Revolutionizing higher education: rethinking funding and global models with an Indian lens Open Access

In India, knowledge is revered as the highest form of wealth, and the nation has long prioritized nurturing this asset through education. Quality post-secondary education is widely recognized for enhancing employability, income potential, and resilience against economic uncertainties. College graduates in India experience significant economic returns, with earnings increasing by 17 percent per year of schooling, higher than the 10 percent return for primary education. Beyond personal gains, higher education fuels innovation and sustainable economic growth, making it a cornerstone of national development.

The rising demand for higher education globally, especially in developing countries like India, stems from economic growth and demographic shifts. With the global population projected to reach 9.8 billion by 2050 (United Nations, 2017), India’s youthful demographic presents both a challenge and an opportunity. Investment in higher education yields societal benefits, fostering optimal development (McMahon, 2018) and contributing to all Sustainable Development Goals (McCowan, 2019). However, financing higher education must move beyond economic metrics to embrace a rights-based approach. Education should be viewed as a public service that empowers individuals and societies, aligning with the universal right to lifelong learning. This perspective has profound implications for policy and funding strategies.

Globally, participation in tertiary education has grown by 4 percent annually since 1995, with enrolment projected to reach 660 million by 2040 (Calderon, 2018). By 2030, 70 percent of tertiary-educated youth will come from non-OECD G20 nations, including India (OECD, 2015). Yet disparities persist; India must address challenges in access, equity, and financing. Countries worldwide grapple with funding models, from student debt in the U.S. (Federal Reserve Bank, 2020) to mixed systems in Vietnam and Romania (Altbach and de Wit, 2021). India must balance public and private funding while ensuring quality and inclusion. Adopting frameworks of capability (Sen, 1991) and lifelong learning (UNESCO Institute for Lifelong Learning, 2020) is essential to uphold the 2030 Agenda’s pledge to “leave no one behind”.

Higher education financing in developing countries is under pressure as traditional government models face increasing strain. To ensure sustainability and quality, nations are exploring diversified strategies. Globally, three dominant models, bureaucratic, collegial, and market-based, are employed, with rising private sector participation. In the contexts of developing countries, universities are adopting endowment funds, income-share agreements, and public-private partnerships (PPPs). Endowments have gained traction in Nigeria, Kenya, and Brazil, enabling institutions to generate income from invested assets amid limited government budgets.

India’s higher education system, shaped by the Radhakrishnan Commission (1949) and Kothari Commission (1966), is now evolving. The National Education Policy (NEP) 2000 (MHRD, 2020) calls for financial innovation and institutional autonomy. Tilak (2004, 2005) critiques over-reliance on public funding and warns against unchecked privatization, which can deepen social inequalities. He argues that public investment is a moral and developmental imperative, and while private participation can supplement efforts, it must not replace the state’s responsibility to fund education as a public good. Tilak’s analysis highlights the inefficiencies of treating education as a market commodity, advocating for financing rooted in social justice and inclusive growth. Sen (2014) reinforces the need for equitable and inclusive mechanisms.

International frameworks such as the Global Challenges Research Fund and the Newton Fund emphasize the role of development aid and research-based funding in supporting higher education in low- and middle-income countries. These models offer valuable lessons for India. Innovative instruments and diversified strategies can reduce dependence on government funding, enhance institutional autonomy, and create self-sustaining financial ecosystems. Adequate financing of higher education is essential for India’s socio-economic transformation and for achieving inclusive development across middle-income nations.

At the time of independence, India’s higher education system consisted of just 17 universities and 636 colleges, accommodating approximately 238,000 students. However, the post-independence era has witnessed extraordinary growth across these metrics. Now, India has 1,168 universities with 46,000 affiliated colleges. These universities account for 81 percent of total student enrolment, making higher education accessible across India. The number of degree-awarding universities and institutions has increased by 42.35 times, while the number of colleges has grown by 82.87 times. Student enrolment in the formal higher education system has surged by over 135.64 times compared to the figures from the year of independence. This remarkable rise in enrolment would not have been achievable without a corresponding expansion in the number of higher education institutions and the enhanced intake capacity of courses. These trends underline the progress toward achieving the 30 percent Gross Enrolment Ratio (GER) target by 2030 (Figure 1).

