This chapter explores why the financial sustainability of higher education systems has become an increasingly challenging issue across OECD member countries, as demands on higher education to support societal goals have increased and competition for public resources has intensified. As higher education remains a crucial pillar in national skills and research systems, it is important to identify resourcing policies that support higher education institutions to deliver on their core missions – in education, research and service to society – as effectively and efficiently as possible.
The Financial Sustainability of Higher Education
Insights from Policy in OECD Countries
Abstract
Expectations of what higher education institutions should deliver remain high, despite concerns in some countries about the value of traditional degrees and research output.
Aggregate demand for graduates remains strong across OECD countries and demand for productive workers is projected to increase as demographic shifts lead to large numbers of people exiting the labour market and demand for adult learning is strong.
16% of total Gross Domestic Expenditure on Research and Development (GERD), a high proportion of non-commercial research and nearly all researcher training in OECD countries takes place in the higher education sector.
Although artificial intelligence (AI) is already affecting learning within higher education and demand for graduates, the balance of evidence available today suggests there is still a strong case for investing in higher education, provided the sector adapts appropriately to changing realities.
The main challenges for the financial sustainability of OECD higher education systems in 2025 are a) real-terms declines in the value of public subsidies, b) falling domestic enrolment with attendant reductions in funding, c) volatility or decline in international student numbers, d) an ongoing tendency for higher education research funding not to cover the full economic costs of research and e) the inherent difficulty of reshaping higher education activities to adjust to declining income.
Against this backdrop, this report draws on insights from the OECD Resourcing Higher Education Project and the latest international data on higher education finances to explore three aspects of higher education finances that are particularly relevant to public policy making: the cost of higher education activities; the revenue of higher education institutions (HEIs) and the design of models to allocate public funding to HEIs.
Expectations of what higher education institutions should deliver remain high
The last quarter-century has seen a radical transformation of the higher education sector, as the volume and scope of education, research and service activities have expanded. Rates of enrolment in tertiary education have increased substantially with the result that, on average, almost half (48%) of young adults aged between 25 and 34 in OECD countries now hold a tertiary qualification – double the rate (24%) in 1999 (OECD Data Explorer, 2025[1]). Across 28 OECD countries with comparable data, the number of full-time-equivalent (FTE) researchers in higher education institutions increased by 50% between 2000 and 2023 (OECD Data Explorer, 2025[2]). In many OECD countries, higher education institutions have also become more firmly embedded in regional and national innovation systems. In Austria, Belgium, Estonia, Finland, Ireland and Sweden, for example, over 40% of innovative large firms and over 10% of innovation-active small and medium-sized businesses (SMEs) report cooperating with higher education institutions on innovation activities (OECD, 2023[3]).
Expectations about the contribution of higher education to economic development and social inclusion in OECD countries remain high. The final report of the 2024 Australian Universities Accord – a long-term plan for the future of Australia’s higher education system – argues, for example:
Higher education is vital to Australia’s future: the knowledge, skills and research it produces enable us to be an economically prosperous, socially equitable and environmentally sustainable nation. By encouraging intellectual endeavour, creativity and personal accomplishment, it adds to the quality of our lives. Pursuing truth through free discussion, it promotes democracy and civic values. Those communities fortunate enough to host a university benefit directly from the employment, higher incomes, sporting facilities, cultural and intellectual richness and other benefits they bring. (Department of Education, 2024[4])
In a similar vein, the European Commission, it is 2025 Communication on the “Union of Skills”, stresses the role of higher education in meeting the European Union’s future skills needs:
More than half of new job openings by 2035 will be in highly skilled occupations. Yet, Europe does not produce enough highly qualified talent. Europe needs to invest and support the pooling of resources in higher education to increase access to innovation, cutting-edge knowledge and high-level skills, including through joint study programmes within alliances of higher education institutions. (European Commission, 2025[5])
As higher education has expanded to accommodate a wider range of learners, it has diversified. Professionally oriented and short-cycle higher education programmes – which have a long history in some higher education systems – now sit alongside academic programmes in most OECD countries and often account for a substantial proportion of enrolment. In the last decade, the Flemish Community of Belgium, the Netherlands and Portugal, for example, have all introduced short-cycle programmes into higher education systems that previously lacked this kind of qualification. More recently, higher education institutions and public authorities in multiple OECD countries have focused on developing the role of higher education in upskilling and reskilling for adults, notably through developing and piloting micro-credentials (OECD, 2023[6]). Optimising the range of post-secondary learning opportunities – and the pathways between them – to meet students’ aspirations and future skills needs is a priority for many governments, as exemplified in recent forward-looking strategies in Denmark (Danish Government, 2023[7]) and the Netherlands (Dutch Government, 2023[8]).
But the value of traditional degrees and research output is increasingly questioned
Despite the success of the higher education sector in expanding opportunities for advanced learning and the formal commitment of governments to further developing diverse systems of post-secondary education, the value proposition of the higher education sector has increasingly been challenged in recent years.
