We need a renewed social contract for all tertiary education

Higher education systems across the world are confronting an uncomfortable reality: the funding models that underpinned their expansion over the past half-century have become increasingly unsustainable. Rising participation, fiscal pressures, demographic change, technological disruption and labour market transformation are exposing weaknesses in systems designed for a different era.

A recent webinar sponsored by the Society for Research into Higher Education and the Policy Reviews in Higher Education journal featured policy pitches from Christopher Millward, Huw Morris, Lorraine Dearden and NV Varghese, followed by reflections from Ellen Hazelkorn.

All highlighted a common theme: higher education finance is no longer a question of merely balancing public and private contributions. Instead, it has become a broader debate about the purpose of tertiary (NB no longer just ‘higher’) education, the distribution of opportunity and the role of governments in supporting social and economic development.

Policy-makers are increasingly attempting to solve funding challenges through incremental adjustments to fees, loans and funding formulas while avoiding deeper questions about whether current tertiary education systems remain fit for purpose. Twenty-first-century systems can no longer be funded using policy frameworks developed for a 20th-century elite model of higher education.

The limits of the market solution

Drawing on the English experience, Christopher Millward, professor of practice in education policy at the University of Birmingham in the United Kingdom, highlighted how the transfer of costs from governments to students has reshaped higher education funding.

England has become one of the world’s most market-orientated higher education systems, relying heavily on tuition fees supported by income-contingent loans.

The logic appears persuasive. Graduates benefit from higher lifetime earnings and improved employment outcomes. Asking students to contribute towards the cost of their education therefore seems both reasonable and necessary during periods of fiscal constraint. However, this has revealed significant contradictions.

First, higher education markets do not behave like conventional markets. Students make decisions with imperfect information, uncertain future returns and powerful social expectations. Competition has encouraged institutions to invest in branding, marketing and student amenities, yet there is limited evidence that market incentives alone consistently improve educational quality or productivity.

Second, loan systems have often shifted costs rather than resolved them. Governments continue to carry substantial financial exposure when large proportions of debt are ultimately subsidised or written off. More complex financing arrangements have not necessarily reduced public liabilities.

Most importantly, framing higher education primarily as a private investment risks obscuring its broader social value. Universities educate teachers, nurses, engineers, scientists and public servants. They contribute to innovation, regional development, civic engagement and democratic participation. Funding models centred on private returns struggle to capture these wider benefits.

The challenge therefore extends beyond determining how much students should pay and whether market principles can deliver the social outcomes that governments increasingly expect from tertiary education.

Lorraine Dearden, professor of economics and social statistics at University College London, argued that persistent socio-economic disparities in higher education participation are fundamentally rooted in unequal school outcomes rather than shortcomings in university access alone.

Drawing on her experience in the United Kingdom and internationally, she emphasised that expanding higher education participation requires sustained investment in improving secondary school completion and attainment rates. Dearden also contended that, while higher education should remain free at the point of access, particularly for disadvantaged students, system sustainability requires successful graduates to contribute through income-contingent repayments or graduate taxation.

From public good to private responsibility

NV Varghese, distinguished visiting professor at the Indian Institute of Technology Bombay, situated contemporary financing debates within a longer historical trajectory. Across much of the world, public funding expanded alongside enrolments because higher education was viewed as a public good. Governments accepted responsibility for supporting university growth as part of broader nation-building and economic development agendas.

Over time, however, globalisation and market-orientated reforms promoted a different narrative. Higher education was increasingly viewed as a private investment generating individual economic returns. Tuition fees, student loans, private providers and cost-sharing mechanisms became central features of many systems. However, this transition remains incomplete and often contradictory.

Governments continue to promote higher education as essential for national prosperity while simultaneously reducing their relative financial commitment. They encourage wider participation but frequently fail to provide funding systems capable of sustaining mass enrolment, creating mounting pressure for institutions, students and families.

Universities have responded by seeking alternative revenue through international education, industry partnerships, philanthropy, commercial activity and fee-paying programmes. But even in those cases, they encounter obstacles from governments, as is currently illustrated by the policies in the Big Four Anglophone student destination countries to reduce admission of international students and, as a consequence, substantive income for their universities.

While diversification is often celebrated as entrepreneurial success, it can also signal deeper policy shortcomings. Institutions increasingly devote efforts to filling gaps in public funding arrangements rather than focusing on their core educational and research missions.

Funding follows purpose, but what is purpose?

Huw Morris, honorary professor at University College London, argued that discussions about finance should begin with purpose. Before policy-makers determine how education should be funded, they must first decide what tertiary education systems are expected to achieve. This sounds obvious, yet contemporary debates often proceed in the opposite direction.

Governments routinely debate repayment thresholds, funding formulas, efficiency measures and regulatory settings without articulating a coherent vision for the future of tertiary education. Is its primary purpose workforce preparation, economic competitiveness, social mobility, lifelong learning, civic development, research, innovation or cultural enrichment? The answer is usually all of these.