India’s higher education sector has experienced a significant transformation in recent years. According to the latest All India Survey on Higher Education (AISHE) 2021-2022, the total enrolment in higher education reached 43.3 million students, marking a substantial increase from 41.4 million in 2020-2021. Female enrolment rose to 20.7 million, reflecting steady progress in gender parity within the sector (Ministry of Education, 2024).

The GER has risen to 28.4 percent, with female GER surpassing that of males for the fifth consecutive year. Furthermore, there has been a significant increase in the enrolment of students from marginalized communities, including Scheduled Castes (SC) and Scheduled Tribes (ST), with SC enrolment growing by 44 percent and ST enrolment by 65.2 percent since 2014-2015. The NEP 2020 seeks to further improve accessibility and quality, setting an ambitious target of achieving a GER of 50 percent by 2035 (Figure 2).

India’s higher education landscape has expanded significantly over the decades and now comprises 1,168 universities, 46,000 colleges, and 12,002 stand-alone institutions that are not affiliated with any university, typically offering Diploma or certificate programs, regulated by professional bodies such as the All-India Council for Technical Education, the Indian Nursing Council, and the National Council for Teacher Education (Figure 3).

According to the NEP 2020, India’s public expenditure on education in 2017-18 accounted for 2.7 percent of GDP (MHRD, 2020). The target of allocating 6 percent of GDP to education, first outlined in the 1969 Policy and reiterated in the 1986 Policy and the 1992 Programme of Action, has consistently remained unmet. In comparison, countries like Bhutan, Zimbabwe, and Sweden allocate 7.5 percent of GDP, while Costa Rica and Finland spend 7 percent. Nations such as Kyrgyzstan, South Africa, and Brazil allocate 6 percent, with the United Kingdom, Netherlands, and Palestine spending 5.5 percent, and Malaysia, Kenya, Mongolia, Korea, and the U.S. at 5 percent. Bridging this gap and elevating India’s education expenditure to the level of leading countries remains a pressing challenge.

One key factor contributing to India’s underperformance in this area is the conventional reliance on government funding alone. Another challenge is the classification of higher education funding (Docampo, 2007). While education spending is undeniably crucial for development, it does not receive a higher priority within India’s financial system when economic resources are distributed. While India spends 0.7 percent of its GDP on higher education, higher education spending as a share of GDP in selected countries for 2021 was 2.4 percent in Chile, 2.4 percent in the U.S., 2 percent in Canada, 1.9 percent in South Korea, 1.8 percent in Norway, 1.3 percent in the United Kingdom, 1.1 percent in Germany, 0.9 percent in Japan, 0.3 percent in Saudi Arabia.

To explore new funding instruments, a comprehensive perspective is essential. In other words, Higher Education Institutions (HEIs), their regulators, and the government, acting as the super-regulator, must focus on fostering connections with capital markets and financial institutions. Given their vast scope, rapid pace, global interconnectedness, and technological advancements, this discussion narrows its focus to capital markets and non-budgetary resources.

HEIs may need to reconsider and restructure their legal and organizational frameworks. This new “entity” would demand a slightly altered approach from entities such as the Department of Financial Services, Ministry of Finance, Government of India, the Stock Exchanges, and the Securities and Exchange Board of India. Policy-level deliberation is crucial for reorganizing the HEI system at various levels. Reorganization and continuous adaptation are urgently required. By making appropriate adjustments to regulations on foreign direct investment, tax systems, investment incentives, and the sociological and anthropological contexts of the population, significant resources can be unlocked.

Allocating 6 percent of GDP to education should not be confined solely to government spending. The composition of this 6 percent allocation needs to be redefined. The primary approach to funding higher education in India should focus on resource diversification. The Resource Diversification Matrix (Figure 4) highlights significant opportunities to broaden the range of resources available to support higher education.

According to the National Center for Education Statistics (NCES, 2022), bachelor’s degree programs offered by public institutions in the U.S. receive approximately 28 percent of their total revenue from state governments, with an additional 10 percent from federal sources, which is a total of 38 percent from government subsidies.

