Fast facts

From leader to laggard: Between the 1950s and the 1970s, the federal government took an active and growing role in funding post-secondary education in Canada. At one point, the federal government was a solid funding partner, splitting the costs of post-secondary education with provincial governments. From the mid-1980s onward, but especially in the 1990s, the federal government greatly reduced its role as funder, instead leading a gradual process of government defunding that continues today.

Per student funding: In 1955, total federal funding was worth $1,580 per full-time student. By 1967, those payments had risen to $5,470 per student. When federal transfer to provinces started the next year, total federal funding immediately jumped to $8,530 per student. Federal funding continued to grow, hitting an all-time high of $11,170 per student in 1978. By 2024, it had fallen to just $5,610 per student, just half of the historic peak. Most of the decline was driven by cuts to federal cash transfers to provincial governments, while federal funding for research has long been stagnant once inflation and enrollment are accounted for.

A preventable crisis: As government funding collapsed, universities and colleges made up the difference by aggressively maximizing student fee revenue. Average student fee revenue per student grew from just $3,140 in 1990 to $12,890 by 2024. Most growth has come from international students, causing a massive increase in their tuition fees. With the loss of international student fee revenue due to federal restrictions, post-secondary education institutions are being hit hard with mass layoffs, program closures, and the shuttering of campuses. It was an inevitable result of government underfunding combined with growing overreliance on revenue from international students and could have been prevented with adequate government funding.

Funding fell far behind economic growth: Federal funding has declined relative to the government’s rising financial capacities and Canada’s growing economy. At a high point in 1984, federal funding represented 0.67 per cent of Canada’s gross domestic product (GDP). By 2024 it had fallen to just 0.34 per cent of GDP. In the early 1970s, federal post-secondary education funding represented over 3.5 per cent of all federal government spending. In 2024, it had fallen to just 1.9 per cent of total federal spending.

Today, Canada’s universities and colleges face a financial crisis of a far greater magnitude than the one that prompted the federal government to step in as a funder in the first place. To avoid the long-term decline of Canada’s universities and colleges, the federal government must demonstrate leadership in post-secondary education, as it did once before.

Introduction

Canada’s universities and colleges have been shaken by a severe financial crisis, triggered by the loss of international student fee revenue. Across the country, post-secondary education institutions are being hit hard with mass layoffs, program closures, and the shuttering of entire campuses.

The federal government of Canada bears significant, but often underappreciated, responsibility for this situation. First, by leading generations of government defunding of post-secondary education systems, while encouraging and enabling the turn to student fee-based funding models. Then by abruptly cutting the number of international study permits issued in 2024 and following up with further cuts the next year, without any plan for dealing with the inevitable revenue crisis that would follow.

Canada’s federal government once played a more positive leadership and funding role, which was essential to the creation of the country’s modern higher-education systems. For a brief time, the federal government prioritized higher education as in the national interest, establishing itself as an active funding partner to the provinces. Since the late 1970s, it has vacated that role, leading the long retreat from government funding.

Despite its diminished role, the federal government remains the actor with the greatest financial capabilities to support post-secondary systems across the country. It is difficult to imagine a renaissance of public post-secondary funding in Canada without the federal government becoming a credible funding partner to provincial governments once again. It must summon the political will to begin that process immediately.

The rise and fall of federal post-secondary funding

The federal government once embraced an important role as a funder

The federal government’s role in post-secondary education was forged in the first financial crisis in Canadian higher education. Prior to the 1950s, before post-secondary systems had matured into their modern form, the federal government had little part to play in the sector.

In the aftermath of World War II, the federal government provided educational subsidies to returning veterans, covering tuition fees and the cost of living, allowing mass numbers of working-class people to enrol at universities, which had previously been the near exclusive domain of the elite.

Universities struggled to serve the massively expanding student population. A financial crisis loomed, as described in the 1949 report of the Massey Commission, which named rising operating costs, insufficient government funding, and over-reliance on student fees as threats to the viability of the system: “Our universities are facing a financial crisis so grave as to threaten their future usefulness.”

