Achieving financial sustainability in higher education

Australia’s higher education sector is at a crossroads, with universities now facing mounting pressures threatening their long-term viability. The challenges are not just fiscal - they are human, strategic and systemic, threatening the strength and sustainability of the nation’s future workforce. 

Our experts explore the current state of the Australian higher education sector and how a strategic approach harnessing key levers can unlock sustainable growth and opportunities. 

The tipping point 

During the past decade, Australian universities have weathered a series of challenges, including a decline in government funding and a drop in international student revenue following the global pandemic. The recent introduction of Ministerial Direction 111 (MD 111), which came into effect in December 2024, has significant implications for Australia’s international education sector. It replaces MD 107 and introduces a priority-based visa processing system that indirectly enforces enrolment limits without formal legislative caps. This has further disrupted the higher education sector, tightening university finances, making it harder to fund campus upgrades and maintain research programs.

As noted in a Universities Australia report, Critical challenges in Australia's university sector: securing a sustainable future, “In 2014, universities in Australia collectively recorded a 6.8 per cent operating surplus, with only three institutions operating at a loss. By 2020, 40 per cent of universities were in deficit, increasing to 70 per cent in 2023.”

Beyond the budget cuts 

Cost pressures have triggered restructuring, staff reductions and course consolidations, but the ripple effects go much further. This impacts the quality of teaching, the breadth of academic offerings, and the well-being of staff and students alike, resulting in calls for leadership changes and renewal by students. 

Workloads have increased, leading to burnout and declining morale among staff. Academic programs, particularly in niche or high-cost disciplines, are being cut, reducing diversity and the scope of education and disproportionately affecting underrepresented communities. Student services are stretched thin, putting Australia’s reputation as a leading global destination for higher education at risk.  

This is not just a budgeting issue. It’s an issue that demands strategic and future-focused thinking. 

Reimagining financial sustainability

Higher education and universities play a crucial role in shaping the nation's future by educating individuals and advancing knowledge and science. It's not just about cutting costs; it's about rethinking financial sustainability. This involves creating a path to long-term stability by identifying enduring cost efficiencies and discovering untapped growth opportunities. A strategic redesign is necessary to enhance institutional competitiveness. 

Unlocking sustainable growth 

Justin Harness, Consulting Partner at BDO, advocates a holistic strategic approach to addressing complex financial sustainability issues in the sector. 

While managing costs effectively is essential for financial sustainability, this needs to be supported by a more holistic strategy that aligns key growth levers with differentiating capabilities, a streamlined cost structure, and a fit-for-purpose operating model to create enduring value. This is not a one size-fits-all strategy, but one that needs to be tailored to the specific risks and opportunities faced by each organisation in its respective marketplace.

Justin Harness Partner, Consulting

In the face of ongoing and future financial pressures, universities need a structured framework to guide a dual transformation balancing growth and cost efficiency. This helps prioritise actions, safeguard the student and academic experience and build long-term financial resilience without compromising the university's core values and mission. 

How do universities achieve this? 

The path forward lies in aligning strategic growth with cost optimisation. This involves: 

• Clarifying strategic intent: Setting the objective to align with key priorities and strategic goals
• Identifying differentiating capabilities: These are the core strengths that set each university apart and define its unique value proposition
• Selecting strategic growth levers for long-term sustainability: Such as retention, satisfaction and increasing research income
• Redesigning operating models: Streamlined structures, embrace digital tools and improve efficiencies and scalability that are fit for purpose 

Universities must rethink structures, enable agility and rebuild trust. 

How BDO Can Help 

Australian universities can emerge stronger with resilience, strategic insight and a commitment to transformation.

BDO’s consulting team bring deep sector expertise and a collaborative approach to help universities deliver change. We focus on achieving measurable outcomes and building long-term sustainability.