Are universities really making a “net loss” on domestic students?

As accounting tricks go, it’s a howler.

According to the New South Wales Audit Office, at NSW universities, “operating costs per student of $37,868 exceeded the average revenue per domestic student of $25,213, representing a 33% deficit margin.”

They thought this claim was so important that they included it four times, each time under successive red-letter headings like “domestic student revenue does not cover operating costs.”

But wait—is that true?

To derive that claim, the Audit Office took total university operating costs across NSW and simply divided them by the number of students. In other words, they attributed all university expenditures to the costs of educating students.

That may be fair enough for a grade school or day care centre. But universities do much more than educate students. In particular, they are large-scale research organisations.

Universities don’t separate out teaching and research in their accounts, but luckily, the Australian Bureau of Statistics reports aggregate university research expenditures at the state level. So it is possible to strip research out of the Audit Office’s figures.

Combining Audit Office and ABS data, it turns out that NSW universities spent $13.6 billion in 2024, of which $5.2 billion was spent on research, leaving $8.4 billion for all other expenses.

Note that those “other” expenses include not only teaching, but also administration, consulting services, information technology, providing parking—literally everything else besides the directly attributable costs of research.

The “other” expenses also include international student recruitment fees. As a result, two-thirds of the commissions paid to international agents for recruiting international students are actually accounted for as an expense of educating Australian students—because the costs are spread over all students, and two-thirds of the students are domestic.

When you divide the $8.4 billion for non-research expenditures by the total number of university students in NSW, you get a figure of $27,091 per student.

That’s only 9.4% higher than the Audit Office’s claimed revenues of $24,763 per domestic student.

It’s not precisely clear what the audit office classifies as revenue derived from domestic students. Turning to the Department of Education finance tables for 2024, I get a figure of $25,179 in university revenues per domestic student, which is just 7.6% less than what universities are spending.

But are universities really losing $1912 a year for every domestic student they educate?

Well, no. That supposed loss assumes that everything universities do that is not directly funded for research is an educational cost, which is clearly not tenable. Vice chancellor pay cannot fairly be attributed 100% to the costs of teaching students.

To be clear, the direct research expenses taken off the headline operating costs in these analyses refer only to explicitly budgeted research. The scholarship that ordinary academics do without ARC or NHMRC grants is not accounted for as “research.”

The costs of medical labs, particle accelerators, and government-funded Future Fellowships for anti-Israel activism clearly should not be attributed to student fees. They are not paid for out of student fees, and they offer little benefit to students.

Why has the Audit Office gone all-in on a story of university underfunding this year? Of course, it is impossible to say.

It is clear, however, that the narrative of this year’s report will be very welcome to universities and their trade bodies.

Their story that structural under-funding has forced them to turn to international students is coming under increasing scrutiny. Having an official state government body endorse it just at this moment is convenient indeed.