The Australian Universities Accord has identified a needs-based funding model for higher education as a possible policy direction. But it is unclear what this funding model might look like, the rationale for its introduction, and what it might cost.

Needs-based funding models already exist in Australia and the School Resourcing Standard (SRS) is a prominent example. The SRS is an equity-based model used to allocate additional funds to schools with the greatest needs, determined by socioeconomic composition, location, the size of the school, and other factors. They have been shown to be an effective method to direct resources to institutions and students who need them the most.

In this paper, the authors analyse needs-based funding models. We examine the evidence behind their use, and their application in Australia's school sector. We also explore what would happen if a model like the SRS was introduced in Australia's higher education sector.

The results are promising. The authors find that the introduction of a needs-based funding model, using the same parameters as the SRS, would result in about an 11% increase in base funding amounts. Importantly, universities with large enrolments of students from low socioeconomic backgrounds will gain the most.

A sophisticated funding regime that uses needs-based funding could be implemented with minimum cost. It could also help address other policy challenges. For instance, international student income could be used to adjust funding using a concept like the 'Capacity to Contribute' mechanism in the school sector.

The analysis in this brief shows the Australian Universities Accord was right to identify a needs-based funding model as a possible approach. But more research is needed to make sure the settings are right.