A first line of critique calls into question the value of traditional degree programmes – and specifically their capacity to prepare students for the modern workforce. Concerns about the “relevance” of higher education programmes to contemporary skills requirements are not new (OECD, 2020[9]; OECD, 2008[10]). Over recent decades, many higher education institutions across OECD countries – sometimes incentivised and supported by public authorities – have taken steps to better define and articulate student learning outcomes and graduate attributes, increase cooperation with employers and draw on skills intelligence in planning new programme offerings (OECD, 2022[11]). However, the rapid development of generative artificial intelligence (AI) – notably since the launch of ChatGPT in November 2022 – and its emergent impact on labour market demand for graduates have brought into sharp focus the question of what a higher education degree is “worth”.
Drawing on Occupational Information Network (O*NET) data that maps occupational characteristics and worker skills requirements in the US labour market and extrapolating this to other countries, Briggs and Kodnani (2023[12]) estimated in 2023 that roughly two-thirds of existing jobs would be exposed to some degree of AI automation and that generative AI could substitute up to one-quarter of current work activities, including large shares of the tasks involved in legal professions, architecture, engineering and finance. In contrast to effects in these white-collar sectors dominated by higher education graduates, the same study predicted that jobs involving some degree of physical activity or practical skills, including the skilled construction trades, will be impacted only modestly by AI. In the months preceding the publication of this report in 2025, reports from several OECD countries have pointed to a slowdown in recruitment of recent higher education graduates and suggested this may reflect early signs of displacement of graduate labour by AI in entry-level positions (Oxford Economics, 2025[13]; RTE, 2025[14]).
These recent reports of higher education graduates struggling to secure employment came at a time when the value of higher education was already questioned, particularly in systems where students pay substantial tuition fees. In the United States, for example, the 32% of respondents to a recent survey that stated they had “very little” or “no” trust in higher education most frequently cited concerns that higher education does not equip graduates with the rights skills and costs are too high – alongside a perceived politicisation of campuses – as the main reasons for their views (Gallup, 2024[15]). In the United Kingdom, where overall confidence in higher education remains higher than in the United States, recent surveys have found a growing proportion of young people aged 18-24 are concerned that “too many” people now go to university (29% in August 2024, compared to 20% a year earlier) and about high levels of student debt (84% in 2024 compared to 71% a year earlier) (Ipsos, 2024[16]).
Alongside concerns about the value of degrees, a less prominent line of criticism of higher education relates to the value of academic research. The number of scientific publications produced in OECD countries increased by one-quarter between 2011 and 2021, before falling slightly in 2022 and 2023. In the same period, the number of publications in China and India increased by, respectively, 175% and 190%, meaning China now produces twice as many scientific publications each year as the United States (OECD, 2025[17]). This increase in the volume of research has increased pressure on traditional systems of academic publishing and peer review and led to concerns about the intrinsic quality of many papers and whether research results are unnecessarily being presented in multiple papers to boost individual and institutional performance against publication metrics (Conroy, 2024[18]; Sample, 2025[19]).
Attempts to refocus academic research away from culture of “publish or perish” and quantity towards more sustainable models centred on innovation and quality are underway in OECD countries (OECD, 2021[20]). The San Francisco Declaration on Research Assessment (DORA), published in 2013, calls for improvements in the ways in which the outputs of scholarly research are evaluated in individual and institutional research assessments and has sparked widespread engagement from the academic community and interest from policy makers (DORA, 2025[21]). As discussed later in this report, some OECD higher education systems have changed the way they fund academic research to reduce incentives to maximise the volume of scientific output and promote an emphasis on quality. Nevertheless, in a context where research metrics remain centred on the quantity of publications and citations produced and research-based global rankings of higher education institutions continue to exert substantial influence on student choice and public policy, the pressure for academics to deliver on research output targets remains strong (Jakab, Kittl and Kiesslich, 2024[22]).
Predictions of the death of higher education are probably greatly exaggerated
While the criticisms of the educational offerings and research outputs of higher education certainly raise valid questions, they do not fundamentally undermine the case for higher education as such – or for public and private investment in the sector. On the contrary, the balance of available evidence suggests there is still a strong case for investing in higher education, provided – as discussed below – the sector adapts appropriately to changing realities. There are multiple reasons for this:
1. Despite the substantial increase in the supply of tertiary graduates into OECD labour markets in recent years and the recent recruitment challenges noted above, aggregate demand for graduates remains strong across OECD countries. The most recent edition of the OECD’s “Education at a Glance” highlights that, in 2024, the average employment rate for young tertiary graduates (aged 25-34) in OECD countries was 87%; eight points higher than for their peers with only upper secondary or post-secondary, non-tertiary qualifications (79%). In 2023, young tertiary graduates in OECD countries earned on average 39% more than high-school graduates of the same age with this comparative earnings advantage increasing to 67% for those aged 45-54 (OECD, 2025[23]).
2. Higher education attainment remains a strong predictor of skills levels, even though it is difficult to disentangle the direct influence of higher education on skills acquisition and the sorting effect whereby more highly skilled individuals are more likely to enter and complete higher education. In the 2023 edition of the OECD Survey of Adult Skills, adults under 35 with a tertiary education qualification in participating countries scored an average 293 and 296 out of a possible 500 points in literacy and numeracy respectively, compared to an average score of 271 (i.e. 22-25 points less) for individuals from this age group in both assessment domains (OECD, 2024[24]).
