The storm clouds are gathering over English higher education
providers' finances: a long-running cash-terms freeze to tuition
fees and tighter restrictions on international student visas are
creating a difficult funding outlook.
Despite these pressures, the Conservative and Labour party
manifestos offered little indication of how either would approach
higher education funding. Decisions will need to be taken at some
point over the next parliament: a continued cash freeze on
tuition fees while maintaining the real value of teaching grants
would leave overall real resources per domestic student a quarter
lower by 2029 than in 2012 (and at their lowest level since
2005).
A new report by IFS researchers, funded by the Nuffield
Foundation, analyses the state of English universities' finances
over the last few years, and the policy options that a new
government has available to confront this difficult inheritance.
- Universities' finances have fared unexpectedly well in the
last five years. In 2021/22, the sector-wide surplus (adjusted
for mostly one-off pension effects) was 6.1% of income.
- Strong growth in the number of international students has
shored up university finances in recent years. By 2021/22,
international students accounted for a quarter of all students at
English universities. But because they pay more than domestic
students, international fees accounted for 44% of total tuition
fee income in 2022/23, up from 32% in 2016/17.
- However, at 3.7% of income, the adjusted sector-wide surplus
in 2022/23 was lower than in most years since 2015/16, with
one in five institutions now in deficit.
- Providers' forecasts suggest only a tiny sector-wide
surplus for 2023/24, and even this is based on
optimistic assumptions about strong growth in international
student numbers.
This worsening financial situation is largely down to a long-term
squeeze on teaching resources for UK students, which – due to a
long-running cash-terms freeze in the tuition fee cap – have now
fallen by nearly 20% in real terms since 2012. This is
approximately the same real-terms level as in 2011 (before the
tuition fee cap was trebled from £3,000 to £9,000). This
continual erosion of per-student resources cannot be sustained
indefinitely.
A new government could let the current freeze expire at the end
of the 2024/25 academic year. In the following year, this would
see the tuition fee cap rise to £9,450 and prevent a further
real-terms funding cut of around £260 million. By the end of the
next parliament, the cap would stand at around £10,500 on current
forecasts.
Increasing tuition fees would increase student loan balances. As
loan repayments don't vary with the total amount borrowed until
the loan is paid off, two-thirds of graduates from three-year
courses wouldn't make higher repayments until at least their 40s,
in the late 2040s.
Alternatively, a new government could increase teaching grants to
make up for the effects of a continuing freeze. Graduates would
have lower loan balances to pay off, but this would be around
four times as expensive for taxpayers as allowing tuition fees to
increase in line with inflation.
Kate Ogden, Senior Research Economist at IFS,
said: “Universities have had a string of good luck in
the past few years. Student recruitment held up very well during
the COVID pandemic, international recruitment – and with it the
fees that they pay – has ballooned, and the deficit of the main
university pension scheme has turned into a large surplus. The
available data up to the 2022/23 academic year do not show a
sector in a funding crisis.
But there are more recent indicators that this luck may be
running out. The reality of frozen fees for domestic
undergraduates is now starting to bite, just as tighter
restrictions on dependant visas for international students and
uncertainty about the direction of immigration policy are
hampering international student recruitment. If it wants to avoid
further cuts to teaching resources, a new government will have to
choose between asking more from students through higher tuition
fees, or committing itself to increasing teaching grants to
universities.”
Josh Hillman, Director of Education at the Nuffield
Foundation, said: “The incoming government faces an
unpalatable legacy that parties have not confronted in their
manifestos. Higher education funding needs a drastic overhaul, it
is just a question of who pays for it – graduates or taxpayers.
It seems this unpopular message is one that no one wants to
deliver ahead of a general election.”
ENDS
Notes to Editor
Higher education finances: how have they fared, and what
options will an incoming government have? is an IFS
report by Kate Ogden and Waltmann.
