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Programming note 2: Phil will be moderating two panels at ASU+GSV on Tuesday afternoon. At 2pm in Coronado E, I am moderating an LMS at 30 panel with Blackboard co-founder and future CEO Matthew Pittinsky and D2L founder and CEO John Baker. At 3:50pm at Harbor C, I am moderating an institutional accountability and Workforce Pell panel. Come join the conversation!
Now on to Morgan’s post.
In honor of those in the US who celebrate Tax Week, my reading this week focused on higher education finance. I want to share just two of the more interesting things I read with you. This week’s reading on higher education finance had a consistent theme: the system is under real financial pressure. But the explanations—and especially the solutions—often seem to be aimed at the wrong problem.
The numbers game
The SHEEO State Higher Education Finance Report attracted a lot of attention this week, most of it focusing on the decline in state financing per FTE. To my mind, that misses some of the more interesting findings in the report.
The proportion of the total cost of their education that students pay has increased enormously since 1980, (from 20.9% in 1980 to 38.4% in 2025), and varies hugely by region. But it has declined substantially since 2013.
Since the peak in 2013, the student share has decreased in 11 of the last 12 years, declining 9.2 percentage points to 38.4% in 2025. The student share has declined 6.7 percentage points since 2019, with the largest decrease ever observed in the SHEF dataset occurring in 2019 (1.8 percentage points).
The report notes that typically the student share increases during times of recession.
Historically, the student share has increased most rapidly during periods of economic recession, shifting more of the higher education costs to students and families. [snip]
When the economy stabilizes, the student share also stabilizes and, as in recent years, decreases.
Students now fund nearly twice as much of public higher ed as they did in 1980. We should be watching closely to see if this trend continues in the near to medium term especially given the constraints on student fee increases.
Net tuition revenue per FTE
This is down substantially this year, 3.5%, which is the second-largest decline on record.
In 2025, public institutions received, on average, $7,459 per FTE in net tuition and fee revenue. After reaching an all-time high in 2018 ($8,698 per FTE), net tuition and fee revenue per FTE has decreased in five of the last seven years: 3.0% in 2019, 2.0% in 2021, 2.8% in 2023, 4.1% in 2024, and 3.5% in 2025.
This recent trend is highly unusual.
Prior to 2019, the only times net tuition and fee revenue per FTE declined were fiscal years 2000 and 2001, two years immediately preceding an economic recession.
Higher ed as the balance wheel
The report cogently makes the point that higher education acts as a balance wheel for states. A place to cut funding when times are hard and in ways that can be made up for later.
Lacking a constitutional mandate or federal funding match [snip], it is generally understood that state funding for higher education is one of the most discretionary budget categories and acts as a balance wheel during economic downturns, with funding reductions typically greater than those in other budget areas. Additionally, it is presumed institutions will be able to partially offset funding reductions with tuition revenue increases. During strong budget years, higher education typically sees increased appropriations in most states, both to make up for past cuts and to provide the funding necessary for public institutions to cover increasing costs due to inflation and changes in student enrollment.
So state higher education funding is often less about strategy than managing budget. In other words, higher education funding doesn’t follow strategy. It follows the business cycle. But will these trends continue, given current narratives about higher ed—especially if we formally enter a recession?
If the system is broken, control it
A new HEPI report picks up on this sense of financial instability—but takes the argument in a very different direction.
The report’s starting point is simple: the UK higher education system is financially unstable. The sector is now seeing its third consecutive annual decline in financial health, with the outlook continuing to deteriorate. That instability is already showing up in threats to the survival of institutions and in regulatory actions.
The OfS’ most recent annual report – published in July 2025 – added that five
providers are currently required to comply with a ‘Student Protection Direction’,
meaning that ‘the OfS reasonably considers there to be a material risk that a
provider may fully or substantially cease the provision of higher education’. A
further 71 providers are subject to ‘formal monitoring’.
Its core claim is that institutions are behaving like competitive, revenue-maximizing actors without sufficient constraints.
From there, it argues for much stronger regulation to limit risk-taking and protect both students and the system.