The report called for swift intervention, recommending that the federal government step in to prevent a national crisis. In the following year, Prime Minister Louis St. Laurent declared the financial health of universities to be in the national interest and established a formal system of federal funding for universities.

From 1951 to 1966, the federal government made payments to universities themselves, using the National Council of Canadian Universities—the precursor to today’s Universities Canada—as an intermediary to distribute the funds as operating grants. This arrangement helped to keep universities afloat, but eventually proved untenable, viewed by some provinces, particularly Quebec, as an infringement on their constitutional authority over education.

By the mid-1960s, it was becoming clear that the significant funding increases needed to keep up with expected enrolment growth would soon outstrip the financial capabilities of provincial governments. In 1965, Prime Minister Lester Pearson stated that the government “accepts the federal responsibility” of assisting the provinces with rising post-secondary costs, “in order that the opportunities for higher education should be adequately improved for all Canadians, in all parts of the country.”   

In 1968, the federal government stopped grants to institutions and began making transfer payments to provincial governments to support their post-secondary spending. Such transfers are the most meaningful tool the federal government has to exert positive leadership on higher-education funding.

Some of this transfer was provided in the form of federal tax abatement that allowed provinces to raise more tax revenue, while the rest was a cash payment. Experts have debated the extent to which the tax transfer counts as a federal contribution. This analysis focuses only on the cash payments.

Federal direct funding continued after 1968, but in a different form. From that point until today, most direct funding exists as grants, contributions and contracts to support the research activities of institutions and individual scholars. Direct funding also contains a much smaller capital funding component to support investment in post-secondary infrastructure like buildings, laboratories and specialized equipment.

Figure 1 shows federal government post-secondary funding, adjusted for inflation and full-time enrolment, from 1955 to 1978, broken down into direct funding to institutions and transfer payments to provincial governments. All funding amounts herein are net of spending on student financial aid, so funding for systems only. All dollar amounts are inflation adjusted to 2025 dollars unless indicated otherwise.

In 1955, total funding was worth $1,580 per full-time student, which was entirely direct funding to institutions. By 1967, those payments had risen to $5,470 per student. When federal transfer to provinces started the next year, total federal funding immediately jumped to $8,530 per student.

Despite losing ground to very high inflation in the mid-1970s, federal funding rebounded to hit an all-time high of $11,170 per student in 1978. The total amount of federal funding grew massively, from $162 million in 1955 to over $6.4 billion by 1978. Most of that increase was due to transfer payments, which had grown from $1.6 billion in 1968 to $5 billion a decade later.

Federal post-secondary funding has collapsed over time

The tide began to turn with the economic crisis of the mid-1970s, which the federal government responded to with harsh austerity measures, curbing growth of spending on public services. From that point, the federal government began a long, gradual retreat as a funder, a path it still walks today.

Growth of post-secondary transfers was capped at 15 per cent a year in 1972, a rate that would seem extremely generous by current standards. In 1977, growth of transfers was pegged to the rate of economic growth. Total federal funding continued to rise into the early 1980s, although at a much slower pace.

In 1984, federal transfers ($6.1 billion) and direct funding ($1.9 billion) were worth $8 billion. In 2024, transfers ($5.1 billion) and direct funding ($5.3 billion) totalled $10.4 billion. A funding increase of $2.4 billion over 40 years fell vastly short of what was needed to keep up with both inflation and growing student populations.

From the mid-1980s to the mid-1990s, successive governments enacted a series of austerity measures that began to hollow out federal transfers. The Chrétien government’s 1995 federal budget delivered a brutal blow, instituting a short-lived, controversial reorganization of the transfer system that resulted in the post-secondary transfer being cut from $5.2 billion in 1995 to just $3.4 billion by 1998. It would not reach $5 billion in real terms again until 2017.

Figure 2 displays federal funding, on a real and per full-time student basis, from the historical high in 1978 to 2024. A clear pattern emerges: collapsing transfers and stagnant direct funding. Total federal funding fell from $11,170 in 1978 to $5,610 per student by 2024, just half of what it was at the highest point. Most of the decline was driven by cuts to transfers, which dropped from $8,860 per-student in 1978 to just $2,760 in 2024.