3. Demand for productive workers is projected to increase across OECD countries, as the youngest members of the baby-boom generation exit the labour market, and the old-age dependency ratio increases. The working-age population (those aged from 20 to 64) is projected to decline in a majority of OECD countries in the period up to 2060, falling by a combined total of 8% across OECD countries between 2023 and 2060 (OECD, 2025[25]). To maintain the economic growth needed to sustain pension and social care systems, the remaining workforce will need to become more productive, which will, in turn, require better skills levels. This broad pattern is confirmed by recent analysis at national and sub-national level in OECD countries (Vézina et al., 2024[26]).
4. Demand for advanced adult learning will increase as technology drives changes in the tasks required in different jobs and individuals work for longer in aging societies. Although take-up of adult learning opportunities generally remains low in OECD countries, efforts are underway in many countries to strengthen the culture of lifelong learning and increase the range of upskilling and reskilling opportunities available. The advanced skills required for many occupations mean higher education has an important role to play in this evolving landscape, even though existing efforts to develop new upskilling and reskilling offerings – notably through micro-credentials – are still in their early phases (OECD, 2023[6]).
5. At the time of writing, the jury is still out on how AI will affect graduate employment opportunities in the medium and long term, meaning it would be premature to make sweeping decisions about the future shape and direction of higher education. While some analysts predict AI will ultimately replace many graduate jobs, others see more scope for AI to change the task composition of jobs and act as a complement to human endeavour. As previous technological innovations have accounted for a substantial share of long-run employment growth, the previously cited analysis by Briggs and Kodnani (2023[12]) argues that AI may lead to new job creation and higher productivity for non-displaced workers. Based on evidence from labour market developments over the last 40 years, Autor and Thompson (2025[27]) find that that when technology has replaced “inexpert tasks” in jobs and created “expert tasks” this leads to wage increases in the occupations concerned. They argue that the impact of AI on jobs will depend on how future AI systems are designed and that well-designed systems could be fashioned to enhance, rather than displace, human creativity and productivity – creating new, wage-enhancing “expert tasks”. This would, in turn, imply sustained demand for highly educated workers.
Alongside the arguments in favour of sustaining investment in the educational function of higher education, the rationale for higher education research is equally strong. Not only does higher-education based research provide the context for most researcher training in OECD countries – most doctoral candidates are trained in universities – but the higher education sector accounts for most non-commercial research activity. In 2023, 16% of total Gross Domestic Expenditure on Research and Development (GERD) in OECD countries took place in the higher education sector, while 74% that took place in the business sector (OECD, 2025[17]). While business R&D is crucial for technological innovation and may be undertaken in collaboration with academic researchers, non-commercial research – whether fundamental, applied or practice-oriented – supports the broader development of human knowledge and higher education institutions remain the key venue for such research.
Although substantial efforts to reshape higher education will be needed
None of the arguments outlined above mean that higher education institutions and systems can or should continue to function exactly as they do today or that they will not need to adapt to ensure their continued relevance. From an educational perspective, substantial efforts will be required to adapt higher education programmes to equip students with the kinds of expertise needed to work with AI while ensuring AI does not hinder acquisition of still-crucial skills like the ability to synthesise, prioritise and structure ideas and think independently and critically. Equally, particularly as youth cohorts in many OECD countries decline (see below), moving from a front-loaded model of education to one focused on supporting lifelong learning among a broader cross-section of society has substantial strategic and organisational implications.
It is not within the scope of this report – or indeed possible given the many uncertainties about developments in artificial intelligence – to consider in detail the likely changes required to the educational and research model in higher education over the next decade. However, given the evidence available about the skills needed to work alongside AI, demography and probable future demand for skilled workers and the specificities of higher education research, it is likely that higher education systems will need to continue adapting in the directions already identified at the beginning of this chapter. This may require:
Further collaborative efforts to agree on the types of knowledge and skills that remain important in a world where AI plays a growing role and to embed these into learning programmes with clearly articulated learning outcomes.
A continued focus on providing a diversified set of learning options to suit learners that come to higher education from different backgrounds. This does not mean abandoning three and four-year degrees where these make sense but may include additional shorter programmes and reinvented professionally oriented learning models that combine theoretical and practical learning.
Increased emphasis on providing prospective students, policy makers and society more generally with honest, well-structured information on the focus of post-secondary learning programmes, on what students will gain from the programmes and why this will be important for their futures as citizens and workers.
Developing new strategies for steering higher education research to address concerns about excessive focus on quantity and prioritise scarce resources.
Higher education has entered a period of financial turbulence (again…)
In 2007, the OECD published a working paper at the conclusion of a multi-country project, entitled “On the Edge: Securing a Sustainable Future for Higher Education”, which opens with the following statement:
As higher education has grown and state funding has been constrained, the financial sustainability of institutions of higher education has become an issue for policy makers and for those who govern and manage these institutions. The challenge for governments is to ensure that increasingly autonomous institutions respond to public interest agendas while taking a greater responsibility for their own financial sustainability. The challenge for institutions is to manage an increasingly complex portfolio of aims and funding. (OECD, 2007[28])
Although the principle of higher education institutions operating with substantial financial autonomy has become more solidly anchored in most OECD systems since that time, the other challenges identified apply as much today as they did then. Higher education institutions are today faced with an increasingly complex portfolio of activities and objectives. State – and to some extent private – funding is increasingly constrained. And institutional leaders and policy makers are again concerned about putting higher education institutions on a sustainable footing.
