Higher education providers face long-term, systemic, pressures on
their financial sustainability and viability, with the proportion
of providers with an in-year deficit having increased in every
one of the past four years, from 5% in 2015/16 to 32% in 2019/20.
Against this backdrop of deteriorating financial health across an
increasing number of providers, in a report today PAC says the
Department for Education is “not effectively holding the Office
for Students to account” and is particularly concerned that
student satisfaction, especially regarding value for money, has
fallen in recent years: in 2021, 33% of students viewed their
course as good value for money, with 54% saying it was not.
Some providers are heavily reliant on income from overseas
students’ fees to cross-subsidise research and other activities
and dependent on their ability to continue growing overseas
student numbers - leaving them potentially exposed to significant
financial risks.
In the short term, the higher education sector survived the
COVID-19 pandemic because of the resilience of individual
providers, financial assistance made available by government, the
feared interruption to income from overseas students not
materialising and the fact that large-scale tuition-fee refunds
were not required.
But the Committee says DfE “failed to adequately assess the
current and future financial impacts” of the
“substantial grade inflation” that resulted from
local assessment in place of A-level exams during the COVID-19
pandemic, which meant more students were able to take up places
at high-tariff providers, and many medium- and low-tariff and
specialist providers were undersubscribed.
Ongoing financial pressures - including pension fund deficits and
predicted rises in employer contributions, inflation and rising
costs, the cap on student fees, the impact of changes to student
loans and potential policy reforms on entry requirements - do,
nonetheless, increase the risk of providers failing; closing
campuses or courses; reducing the quality of teaching; or
limiting access: any of which could adversely affect students.
The Committee says that in that context, protections for students
if providers are in financial distress are not strong enough.
, Chair of the Public Accounts Committee,
said: “The A level fiasco of 2020 and grade inflation
have a long term impact on higher education, adding to deep
systemic problems in the financial sustainability of higher
education. The number of providers in deficit rose dramatically
in the four years up to the onset of the pandemic.
“Too many providers are too heavily dependent on overseas student
fees to maintain their finances, research base and provision –
that is not a satisfactory situation in a sector that Government
is leaning on to boost the nation’s notoriously, persistently low
productivity.”
PAC report conclusions and
recommendations
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We are not convinced that the OfS has made sufficient
progress in getting a grip on the long-term systemic challenges
facing the sector and individual providers, meaning that
financial pressures risk harming students’ experience of
university. There are systemic, long-term pressures on
providers’ finances. Some of the underlying factors, including
pension fund deficits (and predicted rises in employer
contributions), inflation and rising costs, a continuing freeze
in the cap on student fees rising more quickly than income, the
impact of changes to loan repayment terms and further
uncertainties arising from the impact of changes to loan
repayment terms and potential policy reforms following
consultation on, for example, minimum entry requirements. The
OfS considers that the financial sustainability of the sector
appears more stable than it did at the start of the pandemic,
but accepts that risks remain. The OfS relies heavily, although
not exclusively, on financial metrics to identify risks to
providers’ financial sustainability and has designed a
regulatory approach that does not involve routine discussion
with individual providers. However, the OfS currently lacks an
integrated model that it can use to understand in a systematic
way the combined effects of different pressures – such as
changes in different costs, income streams or student numbers –
on the sector and on individual institutions, although it told
us that it is developing a model to allow it to do so in a more
sophisticated way. Without these insights, it risks lacking the
information needed to spot, and act on, early signs of distress
in vulnerable providers. It also has an incomplete picture of
the experience of students. For example, the National Student
Survey only covers final-year undergraduates and so the OfS
does not have a picture of the experiences of students earlier
in their degrees. The OfS similarly does not yet fully
understand new issues, such as the impact of hybrid teaching.
Some providers do not believe that the OfS has all the
information it needs to put financial data into context.
Recommendation: The OfS should write to us by the end of
July 2022, in line with the academic year-end, setting out the
actions it will take to increase its understanding of the sector
and pressures on providers – and how it will demonstrate to
universities and students that it has done so.
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Despite a background of deteriorating financial health
of an increasing number of providers, the Department is not
effectively holding the OfS to account. The Department
is responsible for the overall regulatory framework of the
sector and for holding the OfS to account. The OfS’s role
includes protecting students’ interests from the consequences
of financial risk in higher education providers which could
adversely affect students. The financial sustainability of the
sector has been declining since before the pandemic, evidenced
most obviously by the fact that the number of providers with an
in-year deficit increased from seven (5%) in 2015/16 to 80
(32%) in 2019/20. Of these 80 providers, 17 had been in deficit
for the past two years and a further 20 for three years or
more. The OfS does not, however have a complete set of measures
by which its performance can be judged. Of the 26 performance
indicators the OfS sets out on its website, eight are still in
development or have incomplete performance information and a
further 11 indicators do not yet have associated targets.
