<p>Japanese university students’ financial circumstances have declined since the onset of the coronavirus disease 2019 (COVID-19) pandemic. However, prior studies have not addressed student poverty or universities’ revenue losses. This study examines the impact of Japan’s subsidy policies on higher education institutions’ revenues and student benefits, such as scholarships and loans, and on educational equity and equality following the pandemic. It analyzes government fiscal policies, student poverty levels, and projected surplus revenue for students and universities using 2019–2021 educational fiscal and dropout data. A market theory analysis for the Japanese higher education market, including national and private universities, was conducted. This study explores how market theory applies to the education sector when government fiscal policies impact the subsidies and scholarships available for higher education. A demand-and-supply model was employed to assess the impact of government financial policy on the Japanese higher education market. The theoretical analysis of market behavior indicates that government fiscal policies have limited effectiveness in improving institutional revenue and student benefits. The findings highlight persistent student poverty in Japan and the pandemic’s impact on national and private universities and reveal a gap between previous insufficient government fiscal assistance and current fiscal policies following the pandemic. There is a significant association between government financial support, university budgets, and student welfare. Additionally, addressing student poverty and developing policies that mitigate financial hardship during university years and beyond are necessary.</p> Graphical Abstract <p></p>