The financial situation of higher education institutions in many OECD countries is becoming a cause for concern, including in systems that have historically been among the most successful globally in boosting enrolment, attracting international talent and delivering world-class research. In the Netherlands, for example, a 2025 report highlights how, while the financial situation of Dutch higher education institutions remained solid in 2023, they face “structural financial challenges” resulting from real-terms falls in public subsidies, uncertainty over future domestic and international student numbers and rule changes related to private-sector activities (PwC, 2025[29]). In Canada, changes to rules around international students are also one of the drivers of increasing financial challenges faced by public universities and colleges (Jack, 2025[30]). In 2023, 25 of the 39 member universities of Universities Australia reported operating deficits (Universities Australia, 2024[31]), while, in the United States, recent analyses highlight how two- and four-year colleges face multiple financial difficulties, with more than 40 institutions reported to have closed in the period 2020-2025 (Clark, Cluver and Kunkel, 2025[32]). An independent review of the financial sustainability of universities in the United Kingdom in 2024 highlights a similar combination of issues, variations of which can be found in many systems, as illustrated in more detail in Box 1.1.
The 2024 “UK Higher Education Financial Sustainability Report”, prepared by accounting firm PricewaterhouseCoopers, reviews the financial outlook for UK higher education institutions. Acknowledging the successes of the sector, notably in expanding access to higher education over the past decade, the report pinpoints several key factors adversely affecting the financial sustainability of UK HEIs:
Operating costs have been rising significantly, driven primarily by increased wage bills as inflation has led to comparatively high annual salary settlements (staff costs account for 54% of total expenditure) and increased energy prices.
A fall in the real-terms value of per-student funding for domestic students. In England, undergraduate fees for domestic students – which are supported by a government-backed system of income-contingent loans – were capped at Gross Domestic Product (GDP) 9 250 per year between 2017 and 2025, meaning their value had fallen to GDP 6 000 in 2012 prices and per-student funding had fallen to its lowest for 25 years.
Increased reliance on cross-subsidisation of teaching for domestic students and research from international and post-graduate fee income, which “leaves some providers exposed to international demand or geo-political shocks that they cannot control”.
Declining rates of recovery of the full economic cost of research activities, as competitive research funding is limited, and its value has been eroded by inflation.
Delays in capital expenditure, which, combined with an estimated GDP 6.6 billion required to decarbonise the higher education estate, have created a significant need for investment in infrastructure.
Variable access to finance, with smaller institutions unable to raise funds through issuing bonds and a risk that more will be unable to meet lending criteria with banks.
The report concludes that, while these challenges affect institutions to different extents, they “threaten to impact the quality of provision and student outcomes” and that for some institutions current strategies to develop alternative delivery models and diversify income streams “are unlikely to be sufficient in the long term, and more radical solutions, such as consolidation, may be required”.
Source: PwC (2024[33]) UK Higher Education Financial Sustainability Report, PricewaterhouseCoopers, London, https://www.universitiesuk.ac.uk/sites/default/files/field/downloads/2024-01/pwc-uk-higher-education-financial-sustainability-report-january-2024.pdf (accessed on 20 July 2025).Source: PwC (2024[33]) UK Higher Education Financial Sustainability Report, PricewaterhouseCoopers, London, https://www.universitiesuk.ac.uk/sites/default/files/field/downloads/2024-01/pwc-uk-higher-education-financial-sustainability-report-january-2024.pdf (accessed on 20 July 2025).
The challenge of balancing institutional income, expenditure and objectives – in terms of the scope and quality of activities and outputs – is not unique to the highly internationalised higher education systems cited above. Higher education institutions in many other OECD countries, notably those in continental Europe and Latin America, have also experienced a combination of high inflation and low or declining public and private revenue, as public and household budgets are squeezed and, in many cases, student numbers begin or continue to decline.
Considering the evidence from across countries, five challenges for the financial sustainability of higher education systems emerge most prominently in 2025:
1. The effects of real-terms declines in the value of public subsidies to higher education institutions and – where relevant – regulated tuition fees, compounded by recent periods of high inflation, which have increased operating costs. As discussed in Chapter 2, the real-terms value of public subsidies per student has declined over the last decade in around one-third of OECD member and accession countries with available data. The fiscal situation of many governments and the political sensitivity of tuition-fee increases often make it challenging to address this.
2. Falling domestic enrolment, driven primarily by declining youth cohorts, with attendant reductions in funding to individual higher education institutions. In addition to the impact on tuition-fee income where fees exist, in systems where core public funding is allocated to higher education institutions based on enrolment or graduate numbers, falling enrolment automatically leads to falling institutional revenue if other funding variables in allocation formulas remain constant. Higher education institutions offering less competitive programmes or located in geographical areas with lower student demand will be first and hardest hit by these trends.
3. Variation or decline in international student numbers resulting in volatile or declining tuition-fee revenue from this student group. The financial impact of such trends may be especially significant as international students pay higher fees than domestic students in many OECD systems. This trend affects those institutions most reliant on international students, which may include prestigious universities that have historically found it easiest to attract learners from abroad. The COVID-19 pandemic exposed the vulnerability of some systems to international shocks, as international student mobility was temporarily halted. Recent changes to language regulations for undergraduate study in Dutch higher education, which are estimated to have led to a 6% reduction in international students in the first year of their introduction (PwC, 2025[29]), illustrate how domestic policy shifts can also affect international student numbers.