Complete information is available for just seven indicators,
giving an inadequate picture of performance. The Department
asserts that it is not complacent and has committed to
reviewing the set of performance metrics and ways to measure
them, by the summer. Furthermore, the OfS does not ask
providers for structured feedback on its own performance as a
regulator.
Recommendation: Working with the OfS, the Department
should establish a complete set of robust, published performance
measures and targets, including structured feedback from
providers, and use these to hold the OfS to account for its
effectiveness.
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Protections for students, in the event of providers
facing financial distress, are not strong enough. The
OfS requires providers to have a student protection plan in
place to address the risk of continuity of study for its
students, but it has identified common weaknesses in them –
including over-optimism about risks and weak refund and
compensation policies. When initially registering providers,
the OfS approved a number of student protection plans that it
considered inadequate, so as not to delay registrations. During
the pandemic, it found that it needed greater powers to
intervene more quickly, and introduced a new condition of
registration from April 2021 allowing it to issue directions to
universities it considers at material risk of failure. However,
the process of implementing a student protection plan, which
the OfS described to us, appears to be reactive.
Recommendation: The OfS should prioritise ensuring that
all providers’ published student protection plans are fit for
purpose and sufficiently clear for students to make confident,
well-informed decisions about the protections universities are
promising them.
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We are concerned that the financial sustainability of
some providers is being put at risk by their heavy dependence
on their ability to continue growing overseas student
numbers. Many providers are already highly dependent
on cross-subsidy to make up deficits in publicly funded
teaching and research. Much of this subsidy comes from income
from overseas students’ fees; in 2019-20, there were more than
340,000 overseas students at English providers, almost half of
whom came from China or India. Many providers’ medium- and
long-term financial forecasts assume continued growth in
student numbers, particularly overseas students. The OfS
monitors providers’ forecasts and has in the past found their
student number projections to be over-optimistic. There are
also risks associated with an over reliance on international
recruitment which may not align well with the UK’s wider
geopolitical interests. The Department asserts that it is aware
of such risks and is encouraging the sector to diversify in
terms of where providers recruit their students from. There are
also cross-government considerations, such as how student
recruitment is affected by, and potentially at odds with, the
Home Office’s plans to control migration. The Department
recognises that it is a very competitive market and that there
are many countries around the world seeking to bring in more
international students, for exactly the same reasons that UK
providers are.
Recommendation: The Department, drawing on OfS analysis as
appropriate, should set out what it considers to be the risks to
achieving the continued forecast growth in overseas student
numbers universities are relying on for their future financial
security, and explain how it is mitigating those risks.
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Student satisfaction with the value for money of their
courses is at a worryingly low level. One of the OfS’s
four regulatory objectives is that students receive value for
money. OfS says that students should receive the academic
experience they were promised by their provider and their
interests as consumers should be protected before, during and
after their studies. Overall student satisfaction has been
consistently over 80%, but fell to 75% in the pandemic- one of
the main contributing factors being dissatisfaction with
learning resources required by lockdown restrictions. The
proportion of students who thought their course was value for
money is much lower and dropped from 38% in 2020 to 33% in
2021, with more than half saying it was not value for money.
The OfS acknowledges that students’ view that they are not
getting value for money is a cause for concern. The OfS
believes that quality of provision is central to how students
regard value for money, and asserts that quality is one of its
top three concerns. The OfS says that it is looking at quality
issues closely and that working with the universities to ensure
that, even on oversubscribed courses, quality remains
good.
Recommendation: The Department and the OfS should set out
what action the OfS is taking to improve students’ satisfaction
with value for money, including the OfS’s assessment of the
impact of hybrid teaching on students’ experience and what
progress has been made in addressing the causes of
dissatisfaction.
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The Department failed to adequately assess the current
and future financial impacts on providers of disruption to
A-level assessments. The use of locally assessed
grades in place of A-level exams during the COVID-19 pandemic
led to substantial grade inflation in 2020 and 2021. This meant
that more students were able to take up places at high-tariff
providers, but left many medium- and low-tariff and specialist
providers undersubscribed, who have therefore lost expected fee
income. The Department had anticipated the likely impact of
locally assessed grades on providers that would be
oversubscribed and that could require additional funding for
high-cost courses. But it had not considered the impact on
those providers that would become undersubscribed. Being
undersubscribed causes financial pressure on providers for an
extended period, as most courses last at least three years. At
the same time, oversubscribed providers risk not being able to
maintain the quality of provision they have promised their
students as they may not have sufficient teaching facilities or
student accommodation.
Recommendation: Learning from the disruption to the higher
education market during the COVID-19 pandemic, the Department and
the OfS should model and review the financial impacts on
providers of changes to the number and profile of domestic
students over the short, medium and longer terms