India has adopted an ineffective model of granting full autonomy without corresponding financial independence. Currently, the universities are categorized as Central Universities, State Public Universities, Institutions of Eminence, Deemed Universities, Private Universities, Indian Institutes of Management (IIMs), Indian Institutes of Technology (IITs), and Agricultural Universities. The idea of autonomous finance is highly relevant to all these institutions. The financial indicators for both domestic and foreign universities are shown in Table 1.

HEIs abroad can generally be categorized into three models: the U.S. Model, the British Model, and the OECD/EU Model (Zatonatska et al., 2020). The U.S. Model includes institutions such as, Stanford, the University of Pennsylvania, the Massachusetts Institute of Technology, the California Institute of Technology, the University of Chicago, Princeton University, Yale University, and Cornell University. The British Model features universities like Cambridge, Oxford, Wales, Edinburgh, London Business School, Manchester Business School, Glasgow, Birmingham, Strathclyde Business School, Columbia University, Johns Hopkins University, and Northwestern University. The OECD/EU Model comprises HEIs in countries such as Denmark, Sweden, Finland, France, and Germany.

As an example of the U.S. Model, Harvard University demonstrates its approach to autonomous finance through its sources of operating revenue for the fiscal year 2021. Student fees account for at least 22 percent of its operating revenue, endowments contribute 37 percent, and sponsored support provides 17 percent. Comparatively, Indian HEIs still have considerable progress to make in adopting similar financial autonomy (Figure 5).

The operating expenses reveal a similar pattern when comparing Indian HEIs to Harvard University (Figure 6). While Indian HEIs allocate 85-95 percent of their operating revenue to salaries and maintenance, Harvard University dedicates approximately 52 percent. As a result, there is minimal funding left for comprehensive maintenance, research and development, and capital expenditures. This funding model, while ensuring broad access, also constrains institutional autonomy, innovation, and responsiveness to market needs. Several key policy documents and international comparisons shed light on the need for gradual reform. The NEP 2020 explicitly acknowledges the need to diversify funding sources. It recommends increasing public investment in education to 6 percent of GDP, with a strong emphasis on higher education, encouraging philanthropic and private sector participation, promoting financial autonomy for institutions, including the ability to raise resources through alumni networks, endowments, and research commercialization. The National Institution for Transforming India (NITI) Aayog’s 2025 report, provides a detailed roadmap for funding reform (NITI Aayog, 2015). Although government funding remains the backbone, the report urges diversification through fee autonomy for select institutions, alumni, and Corporate Social Responsibilities (CSR) contributions, and performance-based grants. The report recommends short, medium, and long-term reforms, including self-financed programs, digital infrastructure, and international collaborations.

Jawaharlal Nehru University (JNU), a prominent public university in India, is examined as compared with Harvard University. According to the Ministry of Education Annual Report (2022-23) and NITI Aayog’s Higher Education Report (2025), JNU’s financial structure is predominantly reliant on public funding, with over 80 percent of its operating budget sourced from government grants. In contrast to Harvard’s diversified revenue streams, where endowments (37 percent), student fees (22 percent), and sponsored research (17 percent) play significant roles, JNU’s capacity for independent revenue generation remains limited.

This contrast underscores the structural differences in financial autonomy. While Harvard leverages its endowment and alumni networks to sustain long-term financial independence, Indian public universities like JNU operate within a centrally regulated funding framework, with limited discretion over tuition fees, fundraising, or investment strategies. Moreover, policy constraints and bureaucratic oversight often restrict Indian HEIs from pursuing market-responsive financial models.

The financing of higher education in India is a multifaceted and ever-evolving challenge that demands immediate attention and creative solutions to ensure equitable access for all students. Shaped by colonial legacies and regional disparities, the current landscape faces critical issues, such as escalating tuition fees, systemic inequities, and the pressing need for reforms in financing models. Recent initiatives by the Indian government, including the NEP 2020, aim to tackle these challenges by encouraging greater investment in education and enhancing accessibility. However, disparities in implementation across states remain a significant concern.