Once enrolment and inflation are accounted for, direct funding, mostly for research activities, has been mostly stagnant over the recent history of Canadian post-secondary education. It amounted to $2,300 per student in 1978 and $2,800 in 2024, an increase of only $500 over 46 years.

Transfers: The hidden link between federal and provincial funding

Using transfer payments, the federal government has a strong influence on the direction of provincial post-secondary funding. In provincial budgets, post-secondary spending is usually treated as though it comes entirely from provincial governments. However, a portion of that spending is financed by a federal cash transfer. This means provincial government spending on post-secondary education can be broken down into two parts, by the source of money: cash from a federal transfer and the province’s own revenues.

For instance, if a provincial government reported $100 of post-secondary education spending in its annual budget and the federal government provided a post-secondary transfer of $20, it would only amount to $100 of total funding, rather than $120. In this example, the federal transfer finances 20 per cent of the total, while the remaining amount comes from the province’s own revenues, net of the transfer amount.

Since the mid-1990s, the federal government has typically not reported the post-secondary transfer amount, though it can be estimated from existing information. Nor do provincial governments report how much of their spending on the sector has been financed by the federal government. As a result, the federal role in funding post-secondary education tends to be obscured.

When the transfer system was designed to support and incentivize increased provincial funding, the provinces played their part and increased spending. As the transfer system was remade to restrain spending growth, federal and provincial spending predictably began a phase of long-term decline.

In the post-war years, the provinces prioritized post-secondary education on their own accord. From 1955 to 1967, provincial government funding more than tripled, from just $4,850 to over $16,000 per student. There were no significant federal post-secondary transfers to provinces at the time, so they were committing only their own revenues in response to a rising tide of mass enrolment.

Despite high levels of provincial investment, it was not enough to keep up with the rapid expansion of the size and scope of university and college education systems. In 1968, the federal government established the system of transfers to provinces, entering a funding partnership with provincial governments on a cost-sharing basis.

Under this arrangement, the amount of federal transfers was tied directly to the costs of post-secondary education institutions. The federal government would provide provinces 50 cents for each dollar spent on approved operating expenditures at universities and colleges, or $15 per capita, whichever was greater.

Supported by federal transfers after 1968, provincial government spending immediately increased by over $5,000 per student and began to climb even higher, hitting a historic high of $27,200 per student in 1978. Figure 3 shows how much of the $11,130 increase in provincial post-secondary education spending can be attributed to federal cash transfers versus the part funded only by the provinces’ own revenue.

Over the course of the cost-sharing era, most growth of provincial government post-secondary education spending was supported by federal cash transfers, which accounted for $8,860 per student, or 80 per cent, while provincial own-sourced spending grew by an additional $2,270.

With both levels of government seeking ways to curb spending, Canada’s federal transfer system was completely remade in 1977 under a new arrangement called Established Programs Financing (EPF). Transfers were untethered from post-secondary education operating costs and made into unconditional block grants set to increase based on economic growth rates.

Under the EPF model, and continuing under today’s transfer system, cash payments to support post-secondary education have virtually no strings attached, essentially becoming general revenue for provinces to spend as they see fit. Though an amount is made available “notionally” to support post-secondary education spending, there are no accountability mechanisms to track how provincial governments spend it.

The transition to EPF entailed a significant, one-time increase in cash transfers the following year. From that point onward, with few exceptions, growth of both federal and provincial post-secondary funding has not been enough to keep up with inflation and enrolment growth, leading to a steady, long-term decline.

Since 2004, the Canada Social Transfer (CST) has been the vessel for federal post-secondary education transfers. The 2007 federal budget provided a modest boost to the notional post-secondary education allocation of the CST and set the transfer to grow at a three per cent annual escalator. This was still not enough to keep up with inflation and enrolment, causing even further erosion of both federal and provincial funding.