Following the 1997 Dearing Report, which laid the groundwork for tuition fees, UK higher education institutions have increasingly operated as autonomous actors. That autonomy is now central to the report’s argument—but also, in its view, the source of systemic risk.
The report identifies three drivers of this risk. It points to over-recruitment domestically, the rapid expansion of international recruitment, and the growth of franchised providers—all driven by the need for increased revenue and all seen as sources of risk.
Because the debate around franchised providers is complex (and, after several months of reading, still somewhat opaque), I’m going to focus here on the two most important factors.
Over-recruitment and the problem of growth
Before 2015, UK higher education institutions were limited in how much they could grow from year to year, with enrollments capped at the previous year’s level plus 5%. Since those caps were lifted, some institutions have grown rapidly.
The report focuses on a group of what we might call growth-first institutions—providers that have expanded quickly, often in response to financial pressures and policy incentives. But it overplays its critique of this behavior. Growth is not always reckless—it is often a response to funding constraints.
If rapid growth is inherently destabilizing, then it is worth noting that some of the most prominent examples of large-scale expansion in US higher education—SNHU, WGU, and ASU—have built entire models around it. And they are succeeding with much higher rates of growth than any example in the UK.
The expansion of domestic recruitment has also been accompanied by rapid growth in international students, who, because of much higher fees, effectively cross-subsidize domestic provision.
While the report frames the instability of the international student market as the central issue, the underlying concern is more straightforward: growth itself—an absolute increase in the number of students.
The report never states explicitly why this increase in numbers is problematic, leaving the reader to infer the argument. In essence, it suggests that growth has become decoupled from capacity, quality, and sustainability—and therefore creates financial risk.
Institutions chase tuition revenue, hiring staff, building infrastructure, and taking on debt to support expansion. When enrollments fall, those fixed costs remain, leaving institutions financially exposed. In this view, prioritizing rapid growth over sustainability creates risk.
The report also argues that the growth of these growth-first institutions has system-level effects. As they expand aggressively, they draw students away from other providers, potentially destabilizing the sector.
Growth, the report argues, also outstrips capacity—not just in physical space, but in class sizes, faculty time, and student contact hours.
But the most significant concern is about quality. The report assumes that growth strains capacity and therefore necessarily degrades quality. It is an intuitively appealing argument—but one supported here by remarkably thin evidence.
One academic recently told The Guardian they were ‘forced to leave a teaching
position for drawing attention to the low quality of student work and the high
grades it received’, adding that higher education leaders have essentially made
‘a Faustian bargain: lower standards of assessment are the price of increased
admissions, which are necessary to ensure financial security’.
That is a surprisingly limited evidentiary base for such a sweeping claim.
In response, the report proposes a series of interventions—many of them fairly draconian—including:
Reinstating the caps on enrollment;
Regulating grades (or marks as they would call them) and assessment by capping the number of first class and upper second class degrees that can be awarded;
Capping course sizes;
Standardised degree classifications for providers;
Requiring accommodation guarantees; and
Treating higher education more like the banking sector with regard to regulation.
Each of these proposals raises its own set of problems—and in many cases risks a significant over-correction toward regulation. But rather than unpack each of these, I want to focus on what feels like the report’s underlying assumption: a deep skepticism about growth itself.
First, growth in this case may create risk, but it is also a response to the system itself—specifically frozen domestic tuition, resulting funding gaps, and policy constraints. Institutions are not simply behaving badly; they are adapting.
Second, not all growth is problematic. Institutions like SNHU, WGU, and ASU have certainly pursued revenue, but their expansion is also driven by demand—by more students seeking degrees and by broader societal needs for a more skilled workforce. Expanding higher education can increase opportunity and improve outcomes for students at a macro level.
The system is clearly under real financial pressure. But if we misdiagnose the problem, we end up solving for the wrong things.
Growth is not the problem. The problem is a system that depends on growth without investing in the capacity to sustain it.
And that is a much harder problem to solve than simply imposing limits.
Parting thought
I am headed to Norway next month and for the first time will be renting a car. I had been thinking about speed limits anyway when I found this great comedy sketch comparing traffic fines in Norway and India.
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