India’s higher education financing mechanisms encompass a mix of traditional government-backed loans, private funding options, and innovative approaches like Income-Contingent Repayment schemes. These measures strive to improve access for students from diverse socioeconomic backgrounds, especially those from economically disadvantaged groups. Nevertheless, the country continues to grapple with significant issues, including enrolment disparities among marginalized communities and the far-reaching effects of the COVID-19 pandemic, which have exacerbated existing inequities in educational access.

The discourse surrounding higher education financing highlights the demand for a new paradigm, one that fosters collaboration between government entities, the private sector, and academic institutions. Stakeholders are advocating for funding models that are both sustainable and relevant, with a focus on multidisciplinary programs and advancing research. Such efforts are intended not only to equip students with vital skills for the future workforce, but also to ensure that higher education addresses critical societal challenges, including those brought about by rapid technological progress and climate change.

In conclusion, higher education financing in India requires transformative solutions to close the gap between existing practices and society’s evolving needs. As conversations around effective policies and collaborative funding mechanisms progress, tackling these systemic challenges will be essential for creating a fair and inclusive educational environment for future generations.

The financing of higher education in India has undergone significant transformation over the years, influenced by a range of historical, economic, and policy considerations. Prior to the 1976 amendment to the Indian Constitution, individual states were solely responsible for shaping their educational policies, resulting in notable differences in educational standards and financing across the country. The 42nd Amendment brought education under the concurrent list, enabling the central government to propose policies while states retained autonomy in their implementation. This change exposed the disparities in educational financing, as states adopted varying policies and funding mechanisms tailored to their distinct socioeconomic circumstances.

The need for well-structured financing mechanisms became particularly evident in the post-independence period, as the demand for education surged alongside the global movement to democratize access to education. In 2011, the Indian government introduced the Model Education Loans Scheme to encourage banks to offer education loans, acknowledging the necessity for alternative funding sources in higher education. However, initiatives like PPPs and the privatization of higher education, combined with insufficient allocations from both central and state governments, have left funding levels far below the target of 6 percent of GDP.

Bonds present a promising avenue for financing higher education. When assessing the suitability of bonds in the market, several factors should be considered, including the nature and necessity of the institutions, their financial history, and their ability to repay principal and interest. Examples such as bullet payment bonds and clip-and-stitch bonds allow for the repayment of the principal at maturity while interest is paid as it accrues.

Given their extensive asset base, most HEIs would benefit from entering the bond market. This approach would effectively monetize their assets without putting HEIs and their stakeholders at significant risk. Many HEIs, including colleges with substantial landholdings, engineering institutions, and public universities, could leverage secured bonds by mortgaging infrastructure and underutilized land. These bonds offer an effective financing solution for both investors and institutions, as the interest rates on secured bonds are generally lower than those on gilts or bank rates.

Why have Indian HEIs been reluctant to embrace bond funding as a means to sustain, grow, innovate, and establish new benchmarks? A noteworthy example highlighting the potential of such financing is XIME Bhubaneswar, where loan repayment was achieved within a year, with fee revenues doubling the borrowed amount. However, HEIs often display a mindset rooted in risk aversion, a strict adherence to traditional approaches, and a lack of innovative thinking.

Investing in HEIs can be perceived as an investment in sustainability, a notion strongly validated in Asia-Pacific nations. These countries have integrated higher education investments into the broader framework of Environmental, Social, and Governance (ESG) concerns. Having made significant advancements in this area, such investments are regarded as future-forward opportunities in the region. Social bonds, sustainability-linked loans, green bonds, green deposits, and sustainable bonds have gained substantial traction among investors in Asia-Pacific countries.

Looking ahead, sustainability bonds are set to capture significant attention from international investors. Japan leads the way, followed by Australia, Singapore, New Zealand, and Hong Kong. In terms of foreign direct investment (FDI), China currently outpaces India. However, by initiating projects specifically for HEI financing, India could enhance its appeal as an investment destination. Ultimately, scale matters and this would necessitate building essential financial expertise, fostering a new managerial culture, and committing to growth.

Equity investments present a promising avenue for financing HEIs. In countries like China, and other regions with international business schools, there is ample justification for supporting equity financing. Such investments can address campus development and infrastructure needs while ensuring a high rate of return for investors. In India, several private institutions have adopted this approach, and it could even be extended to public colleges. PPP offer a unique pathway for bidirectional financial flows, with management potentially following a similar model. Although PPPs are well-established in OECD and EU countries, this approach differs from the conventional understanding of PPPs and introduces innovative possibilities for HEI financing (Robertson, 2020).