Provincial government funding fell from a high of $27,200 in 1978 to $13,760 in 2024. Figure 4 shows how much of the decline in provincial post-secondary education spending can be attributed to federal transfers versus the part funded by the provinces’ own revenue. Federal transfers made up $6,110 or 45 per cent of the drop, while the province’s own-sourced spending accounted for $7,300, or 55 per cent. From 1999 to 2019, the decline of federal transfers made up more than half of the decrease in provincial spending.

Federal-provincial co-operation on making students pay

From the 1990s onward, a political consensus on post-secondary education financing emerged: that students and their families should be made to shoulder as much of the cost as politically possible, forcing them to go into debt if needed.

Both the federal and most provincial governments, with few exceptions, were willing collaborators in replacing government funding with student fees. To facilitate this movement, the federal government greatly expanded the provision of financial assistance to Canadian students in the form of student loans and non-repayable grants. Without the federal government playing this role, the potential to shift to student debt as a major source of education financing would have been very limited.

Nearly all post-secondary operating funding comes from either governments or student fees, so those can be considered the core sources of funding. Figure 5 shows this core funding on a real per full-time student basis from 1974 until 2024. The provincial government part has been calculated net of federal cash transfers, meaning spending funded by provincial revenues only.

At the peak of government funding in 1978, both levels of government contributed a combined $29,500 per student, which was 90 per cent of core funding. Though their per-student contributions had been declining, governments still provided 88 per cent of core funding as of 1990.

In the following years, government funding collapsed as severe cuts to federal transfers coincided with significant cuts by many provincial governments. A brief period of provincial reinvestment in the 2000s was crushed by a wave of austerity in response to the Great Recession in 2008, setting government funding tumbling downhill once again. By 2024, government funding fell to just $16,600 per student and 56 per cent of core revenues.

Due to declining government contributions, total core revenue fell from a high of $32,880 in 1978 to a low of $23,000 in 1998. Yet it began to recover to previous levels quickly, hitting $30,000 again by 2008, as provincial governments increasingly filled the gap with student fees.

In 1978, student fee revenue accounted for just $3,380 per student, or 10 per cent of core funding. Throughout the 1980s, tuition fees still played a small role in post-secondary education funding. By 1990, student fee revenue had fallen slightly, in real terms, to $3,140 per student.

As government revenue collapsed, universities and colleges began to aggressively maximize student fee revenue, especially post-2008. By 2024, revenue from student fees had risen to an average of $12,890 per student, contributing 44 per cent of core funding.

Adding in all other forms of non-core revenue, like ancillary or investment income, universities and colleges had more total revenue per-student than at any time before. Yet, it was only an illusion of prosperity, since it rested on unsustainable foundations.

Growth of tuition fees for domestic students proved to be politically sensitive and is regulated by policy in each province, to varying degrees. Fees for international students, on the other hand, had long been deregulated and could be raised easily at the discretion of university and college administrators. This made international student fees the path of least resistance in filling the gap left by government defunding.

Therefore, most recent revenue growth came from relying more heavily on revenue from international students, leading to massive increases in their student fees. In 2026, average fees for Canadian undergraduates were $7,730, compared to $41,750 paid by international students. The difference is not because international students are over five times more expensive to educate than their domestic peers, but because it has been politically convenient and financially lucrative for governments and institutions to treat them as cash cows.

Many institutions have become reliant on charging international students exorbitant fees to fund operations. For instance, at Ontario universities, international students were paying half of all tuition fees by 2023-24, despite only making up one-fifth of the student population. At Ontario’s public colleges, international students were nearly half of the student population in 2022-23 yet contributed 76 per cent of tuition revenue.

While both levels of government bear responsibility for this situation, the federal government played a key role. At each step of the way, it encouraged provinces to develop their international education industries. Without federal government policies, as the only body capable of issuing international study permits, it would not have been possible to turn international students into such a lucrative revenue source for universities and colleges.

Many experts and officials have noted the inherent vulnerability of this model to a disruption in the flow of international students and the high risks such an event would pose to Canada’s higher education systems. The federal government’s current approach to international education intentionally created that disruption. In 2024, the first wave of changes aimed at preventing or discouraging international students from coming to Canada were announced, cutting the number of permits issued, introducing stricter financial requirements, and limiting opportunities for work both during study and post-graduation.

