The Tertiary Education Commission (TEC), New Zealand's key funding body for post-secondary education, has issued a stark warning in its Plan Guidance for 2027. Providers submitting Investment Plans for funding starting January 1, 2027, are told to expect a funding shortfall for domestic enrolments—the third consecutive year this issue has arisen. 'Investment planning for 2027 is taking place in a very challenging fiscal environment. We expect demand to remain strong and available funding to be unlikely to match it,' the guidance states. This comes as domestic student numbers continue to exceed forecasts, putting pressure on universities, polytechnics, and other tertiary providers across the country.

This development highlights ongoing tensions in New Zealand's higher education sector, where government subsidies cover only a portion of costs, and institutions rely on tuition fees and international students to bridge gaps. With the government prioritizing economic growth amid tight budgets, the sector faces tough choices: reprioritize programs, improve performance metrics, or risk disinvestment.

Understanding New Zealand's Tertiary Funding Model

To grasp the tertiary education funding shortfall, it's essential to understand how the system works. The TEC allocates government funding based on Equivalent Full-Time Student (EFTS) units, where one EFTS represents the workload of a full-time student for one year (approximately 1,200 student hours). Funding is divided into Delivery Levels (DL or DQ), with higher levels like DQ7+ (bachelor's degrees and above) receiving more per EFTS.

Domestic students—New Zealand citizens and residents—generate subsidized EFTS, but allocations are capped based on forecasts. If enrolments exceed these, students become 'unfunded,' meaning providers receive only tuition fees, typically 30-50% of costs. In 2025, university domestic EFTS exceeded budgets by thousands, with the sector handling a few dozen unfunded students annually but facing potentially thousands more. For 2026, TEC used reserves to fund up to 102% of forecasts, but 2027 looks bleaker without similar buffers.

Providers must submit Investment Plans aligning with the Tertiary Education Strategy (TES) 2025-2030, emphasizing economic priorities like STEM fields, health, and construction. TEC assesses plans on learner achievement, network contribution, capability, performance, and financial sustainability.

Drivers Behind Surging Domestic Enrolments

Domestic enrolment growth stems from multiple factors. Demographics play a role: New Zealand's school-leaver cohort is expanding, peaking later this decade. Economic uncertainty and a competitive job market push more young people toward qualifications, with 2025 seeing 4% growth in university domestic EFTS against budgeted 0.9%. Universities like Auckland reported record numbers in 2026, with larger school-leaver intakes and post-COVID trends favoring local study.

Job market dynamics contribute too—soft employment in entry-level roles drives reskilling, while government incentives for priority areas like teaching boost numbers. Overall tertiary participation rose, with domestic EFTS up 2.5% in recent years, faster in universities and polytechnics transitioning from Te Pūkenga.

A History of Underfunding and Shortfalls

New Zealand's tertiary sector has faced chronic underfunding. Public funding per domestic student fell 16% in the decade to 2022, lagging inflation. Cumulative shortfalls from 2019-2026 show funding growth at 2.1% versus 26-27% inflation. Temporary boosts, like the $128 million 4% DQ7+ increase in 2024-2025, expire soon, exacerbating pressures.

2025 marked the first major unfunded influx since the 1980s, with enrolments 4,200 EFTS over projections. TEC funded 99% of forecasts using buffers, but repeated overruns strain reserves. Budget 2025 offered 2.5% increases below inflation, shifting burdens to fees (up 6% allowed).

Immediate Impacts on Universities and Colleges

Universities bear the brunt. Sector revenue relies 77% on government sources, with international fees volatile. 2024 surpluses masked underlying deficits after adjustments; 2026 forecasts deficits as costs rise 4.7% against 2.5% revenue growth. Capital needs ($1.5 billion 2026-2027) widen gaps.

Lincoln University announced 40 FTE job cuts this week, citing TEC's reduced 2027 funding signal and missed enrolment targets. 'Limited growth in funding for domestic students and constrained research funding,' vice-chancellor Neil Klomp said. Staff propose savings via redundancies by June 2026. Similar pressures hit Massey (enrolments down 14% campus-based) and others, prompting freezes and program reviews. For more on Lincoln's challenges, see the RNZ report.

Effects on Polytechnics and Vocational Providers

Polytechnics, re-established independently from 2026 after Te Pūkenga's disestablishment, received $325 million recapitalization but face shortfalls too. Te Pūkenga posted deficits ($85 million 2024), with funding drops. NorthTec got $3 million viability aid. The TEC guidance applies sector-wide, urging reprioritization to vocational priorities like trades amid placement shortages.

Apprenticeship completions lag, widening skills gaps. Providers must prove financial sustainability or risk full disinvestment.

Student Access, Equity, and Quality Concerns

Unfunded students risk exclusion, especially in non-STEM fields where subsidies are lower (33/67 fee/subsidy split). Universities NZ's Chris Whelan notes some discourage enrolments: 'We haven't faced this since the 1980s.' Equity suffers—Māori/Pacific completion rates trail (47-49% vs 61-64% for degrees).

Rapid international growth (19% 2025 full-fee EFTS) strains placements: 'Ensure sustainable growth... manage negative impacts,' TEC warns. Housing pressures in university towns intensify. For deeper analysis, read Universities NZ's incoming minister briefing.

Government Priorities Shaping Funding Decisions

The TES 2025-2030 emphasizes 'unapologetic' economic focus: STEM subsidies boosted ($64 million), health workforce aligned with Health NZ plans. TEC prioritizes high pass rates, industry needs (construction, agri-tech). Non-priority areas face cuts: 'Actively disinvest where requirements not met.'

Budget '26 will clarify, but tight finances signal trade-offs. TEC's low risk appetite means poor performers lose out.

Stakeholder Perspectives and Calls for Action

Universities NZ warns of 'massive struggle' without reforms. TEU decries Lincoln cuts' speed. Labour MP Shanan Halbert calls it a 'warning sign.' Experts urge baselining temp boosts, multi-year funding, equity investments.

Government defends STEM focus for growth, but sector seeks balanced model valuing humanities (10/11 grads in skilled roles).

Photo by Amos Haring on Unsplash

Potential Solutions and Future Outlook

Solutions include forecast adjustments, performance incentives, public-private partnerships. Long-term: overhaul EFTS model, inflation-linked rates, infrastructure funds. Intl revenue targets $7.2 billion by 2034, but domestic stability key.

2027 Plans due soon; outcomes post-Budget '26. Sector must innovate—online delivery, micro-credentials from existing funds—or face contraction. Positive: strong demand signals value; reforms could streamline. For TEC's full guidance, visit their Plan Guidance PDF. Optimism lies in collaboration for sustainable higher education.