The difficulty is that funding frameworks rarely reflect this multiplicity of goals. Many systems continue to privilege traditional degree pathways and historical funding arrangements even as labour markets and educational pathways become more dynamic and diverse.

Artificial intelligence provides a clear illustration. Governments regularly emphasise the need for lifelong learning and workforce reskilling in response to technological change. Yet most financing systems remain heavily concentrated on young people undertaking an initial qualification.

Mature learners, career changers and those seeking shorter forms of professional education often receive much less support. Funding arrangements must be redesigned to reflect that lifelong learning is critical.

The neglected majority

The webinar’s concluding discussion, particularly the reflections of Ellen Hazelkorn, professor emerita at Technological University Dublin, pointed to what may be the most significant blind spot in contemporary higher education policy. Many governments continue to focus on universities when the real challenge lies across the broader tertiary system. This distinction matters.

During the 20th century, elite higher education systems served a relatively small proportion of the population. Today, participation in tertiary education has become the norm in many countries. Universities, vocational institutions, technical colleges, professional providers and alternative pathways now form an interconnected tertiary ecosystem.

Yet public debate remains disproportionately focused on universities, particularly research-intensive institutions. This creates two critical distortions.

First, research universities often attract a large share of public funding, philanthropy, prestige and policy attention despite educating only a minority of students. Institutions responsible for educating the largest numbers of learners frequently operate with fewer resources despite carrying substantial teaching and workforce development responsibilities.

Second, policy-makers continue to focus on ‘higher education participation’ when the more relevant concept may be ‘tertiary participation’. The boundaries between academic and vocational education are becoming increasingly blurred as economies demand a broader range of advanced skills. A system designed for universal tertiary education cannot simply be an expanded version of an elite university model.

The political economy of underfunding

Governments encourage institutions to expand participation because this supports economic development, workforce needs and social mobility. Simultaneously, they face pressure to constrain public expenditure, resulting in a move to shift costs onto students, institutions, employers and families.

While this allows governments to claim success in widening access while limiting direct public investment, hidden costs are created elsewhere. Student debt rises, institutional deficits emerge, infrastructure investment is delayed, workloads intensify and dependence on international student revenue grows. Educational inequalities also widen. These outcomes are frequently treated as institutional challenges when they are the consequences of policies.

Higher education funding cannot be separated from broader debates about taxation, public expenditure, economic priorities and social investment.

Beyond incremental reform

The temptation for policy-makers is to pursue incremental change: modest adjustments to the funding model which includes a combination of grants, fees, loan programmes, funding formulas or efficiency requirements.

Such reforms may be politically expedient, but they are unlikely to address the structural challenges confronting tertiary education. The challenges are increasingly structural and systemic rather than operational or incremental reform.

Governments now expect institutions simultaneously to drive innovation, support regional development, widen participation, promote social mobility, address skills shortages, facilitate lifelong learning and strengthen national competitiveness. They also expect the private sector to play a larger role and institutions to partner with the private sector.

The webinar also highlighted that alternatives exist beyond the false choice between increased public expenditure and higher education debt. The work of Dearden and colleagues in Chile provides a compelling example. Their evaluation of the proposed Mecanismos de Financiamiento de la Educación Superior illustrates how income-contingent financing can improve equity, protect graduates during periods of low earnings and maintain fiscal sustainability.

Rather than treating student finance as a conventional loan, the model links contributions to graduates’ capacity to pay. The significance of Dearden’s work extends beyond Chile, challenging assumptions that market-based finance is the inevitable solution to mass participation and reinforcing the importance of sustained public involvement in supporting equitable access.

Higher education finance should therefore be understood not as a mechanism for cost recovery but as a policy instrument that shapes opportunity, participation and social mobility.

This observation exposes the greatest weakness in contemporary policy debate: governments are increasingly preoccupied with managing the cost of tertiary education while paying insufficient attention to its purposes. Financing discussions are framed narrowly in fiscal terms rather than around broader questions of social and economic development.

It is not a matter of a government affording tertiary education but whether they can afford to not invest in the skills, knowledge, innovation and civic capabilities required for future prosperity.

As Morris argued, funding should follow strategy, not blindly focus on financing mechanisms without articulating a coherent vision for the future.

Sustainable solutions will not be found through marginal adjustments to fees, loans or funding formulas alone. What is required is a renewed social contract between governments, institutions, employers and learners.

The central question is whether governments are prepared to recognise tertiary education as both a private benefit and a public investment, and to design funding systems accordingly. Until that question is addressed, current debates will remain symptoms of deeper and unresolved policy challenges.

Angel Calderon is director of strategic insights at RMIT University in Melbourne, Australia. Hans de Wit is professor emeritus and distinguished former director of the Center for International Higher Education, Boston College, USA. Ellen Hazelkorn is professor emerita at the Technological University Dublin, and joint managing partner, BH Associates, Ireland, and Hamish Coates is a global leader in higher education with major contributions to policy and innovation who designs and strengthens higher education systems, institutions and leadership.

This article is a commentary. Commentary articles are the opinions of the author and do not necessarily reflect the views of University World News.