2 in 5 Universities Face Deficits This Year, Higher Education Regular Says

The Office for Students said the reason for the continued deterioration is lower than anticipated levels of recruitment for international students.

File photo of university graduates on Oct. 12, 2011. Chris Radburn/PA Wire

The Office for Students (OfS) said that the financial performance of universities and colleges is forecast to decline in 2024/25 for the third consecutive year.

Analysis by the regulator published on Thursday found that 43 percent of higher education (HE) institutions in England are facing a deficit in 2024/25.

The OfS said that the reason for the continued deterioration is lower than anticipated levels of recruitment for international students, for whom universities can charge higher fees.

The watchdog estimates that recruitment of international students could be 21 percent lower compared with last year’s forecasts.

However, the OfS highlighted universities’ “overreliance on fee income from international students” as a financial risk, noting heightened vulnerability where recruitment is concentrated heavily in a single country.

The regulator’s analysis also identified several factors affecting higher education institutions’ income, including the declining real-terms value of tuition fees from UK undergraduates, rising maintenance and capital costs, and broader inflation-driven pressures on operating expenses.

‘Optimistic’ Recruitment Projections

Universities are under financial strain and many institutions have already undertaken action to cut costs, including staff redundancies, merging or closing programmes, and shuttering departments.

The OfS’s director of regulation, Philippa Pickford, said the watchdog does not expect to see multiple university closures in the short term, but the medium-term pressures are significant and complex.

The regulator also suggested that universities cannot rely on recruitment alone to fix their financial situations.

The annual report noted that universities’ “optimistic projections” predict student growth of 26 percent between 2023/24 and 2027/28, with an increase in overseas students of 19.5 percent.

Pickford said: “While institutions are working hard to navigate this challenging situation, we remain concerned that predictions of future growth are often based on ambitious student recruitment that cannot be achieved for every institution.

“Our analysis shows that if the number of student entrants is lower than forecast in the coming years, the sector’s financial performance could continue to deteriorate, leaving more institutions facing significant financial challenges.”

Responding, Education Secretary Bridget Phillipson said, “These concerning figures are further evidence demonstrating why the increase to tuition fees and the package of reforms I announced last year were necessary.”

A graduation ceremony at the University of Suffolk in Ipswich, England, on Oct. 19, 2015. Chris Radburn/PA Wire

She continued: “The dire situation we inherited has meant this government must take tough decisions to put universities on a firmer financial footing, so they can deliver more opportunity for students and growth for our economy through our Plan for Change.

“I asked the Office for Students to refocus their efforts on monitoring financial sustainability last year. Further reforms are needed to fix the foundations of higher education, and universities must do more to make their finances work.”

‘Grave Risk’ to Viability

The OfS’s report follows a group of cross-party MPs warning that unless addressed, the challenges facing institutions present a “grave risk” to the financial viability of the sector.

On Wednesday, the Education Committee sent a letter to Phillipson asking what work the government is doing to support HE, including in the event that a university faces closure.

The committee said it had received a growing number of reports from universities experiencing “intense financial pressure” with a significant number announcing redundancies and internal restructuring.

They said they had heard during evidence sessions that the financial state of the sector was down to various factors, including the freezing of home tuition fees for most of the last 13 years, the recent reduction in international students as a result of the previous Conservative government’s immigration policy, and increases in employers’ national insurance.

Committee Chairwoman Helen Hayes wrote, “There are significant concerns about higher education institutions becoming insolvent.”

“There are currently a number of very serious challenges facing the higher education sector which, if left unchecked, present a grave risk to the financial viability of some institutions and courses, to the breadth and diversity of opportunities available at UK universities, to the local economy in places where a university is an anchor institution and major employer, and ultimately to the international reputation and standing of the UK,” she said.

Department Closures

Earlier this week, Universities UK, the membership body for the nation’s HE sector, published results of a survey of 60 institutions on what they have done to cut costs in the last three years.

Around half (49 percent) of university leaders said they have closed courses to reduce costs, more than double (24 percent) in the last year.

More than half (55 percent) said they have had to consolidate courses (up from 23 percent last year), and 46 percent have cut optional modules (up from 29 percent).

Nearly one in five (18 percent) of universities have closed entire departments, double on the number last year.

PA Media contributed to this report.