Industry partnerships present a valuable avenue for funding HEIs. Harvard University stands out as a prime example, closely followed by Stanford University. This model is gaining recognition in India, with Mahindra University in Hyderabad serving as a notable example.

Patents, trademarks, and royalties: Foreign institutions are increasingly relying on royalties and patents as a significant source of revenue. The race to develop new patents and trademarks has intensified, with every laboratory striving to outdo its competitors. Indian HEIs should thoughtfully explore this funding option to tap into its potential benefits.

CSR funds: Education plays a transformative role in shaping individuals’ perceptions of the world and themselves. It fosters the holistic development of personality by imparting knowledge, nurturing a scientific temperament, and equipping individuals with essential life skills. Education opens up numerous opportunities for a sustainable and fulfilling lifestyle while also contributing to personal growth and national progress. As a result, it is one of the most crucial social sectors underpinning the foundation of our evolving society (Mishra and Sarkar, 2020).

As per Schedule VII of the 2013 Companies Act, updated in 2016, listed companies are required to allocate 2 percent enrolment of their net revenue towards social expenditures under CSR guidelines. Among the key areas outlined in the schedule, “education” remains the most significant. The annual CSR expenditure is estimated to be around US$3.43 billion, with education traditionally receiving the highest allocation (Mishra and Sarkar, 2017). However, in 2020-21, health expenditure surpassed that of education, as the PM CARES Fund shifted priorities to counter the impact of COVID-19, disrupting the established dynamics of the education sector.

A striking aspect of this scenario is that out of approximately 28 million companies, only 8,500 are publicly listed. Since the Companies Act primarily governs public corporations, several highly profitable unlisted firms with substantial net worth per share remain exempt from its provisions. Additionally, the public sector has displayed greater engagement in CSR activities compared to the private sector.

According to CSR Box’s 2024 statistics (CSRBOX, 2024), 301 leading companies collectively spent US$1.60 billion on CSR activities during FY 2024. The 2023-24 CSR Box report highlights that the education sector remains the largest recipient of CSR contributions. The top 80 companies in the education industry account for over 78 percent of the total CSR spending, with 91 percent of companies directing their CSR funds toward at least one educational project.

Securitization: Securitization refers to the process of pooling assets and converting them into securities. Many HEIs have expanded into large-scale organizations, but often utilize only 10 to 20 percent of their assets. Securitization serves as a highly effective method to transform these underutilized assets into a steady cash flow, thereby improving funding for HEIs. Before engaging in the valuation process, HEIs must first establish an asset register. This step should be followed by gaining an understanding of how the capital market operates concerning securities issuance. Unfortunately, most HEIs lack comprehensive knowledge of securitization and its procedures.

Should higher education be considered an industry? The classification of education as an industry in India has been a topic of ongoing debate. In today’s context, education operates much like any other industrial activity, as it is guided by the same core elements: human resources, materials, and financial capital. This similarity makes it difficult to understand why banks and financial institutions hesitate to fund the education sector. Despite its potential, HEIs in India have accessed such funding only in a limited number of cases, typically for short- or medium-term needs.

Crowdfunding: Crowdfunding platforms and alternative financing models are gaining momentum, enabling students to raise funds for their education through community support. These platforms often rely on social media and online networks to connect borrowers with potential contributors, democratizing access to education and broadening the financing ecosystem.

Collaborative financing: Collaboration among key stakeholders, government bodies, private entities, and non-governmental organizations is crucial for addressing the skill gap and ensuring that funding is directed toward initiatives that promote employability and entrepreneurship among the youth. Innovative financing models, including PPPs, can play a pivotal role in improving resource allocation and building a more robust and adaptive education system.

