pandemic levels and regional institutions particularly hard hit.

Compounding the problem, the report notes Australia’s R&D investment is at a 20-year low – with many unis funding their own research as R&D opportunities were blown and nation-building ideas given away amidst outside pressures and an institutionalised aversion to risk.

This, as critics allege poor management and intentional obfuscation of financial figures and headlines screaming about the cost of degrees.

In November, an Australia Institute survey of 1,535 voters found 54 per cent of respondents believe unis see making a profit as “a primary purpose” but just 3 per cent believe it should be.

Around three in five respondents believe degrees should cost $5,000 or less per year but even with fee relief, often ineffective degrees frequently cost well over $10,000, the survey noted, with struggling Gen Z students often unaware of the full liability for their courses.

“University fees are totally out of step with community expectations,” Australia Institute senior economist Jack Thrower said, adding that unis’ “rolling scandals and ongoing governance crisis are causing it to lose the trust of the general public.”

Armed with the new analysis, Universities Australia CEO Luke Sheehy is pushing back, arguing that “there’s a myth that universities are awash with money [but] the numbers tell a very different story.”

“A country that underinvests in research and innovation ultimately becomes poorer and less competitive,” he said, adding that “if we want more medical breakthroughs, more clean energy innovation and more sovereign capability, research investment has to keep pace.”

“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.”

Will Australia be a global AI leader or global AI follower?

The imbalance in university funding is not, as it were, a purely academic issue: in an education system that positions universities as gatekeepers of critical skills pipelines in industries key to Australia’s future growth, the identified shortcomings have real impact.

This impact is particularly pointed when it comes to areas like artificial intelligence (AI), where university researchers are working at the coalface to push the state of the art and guide innovations into the world through industry partnerships.

With those partnerships seemingly harder to come by now than in the past, Australia’s standing as an AI centre of excellence is at risk – a risk highlighted when a recent analysis ranked Australia 13th globally when it comes to shaping the next generation of AI leaders.

The US, China, Singapore, South Korea and UK led the Global AI Brain Race Report’s leaderboard in terms of the number of top AI universities, while Australia’s unis languished in the middle – just pipping countries like Belgium, the UAE, Brazil, and South Africa.

“Countries that dominate the future of artificial intelligence will be those that continuously develop the next generation of AI researchers, engineers, and decision-makers,” it added.

“Education determines whether a nation makes a single breakthrough or builds enduring AI leadership over decades.”