4. An ongoing tendency for higher education research to attract revenue that does not cover its full economic costs, reducing research activity and increasing cross-subsidies from other revenue streams. Without action to either reduce the costs of research or increase the revenues to support it, this situation is not financially sustainable in the long term. As discussed in the next chapter, establishing the reasonable cost for activities and outputs, including research, in higher education settings can be challenging because of the difficulty of establishing objective quality benchmarks at which these activities and outputs should be delivered. Nevertheless, several advanced higher education systems have implemented activity-based cost accounting systems that permit measurement of the full economic cost of activities – and in most systems that use such techniques, public and private research funding fails to cover full costs (PwC, 2024[33]; OECD, 2021[34]).
5. The difficulty of reshaping higher education activities to adjust to declining income. Although higher education institutions may experience significant declines or volatility in their income, they typically face high fixed costs. These costs are usually associated with a combination of expensive infrastructure, staff with secure employment conditions – despite a growing tendency to rely on staff on precarious contracts (OECD, 2024[35]) – and comparatively inflexible activities, such as student programmes, that may take multiple years to reform or close. The scale of most higher education institutions, combined with these factors, means that they tend not to be particularly agile organisations.
Tertiary enrolment is already falling in some OECD countries – a trend that will continue
After the period of expansion of past decades, higher education systems in several OECD countries have already begun to shrink in terms of enrolment numbers, as the effects of demographic aging are felt, and the trend of increasing participation rates in tertiary education slows. The proportion of countries faced with declining enrolment looks likely to increase in the next 15 years.
Percentage change in total enrolment in tertiary education (ISCED 5-8) and populations by age group
Note: (1) Enrolment data in Panel A include all enrolled individuals, irrespective of their study intensity. (2) International Standard Classification of Education (ISCED) level 5 encompasses short-cycle programmes classified as tertiary education in national systems. Data for ISCED level 8 includes all enrolment at doctoral level, even when doctoral candidates are classified as employees or researchers rather than students. (3) No data are shown for Costa Rica in Panel A due to a lack of comparable time series data on enrolment. (4) OECD figures in Panel A are calculated as simple (unweighted) averages of the 37 OECD countries with available data. OECD figures in Panel B are based on projected population changes for OECD countries and are therefore not simple averages.
Source: OECD (2025[36]) Number of enrolled students and graduates by type of institution (dataset), https://data-explorer.oecd.org/s/32k (accessed on 21 October 2025). OECD (2025[37]) Historical population data (dataset), https://data-explorer.oecd.org/s/32m (accessed on 21 October 2025). OECD (2025[38]) Population projections (dataset), https://data-explorer.oecd.org/s/32l (accessed on 21 October 2025).
Between 2013 and 2022, total enrolment in tertiary education – which encompasses International Standard Classification of Education (ISCED) levels 5 to 8 – in the 37 OECD countries with reliable data continued to increase – by about 8%. As illustrated in Figure 1.1 (Panel A), total enrolment increased in 26 countries and declined in 11 countries, including eight in Central and Eastern Europe, as well as Korea, the United States and New Zealand. The 5% decline in enrolment in New Zealand seen in the data likely reflects the impact of declining international student enrolment in the wake of the COVID-19 pandemic. The 11% enrolment decline in the United States over the decade is notable because the cohort of young people aged 20-24 – which corresponds to the prime age group for higher education students in most OECD countries – fell by only 5% over the same timeframe. More generally the age cohort 20-24 declined by more than 6% in OECD countries over the decade to 2022 and in 24 of the 37 countries shown here. The largest declines in this cohort – of 25% or more – were seen in Estonia, the Slovak Republic, Poland, Lithuania and Latvia.
Looking forward to the next 15 years, OECD population projections show a somewhat changed pattern in likely population trends across countries (Figure 1.1 (Panel B)). The age cohort aged 20-24 is projected to decline by 5% across all 38 OECD member countries combined and in almost half of member countries (i.e. 18 of the 38). This cohort of young adults is projected to decline by over 10% in Greece, the Netherlands, Italy, Costa Rica, Japan, Portugal and Korea, with the age group falling by fully one-third in Korea. In contrast, the same age cohort will increase by between 7% and 15% in the period between 2024 and 2040 in Poland, Latvia, Sweden, Luxembourg, Slovenia, Estonia, Switzerland. and the Slovak Republic, partially reversing the decline in the population in this age group seen over the decade 2013-2022.
As shown by the historical data in Panel A of Figure 1.1, a decline in the cohort of young people does not necessarily lead to a decline in enrolment in tertiary education systems. Systems may boost enrolment rates among young people by widening access, increase participation among mature learners or enrol more international students to counteract underlying demographic trends. However, in a context where tertiary education attainment rates among 25–34 year-olds already exceed 50% in over one-third of OECD countries (13 countries) and exceed 40% in another third (12 countries) (OECD, 2025[23]), the scope to further increase domestic enrolment is lower than in recent decades. The decline in international student flows experienced during and after the COVID-19 pandemic and following more recent immigration policy changes in several OECD countries have also illustrated that institutions cannot necessarily rely on ever-increasing rates of enrolment from abroad. It is thus reasonable to assume that a growing proportion of OECD higher education systems will be facing declining enrolments within the next 15 years.
