Change Business Models to Stay Viable, Minister Tells Universities

Students and family pose for photographs ahead of their graduation ceremony at the Royal Festival Hall in London on July 15, 2014. (Dan Kitwood/Getty Images)

A “significant number” of universities in England must revise their business models “to ensure that they are financially sustainable” and adapt to uncertainties and financial risks, a minister has said.

Baroness Barran made the remarks in the House of Lords on Tuesday in response to a question on the sustainability of higher education institutions, as a growing number face financial pressures.

“Indeed, all providers must continue to adapt to uncertainties and financial risks. Ultimately, providers are independent from government and, as such, it is for them to decide how they manage their finances,” the parliamentary under secretary of state for education added.

Last week, the Office for Students (OfS) published a report advising universities to review their funding and business models to avoid closure. The independent regulator for higher education estimated that by academic year 2026-27, nearly two-thirds of institutions will be in deficit.

Government Bail Out

Cross-bench peer Lord Cromwell asked if a major university—such as a Russell group institution—were to face significant financial problems would it be “too big to fail, or would the Government bail it out?”

Baroness Barran responded that larger universities are in good financial health, but added, “Of course the Government have a role to play in making sure that student interests are protected in the case of a university failing.”

Lord Cromwell had evoked the “too big to fail” economic theory that some institutions are so large and integral to a nation’s or to the global system that their failure would risk collapsing wider systems and that government should step in to support them.

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The term was used frequently during the 2007-2008 financial crisis, which saw failing banks either collapse or bailed out with taxpayers’ money, with the government spending £137 billion to prop up the banks.

Reliance on Overseas Students

Universities have reported a fall in overseas applications, according to a survey by the British Universities International Liaison Association (BUILA). Of the 75 universities BUILA polled, 88 percent reported a decrease in postgraduate applications from international students for the September 2024 intake compared to 2023.

The fall in applications from overseas students follows the introduction of government restrictions on foreign postgraduate students bringing dependents with them to the UK, the measures forming part of wider plans to cut net migration.

The restrictions appear to be having an impact, with Home Office figures from the beginning of May showing that visa applications for dependents between January and March of this year had fallen by 80 percent.

Home Secretary James Cleverly had also ordered a review in March into the Graduate scheme—which allows foreign graduates to stay in the UK unsponsored for two to three years—to find if it was being used for immigration, rather than education, purposes. Last year, 144,000 visas were granted under the programme as well as an additional 30,000 for dependents.

However, the Migration Advisory Committee (MAC) recommended in its report published last week to retain the scheme. MAC Chairman Brian Bell said that international student fees “help make up the financial deficit that universities have from teaching domestic students and research, any significant restrictions to the route should only be considered once the structural funding issues in the higher education sector have been addressed.”

The issue of universities relying on overseas funding was pointed out as a concern in the OfS report, which noted there is a particular vulnerability where student recruitment is predominantly from a single country.

Home Fees Cap

In 2017, then-Prime Minister Theresa May announced a freeze on the undergraduate fee cap for home students at £9,250.

There is no government mandated cap on postgraduate or international student fees, and international students are typically charged far more to study in the UK than home students.

Lord Grabiner asked Baroness Barran on Tuesday if the government would consider raising home student fees, saying that “the only way that many universities are able to make it work is by charging some extortionate fees at the graduate non-regulated level.”

The minister suggested that raising fees for home students was not something the government was considering, responding, “We ... have a responsibility to students to make sure that university is affordable.”

PA Media contributed to this report.