Future-oriented research funding: There is a pressing need for increased investment in research and development, particularly in emerging fields like artificial intelligence and sustainable practices. The creation of dedicated funding organizations, such as the National Research Foundation (NRF), represents a significant step toward aligning academic research with industry needs and cultivating a culture of innovation and problem-solving. NEP 2020 proposed the establishment of a new institution called the Higher Education Financing Agency (HEFA) to facilitate the funding of student loans and higher education projects. HEFA will focus on providing financial support for infrastructure development in higher education institutions HEIs and offering affordable loans to students for their educational needs. NEP strongly advocates for “Education not for profit”.

Monetization of assets: As highlighted earlier, India’s higher education ecosystem comprises 1,168 universities, 45,473 colleges, and 12,002 stand-alone institutions. These institutions possess vast assets, including land, laboratories, machinery and equipment, furniture, and fixtures, which thousands of dollars. While there is no available data on the historical valuation of these assets, their current worth is likely immense. Monetizing these resources could provide a substantial boost to higher education expenditure. However, achieving this would require academic leaders to extend their roles beyond traditional academic responsibilities, embracing the mantle of financial leadership as well.

Catapulting industry’s contribution: Beneficiaries of higher education should play a significant role in contributing to the costs incurred per student. This would strengthen the relationship between industry and academia, thereby elevating the overall quality of higher education.

Internationalization of education: HEIs are inward-looking institutions. Taking a cue from many countries in the West and, in particular, from the U.S., HEIs in India need to open up to garner funding and enhance competitiveness. This can be done by collaborating with foreign institutions and promoting partnerships between Indian and top-ranking global universities for joint research, teaching collaborations, and faculty/student exchanges. High-performing Indian universities could establish campuses abroad, as the top 100 global universities have been invited to operate in India. Courses on Indian traditions, such as Yoga, AYUSH, and Indology, could attract global interest and promote “internationalization at home”.

Sovereign fund for higher education: A sovereign fund dedicated to higher education could be established. Typically, 15 percent of such a fund could be allocated to capital expenditure, while the remaining 85 percent could be invested in securities under the sovereign fund framework. This fund could be replenished over time by reinvesting money initially provided to HEIs. Additionally, revenues from mineral extractions and license bidding could contribute to the fund. Students benefiting from higher education could also be invited to contribute. Research by Ferreira, Director at the International Inequalities Institute, London School of Economics, demonstrates that higher education substantially increases lifetime earnings (Ferreira, 2024).

Autonomy: NEP calls for autonomy for HEIs to innovate on the foundational aspects. It is worth noting that regulation of higher education has been too heavy-handed for decades and that the regulatory system needs a complete overhaul to re-energize the higher education sector and enable it to thrive. The NEP suggested the setting up of a Higher Education Council of India to integrate the various higher education regulatory bodies and remove fragmentation. It is expected that the setup of this body would provide HEIs further leeway to mobilize finance.

Investment in higher education in India remains critically low, impacting its ability to contribute meaningfully to national development. Graduates from HEIs are pivotal to economic, social, and political transformation, yet funding allocations have declined alarmingly over the years (Ministry of Finance, 2025). To address resource constraints, institutions must diversify beyond tuition and government grants, embracing CSR contributions, crowdfunding, industry partnerships, asset monetization, and even sovereign wealth fund creation.

A revitalized financing approach must be underpinned by structural reforms: improved legal frameworks, stronger project management systems, controlled massification, skilful financial oversight, and quality enhancements in services and programs. Increased capital market engagement can supplement government spending.

Internationalization offers opportunities to access global funding and innovative financing models. Integrating various regulatory bodies under a single umbrella — the proposed Higher Education Commission of India, could enable streamlined governance and foster ‘light but tight’ regulation. This shift is essential to achieve the targeted 6 percent of GDP allocation toward education. Only by expanding funding sources and implementing transformative reforms can India’s higher education system uplift its quality, meet future demands, and empower young graduates to shape the country’s progress.

I extend sincere thanks to Alice Te, Managing Editor, and Peter Fong, Editor-in-Chief, for their time, dedication, and thoughtful guidance throughout the review process. Their precise suggestions served as a compass, helping us navigate the reviewers’ feedback effectively. My deep respect and gratitude also go to the two anonymous reviewers. Their insightful comments on research motivation, causal identification, and results interpretation significantly improved the quality of our paper. I have learned a great deal from their thoughtful feedback.