Governments around the world are working to achieve two key goals: expanding access to university education and managing the rising costs of delivering it. At the same time, public funding for higher education has been reduced or capped in many countries, placing growing financial pressure on universities. These institutions must now find ways to fund both high-quality teaching and world-class research, often turning to alternative sources of revenue—most notably, by increasing international student enrollment. In this context, it is crucial to understand how universities respond to changes in tuition, especially when it comes to domestic student enrollment.
Our research offers new insights into how universities behave in systems where tuition is regulated and domestic students can defer payments through income-contingent loans. Both our theoretical model and empirical analysis suggest that universities respond strategically to financial incentives. In contrast to what standard economic models might predict, we find that universities often expand enrollment in response to higher tuition or funding—particularly by shifting focus toward higher-tuition fields of study and adjusting admission strategies to attract more students. These behaviors highlight the significant role universities play in shaping access to higher education. Our model also emphasizes the complex objectives universities face: delivering education, conducting research, and managing finances. Empirical evidence shows that research funding is positively linked to both domestic and international enrollment, suggesting that education and research goals are deeply connected in shaping university strategy.
These findings help policymakers and education leaders better understand how universities adjust to funding pressures and policy changes. They show the importance of designing funding systems that recognize the multiple roles universities play—and that support both broad access to education and the sustainability of research excellence.