Predictably, these policies have caused a significant decline in the number of international students on campuses, that will likely worsen over the next few years. The sudden drop in international student fee revenue caused an entirely foreseeable, and therefore preventable, financial crisis across Canada’s higher education sector, leading to mass layoffs, program losses, and campus closures.

To make matters worse, this course change in immigration policy unfairly frames international students as scapegoats for Canada’s real economic problems, especially the housing crisis. The of Ministry of Immigration, Refugees and Citizenship’s official documentation plainly connects “reducing the number of students” with “easing ease pressures on housing, infrastructure, and services.”

Many advocates and experts have argued against this inaccurate association, which likely contributes to the troubling growth of anti-immigrant, xenophobic, and racist sentiment, especially directed against South Asian people, by incorrectly connecting them to the housing crisis and other social problems—a concern shared publicly by the Minister responsible at the time the policy was announced.

A much better approach would be for the federal government to once again accept that it has a major influence over and responsibility for the state of post-secondary funding across Canada, and to establish positive leadership backed up with action in terms of increasing funding levels.

Restoring federal leadership as a post-secondary funder

Funding levels have fallen far short of growing federal capacity to pay

Federal funding for post-secondary education has fallen considerably relative to the federal government’s growing capacity to spend and raise revenue.

Figure 6 shows federal post-secondary education funding calculated as a share of Canada’s gross domestic product (GDP) from 1964 to 2024, measuring it against the size of Canada’s economy. Once again, the familiar pattern of plunging transfers and long-stagnant direct funding arises.

In 1967, the year before federal transfers to provinces began, when the federal government played a growing, but still relatively small role as a funder, total federal post-secondary education funding amounted to 0.28 per cent of Canada’s GDP.

It would continue to grow over the period of positive federal funding leadership, prior to the austerity measures of the mid-1980s, hitting a peak of 0.67 per cent of GDP in 1984. It had fallen to just 0.34 per cent of GDP in 2024, about half of what it was at the historical high point.

Nearly all of that rise and fall can be attributed to federal transfers, which fell from 0.51 per cent of GDP in 1984 to just 0.17 per cent by 2024. Direct funding as a share of the economy has always been stagnant—it was 0.17 per cent of GDP in 2024, 0.16 per cent in 1984, and 0.12 per cent in 1978, when federal funding per-student was the highest.

The spending power of Canada’s federal government has grown greatly since the 1970s, yet almost none of that increased spending was prioritized for post-secondary education funding. In 1971, post-secondary education funding had the highest spending priority, at 3.6 per cent of total federal government expenditures. By 2024, it had fallen to just 1.9 per cent of federal expenditures.

Putting federal defunding into historical perspective

Today, Canada’s universities and colleges face a financial crisis of a far greater magnitude than the one that prompted the federal government to step in as a funder in the first place. To avoid the long-term decline of Canada’s universities and colleges, the federal government must demonstrate leadership in post-secondary education, as it did once before.

Restoring federal leadership will necessarily involve a large increase in the level of funding the federal government provides to support post-secondary education. What could that look like? Figure 7 presents the hypothetical value of federal post-secondary cash transfers in 2024, implied across a range of scenarios that answer the question, “What if the federal government retained its positive role as a funder, all else being equal?”

This exercise does suggest turning back the clock in an attempt to reproduce old funding models. The appropriate amount of funding should be based on the current and future needs and goals of higher-education systems. However, as a thought experiment, it can put the scale of federal defunding into perspective and help us to judge contemporary proposals for re-establishing federal funding leadership.

Federal cash transfers to provinces to support post-secondary systems were worth $5.1 billion in 2024. Restoring them to earlier funding benchmarks would require:

  • $14.2 billion to match their 1980 peak as a share of federal spending—an increase of $9.1 billion.
  • $15.7 billion to match their 1984 peak as a share of GDP—an increase of $10.6 billion.
  • $17 billion to match their 1980 peak per full-time student—an increase of $11.9 billion.