Total expenditure on higher education has increased over the last decade but declined as a share of Gross Domestic Product
Figure 1.2 illustrates that, after adjusting for inflation, total spending on tertiary education institutions – a key indicator used in international statistics that broadly equates to the total revenue that tertiary institutions receive in a year – increased between 2013 and 2022 in 28 of the 36 OECD member and accession countries with available time series data. On average, total spending increased by 15% in OECD countries over this period. Similarly, total public spending on tertiary education institutions increased in real terms in 29 of the 36 countries with data – and by 12% on average in OECD member countries – over the same period.
Percentage change in total and public spending on tertiary education institutions in constant prices (2020), 2013-22
Note: (1) Enrolment and expenditure data related to all tertiary education institutions in each country, including private, independent institutions. This is to illustrate the total size of the higher education sector in each system. Data in later chapters of this report focus specifically on the publicly subsidised tertiary education institutions directly affected by public funding policies. (2) Enrolment data are for individual enrolled students (persons) – i.e. not unadjusted to full-time equivalent (FTE). (3) OECD and EU25 figures are calculated as unweighted averages of the countries shown from the respective organisations with available data. (4) Time series data are not available for Colombia, Korea, Switzerland, Greece, and the Netherlands. (5) The reference year for the United States is 2021.
Source: OECD (2025[39]) ( Full dataset - Indicators, source, destination and nature of expenditure on education (dataset), https://data-explorer.oecd.org/s/32x (accessed on 06 August 2025).
Although total and public spending on institutions generally increased or decreased in step with each other, several exceptions emerge. In the United Kingdom and Australia, for example, total expenditure on tertiary education institutions increased in real terms by respectively 39% and 11%, while public spending decreased by 5% in the United Kingdom and 2% in Australia. In both cases, this reflects increasing enrolment of international students and an increased reliance on the – private – income generated from international student fees at universities in these two systems. In Chile, growth in public spending outstripped growth in total spending as the government introduced a system of tuition-fee subsidies for students from lower-income backgrounds (the policy of “gratuidad” or “free fees”). A similar trend is observable in Portugal, where public spending also increased faster than total spending, as a result of a reduction of regulated tuition fees in public universities and polytechnic institutes in 2019 and 2020 and a partial compensation through increased appropriations from the state budget (OECD, 2022[40]).
As illustrated by Figure 1.3, in many OECD higher education systems, changes in total spending on tertiary education institutions have broadly tracked changes in enrolment, creating broad stability in spending per student (see Chapter 2). One set of exceptions to this general trend are the countries in the top-left quadrant – which include systems in Central and Eastern Europe, as well as the United States – where total expenditure on tertiary education increased as enrolment fell. A second set of exceptions includes only Finland and Japan, where total expenditure declined as enrolment increased, albeit only modestly.
Percentage change in total spending on tertiary education institutions (constant prices in 2020 values) and in total enrolment (persons) in tertiary education (ISCED 5-8) between 2013 and 2022.
Note: (1) Enrolment and expenditure data related to all tertiary education institutions in each country, including private, independent institutions. This is to illustrate the total size of the higher education sector in each system. Data in later chapters of this report focus specifically on the publicly subsidised tertiary education institutions directly affected by public funding policies. (2) Enrolment data are for individual enrolled students (persons) – i.e. not unadjusted to full-time equivalent (FTE). (3) OECD and EU25 figures are calculated as unweighted averages of the countries shown from the respective organisations with available data. (4) Time series data are not available for Colombia, Korea, Switzerland, Greece, and the Netherlands. No enrolment data are available for Costa Rica in 2022 and for Croatia in 2013. (5) The reference year for the United States is 2021.
Source: OECD (2025[39]), Full dataset - Indicators, source, destination and nature of expenditure on education (dataset), https://data-explorer.oecd.org/s/32x (accessed on 06 August 2025). OECD (2025[36]) Number of enrolled students and graduates by type of institution (dataset), https://data-explorer.oecd.org/s/32y (accessed on 30 July 2025).
As shown in Table 1.1, the proportion of national income allocated to tertiary education institutions – on average a total of 1.4% of GDP in 2022 – has declined slightly over the last decade, as expenditure growth has remained broadly in step with economic growth. This average picture masks substantial differences between countries. In 17 of the 36 countries with available data, total spending on tertiary education institutions fell by the equivalent of over 0.1 percentage points of Gross Domestic Product (GDP), with the largest relative decline – other than the specific cases of Ireland and Costa Rica – in Lithuania, Türkiye, New Zealand and the United States. The largest increases in total spending on tertiary education institutions as a proportion of GDP were in the United Kingdom, Norway, France and Denmark. As already illustrated by the trends in absolute spending levels, the United Kingdom stands out as a system where total spending on institutions increased as a proportion of GDP (as income from international students increased), but public spending as a proportion of GDP fell by 0.5 percentage points.
Expenditure on tertiary education institutions as a proportion of Gross Domestic Product (GDP) 2012-2022
Note: (1) Countries are presented in descending order of percentage point change in spending on tertiary education institutions as a proportion of GDP. (2) Values for Denmark and Costa Rica are use 2013 as the first reference year. Values for the United States used 2021 as the latest year. (3) No data for Colombia, Greece, Korea and Switzerland.