While any of these amounts would mark a significant reinvestment that would greatly benefit the fortunes of Canada’s higher-education systems, none would even be enough to move Canada from near the bottom (45 per cent) of the OECD to merely average (67 per cent) in terms of the amount of post-secondary spending covered by all levels of government, which would require $14.6 billion in new government funds.

Regarding direct funding, which is mostly to pay for research activities, such a historical comparison does not work well, since it has been in a state of near permanent stasis. Given the over-reliance of the Canadian economy on universities to conduct research and development, the stagnation of research funding is a concerning finding.

Recent increases to research funding, not yet captured in financial data, have likely improved the situation, but many have argued that they do not go far enough. To preserve and strengthen the research capacity of Canada’s higher education sector, the federal government should get more research funding into the hands of scholars and students—especially those doing applied research at public colleges and CEGEPS, which typically take place outside of existing federal funding streams.

Toward a new federal-provincial funding framework

Just as provincial governments are unlikely to join a trend of reinvestment into post-secondary education in the absence of federal leadership and, more importantly, federal dollars, it is unlikely that the federal government will be willing or able to fund the entire cost of fixing the chronic underfunding of Canada’s patchwork of post-secondary systems.

Federal and provincial co-operation will, therefore, once again be required to ensure the viability of Canada’s universities and colleges. It is true that there are many barriers to greater federal participation in post-secondary education, namely that it remains the constitutional jurisdiction of provincial governments. Yet those tensions also exist in the field of health care, where the federal government has expended much political will to play a stronger and more accepted role as a funder and regulator.

For decades, education unions, student organizations, and advocacy groups have called on the federal government to pass a federal education act, which would establish federal leadership in the sector, set national standards for higher education, and create a dedicated transfer to provinces to support post-secondary education. Adopting such a framework would be a necessary step to the long-term restoration of government funding of post-secondary education in Canada.

The financial crisis at universities and colleges will not wait for a new national framework to be sorted out. As it once did long ago, the federal government should immediately begin working with provincial governments on emergency stabilization funding to prevent lasting damage to the vital sector.

Data sources

Extended transfer series

  1. Statistics Canada Table 37-10-0081-01, federal government indirect support to provinces and territories for post-secondary education, by type of contribution.
  2. Department of Finance Canada, Federal Support to Provinces and Territories: Major Federal Transfers dataset, used for EPF, CAP, CHST and CST transfer components.
  3. Manually compiled canonical post-secondary education allocation anchors, including federal budget 2007 and the 2016 PBO publication, Federal Spending on Post-secondary Education.
  4. Missing values have either been interpolated between known values or extrapolated at 3 per cent annual growth after 2020-2021.

Extended finance series

  1. Statistics Canada Tables 37-10-0058-01 and 37-10-0061-01, college and university expenditures by direct source of funds and type of expenditure.
  2. Statistics Canada Tables 37-10-0026-01 and 37-10-0028-01, university and college revenues by type of revenue and type of fund.

Extended enrolment series

  1. Statistics Canada, Historical Statistics of Canada, Section W: Education, tables W1-9 and W466-474, full-time post-secondary enrolment and part-time university enrolment.
  2. Statistics Canada, University Student Information System (USIS), 1972-2000, accessed via University of Toronto Library.
  3. Statistics Canada Table 37-10-0071-01, archived – Full-time enrolments and graduates in postsecondary community college programs, by program field, year in program and sex.
  4. Statistics Canada Table 37-10-0018-01, current post-secondary enrolment by registration status, institution type, student status in Canada and gender.

Acknowledgements

The author would like to thank his colleagues at the CCPA for their invaluable assistance, especially Erika Shaker, Ricardo Tranjan and Trish Hennessy. The CCPA also wishes to acknowledge the National Union of Public and General Employees for supporting this research.

About the author

Ryan Romard

Ryan Romard (he/him) is a researcher with the Canadian Centre for Policy Alternatives’ National Office. A sociologist and research analyst, he uses data to explore issues related to labour, public services, education, and the economy. He has several years of experience conducting survey research in Ontario’s public school system and was the CCPA’s 2022 Progressive Economics Fellow.