Source: OECD (2025[41]) Distribution of government, private and non-domestic expenditure on educational institutions (dataset), http://data-explorer.oecd.org/s/2ig (accessed on 19 August 2025).
As examined in more detail in Chapter 3, higher education institutions rely on public funding to varying degrees in OECD countries. Norway, Austria, Denmark, Finland and Belgium allocated the equivalent of over 1.3% of GDP in public funds to their higher education institutions, while Lativa, Italy, Australia, Japan, the United Kingdom, Ireland and Luxembourg1 allocated less than 0.6% of GDP in public resources. In federal systems, where sub-national governments are responsible for higher education, public expenditure levels can vary substantially across a single country. In Canada, for example, provincial spending on higher education varies from 1.5% of GDP in Quebec to 0.6% of GDP in Ontario (Usher and Balfour, 2024[42]). On average, around two-thirds of institutional revenue in public and publicly subsidised (“government-dependent”) private institutions in OECD higher education systems comes from the government.
Opportunities to increase institutional revenue from public sources will likely be more limited than in past
Table 1.1 illustrates that public spending on tertiary education institutions has already declined as a share of GDP over the last decade in around half of OECD countries. Although the level of public resources available to spend on tertiary education in the coming years will continue to depend on economic growth, fiscal revenues and public policy choices, few OECD countries are likely to have substantial additional public resources to invest in higher education, as prospects for economic growth remains subdued and, crucially, other calls on public funding increase.
Government expenditures on health, social protection, defence and tertiary education of a proportion of GDP
Note: (1) Totals for European Union OECD countries include all EU countries except Bulgaria, Croatia, Cyprus, Malta and Romania.
Source: OECD (2025[43]), Public finance and procurement by function - government at a glance indicators, 2025 edition (dataset), https://data-explorer.oecd.org/s/353 (accessed on 19 June 2025). OECD (2025[41]), Distribution of government, private and non-domestic expenditure on educational institutions (dataset), http://data-explorer.oecd.org/s/2ig (accessed on 19 August 2025).
As illustrated in Figure 1.4Figure 1.4, public spending on tertiary education institutions represents a comparatively small share of GDP when compared to the largest public spending categories of social protection – which includes pensions and social welfare payments – and health. In 2023, these two categories of public spending absorbed, on average, the equivalent of, respectively, 8.4% and 13.4% of GDP in OECD countries and 7.2% and 19.3% in the OECD countries that are members of the European Union. Recently, European OECD governments have committed to substantially increase spending on defence, which represented only 1.33% of GDP in these countries in 2023, compared to 2.2% on average in all OECD countries. Given the likely potential of aging societies to increase demand on health, social care and pension budgets (Lorenzoni et al., 2019[44]; OECD, 2024[45]; OECD, 2025[25]), increased spending on defence will further reduce the headroom to find additional public resources for higher education. This does not mean it will be impossible for governments to increase public investment in higher education. But it will be more challenging than in the past.
Financial sustainability involves aligning objectives and resources
The challenging headwinds facing higher education in many countries, in terms of enrolment trends, demographics and availability of public funding, make it even more important to consider the medium- to long-term financial sustainability of higher education institutions. The 2007 OECD working paper highlighted earlier, drawing on work from the United Kingdom (TRAC Development Group, 2009[46]), defines financial sustainability in the following terms:
An institution is being managed on a financially sustainable basis if it is recovering its full economic costs and is investing in its infrastructure (physical, human and intellectual) at a rate adequate to maintain the future productive capacity needed to deliver its strategic plan and to serve its students and other customers (OECD, 2007[28]).
This definition of financial sustainability implies three main conditions need to be in place for a higher education institution – and by extension a higher education system – to be financially sustainable:
1. An explicit strategy needs to be in place to articulate what the institution – or system – aims to achieve in terms of providing services to students and society.
2. Adequate revenues are required to pay for the day-to-day activities and the longer-term investment required to achieve the objectives of the strategy in the immediate and longer term.
3. More implicitly, that mechanisms are in place to ensure the institution is organised to deliver on the strategy, make efficient use of resources and adjust both the strategy and institution if objectives and available resources become misaligned.
Fundamentally, therefore, financial sustainability involves aligning objectives and resources. If institutional leaders, policy makers or society wish higher education institutions and their staff to deliver on certain objectives – such as high-quality education in specific fields, high-risk research or widened access to higher education for under-represented population groups, for example – adequate financial resources will be required to achieve these objectives. If adequate financial resources are not available then institutional leaders, policy makers and society will need to make choices about which objectives to deprioritise and what to stop doing to restore financial sustainability. The definition of the “adequate” level of resources needed for a given activity is naturally open to discussion and interpretation. As discussed in Chapter 2, this makes an understanding of the costs of higher education activities an important input for informed policy and decision making.
Public policy creates the conditions for financial sustainability
The autonomous status of higher education institutions in nearly all OECD countries means that institutional leaders ultimately have substantial responsibility of the financial management and financial sustainability of their institutions. The European University Association’s “University Autonomy Scorecard” provides a regular assessment of this for European systems (Bennetot Pruvot, Estermann and Popkhadze, 2023[47]). However, even in the countries where HEIs have the greatest autonomy from government, public policies have a significant influence on institutional activities and finances.
Public authorities in OECD countries regulate the establishment of higher education institutions and – in most systems – the creation of study programmes and the quality assurance principles that apply to them. In many jurisdictions, governments establish system-level strategies for their higher education systems and – as discussed in Chapter 4 – increasingly ask HEIs to define their institutional strategies and profiles with reference to system-level objectives. As analysed in Chapter 3, HEIs in most OECD countries are also dependent on public funding sources for most of their income. Even where this is not the case, public authorities may regulate the fees institutions can charge students. This means public funding policies – whether in the form of grants or fee regulation – are the major factor influencing HEIs’ operational solvency and capacity to invest. Moreover, through the design of funding systems and broader accountability frameworks, public authorities often seek to influence the efficiency with which public resources are used and demand an account of how institutional funds are spent.
Public authorities also play a role when institutions and systems need to adapt in the face of changing circumstances. Historically, governments have steered the expansion of higher education, notably through the creation of new universities and professionally oriented HEIs and changes to student financial aid policies (OECD, 2020[48]). Policies on the public funding of research, including the expansion of competitive, project-based funding models, have had a substantial influence on the direction and focus of university research. Arguably to a lesser extent, national skills policies have led to changes in the offer of study programmes – through the introduction of professional and short-cycle courses, for example – and, as illustrated by current efforts to develop micro-credentials, develop learning opportunities for new target populations.
Going forward, public authorities will have an important role to play in supporting their higher education systems to maintain or regain financial sustainability by ensuring the alignment between strategy and funding discussed above. Importantly, the survival of individual institutions may not necessarily be an over-riding policy aim, particularly in systems where the student body is becoming smaller, even though pressure to maintain institutions in particular places is often intense. Rather, the future objective of public policy may be to optimise the level of higher education provision and research capacity available in the system for the resources available, with an emphasis on fundamental goals such as quality, relevance and accessibility.
Effective resourcing models will be a crucial part of efforts to put higher education finances on a sustainable footing
If higher education funding policies create the conditions for the financial sustainability of higher education institutions, it is helpful to consider how different OECD systems have sought to achieve this and the extent to which they have succeeded. This report draws on insights from the different pieces of work undertaken as part of the OECD Resourcing Higher Education Project (see Box 1.2) and the most recent international data on higher education finances to explore how higher education funding systems support the delivery of system and institutional objectives.
The OECD Resourcing Higher Education Project was initiated in 2019 with co-financing from the European Commission to explore policies affecting the mobilisation, use and deployment of financial and human resources in higher education. The initial report of the OECD Resourcing Higher Education Project provided a broad comparative analysis of the range of public policies that influence how financial and human resources are allocated and used in higher education systems (OECD, 2020[48]). In parallel to the finalisation of the first report, the 2020 edition of the OECD Higher Education Policy Survey (HEPS) collected information from 27 OECD jurisdictions on the design of their policies governing human and financial resources in higher education (Golden, Troy and Weko, 2021[49]). This comparative analysis was followed by in-depth, system-specific analyses focusing on different aspects of higher education resourcing policy in the Flemish Community of Belgium, Denmark, Finland, Ireland, Lithuania and Portugal (OECD, 2021[34]; OECD, 2021[50]; OECD, 2023[51]; OECD, 2022[52]; OECD, 2023[53]; OECD, 2022[40]). Examples and insights from these six small and medium-sized European higher education systems are used in this report to illustrate different approaches to higher education financing and identify lessons of broader relevance to policy makers in other OECD systems.
This focuses on three aspects of higher education finances that particularly relevant to public policy making:
1. Chapter 2 examines efforts to understand the costs of higher education activities and the level of resources likely required to achieve objectives in particular national contexts. The contention of this report is that, despite clear challenges, gaining a better understanding of what things cost in higher education and why is crucial for aligning expectations, resources and results and an essential basis for understanding efficiency in the sector.
2. Chapter 3 focuses on the revenue of higher education institutions and the extent to which policy influences the mix of revenue streams. Although higher education in most OECD countries remains predominantly publicly funded, revenue diversification is a common goal and explicit efforts to change the balance of cost sharing between the public purse, student and households, and the private sector have been made in some systems.
3. Chapter 4 examines the main tools that can be used to ensure the allocation of the public funding component of institutional revenue is designed to create the transparency and stability needed to support day-to-day operations and investment and the extent to which public authorities can use the design of public funding systems to promote effectiveness and efficiency. The discussion in Chapter 4 focuses on core public funding to institutions in the form of operations, teaching and core-research grants, given the central role of these funding streams in institutional finances, while noting the role of competitive research funding and targeted grants in many OECD systems.
This report therefore focuses specifically on the finances of higher education institutions. It acknowledges the contribution of student fees to institutional finances and the debates around the impact of different student funding systems, including on student debt. The effectiveness of different models of financial aid to students is the subject of an ongoing strand of analysis in the OECD Secretariat in 2025-26 and this topic will be a key focus in the next OECD thematic report on higher education.
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← 1. Figures for expenditure as a proportion of GDP for Ireland and Luxembourg are influenced by the high nominal Gross Domestic Products of these two countries.