An update to financial modelling from the Office for Students
(OfS) has found continued pressures on the higher education
sector in England.
The analysis, which updates the OfS's annual financial
sustainability report published in May 2024, finds reductions in
the numbers of students entering higher education. Without taking
steps to address financial risks, OfS modelling suggests that
nearly three quarters (72 per cent) of higher education providers
could be in deficit by 2025-26, and 40 per cent would have fewer
than 30 days' liquidity.
The modelling is based on data submitted to the OfS in late 2023,
and therefore cannot take account of any revisions providers have
made since then to their recruitment projections, or steps they
have taken to address financial risks this year. Universities
will submit new data to the OfS later this year. Changes to UK
undergraduate tuition fee levels for 2025-26, and the increase in
national insurance contributions for employers announced in the
Budget, have been included in the analysis.
Key findings of the report include:
- Acceptances of UK undergraduate students through UCAS appear
to have increased slightly, by 1.3 per cent in 2024 compared with
the same point in 2023. However, this is significantly below the
sector's forecast of a 5.8 per cent increase.
- Recruitment of UK undergraduate students has mainly increased
in larger, higher-tariff providers. It appears to have decreased
across medium, smaller and specialist institutions, and has
decreased by nearly a quarter in providers predominantly offering
Level 4 and 5 qualifications.
- Indicators suggest that recruitment of international students
has decreased significantly overall, with 16 per cent fewer
applications for visas in 2024 than in 2023.
- The number of international students from certain countries
that send significant numbers to study in the UK has decreased
significantly. The number of students from some of these
countries has decreased by more than 40 per cent.
- Our modelling indicates that many more providers than
forecast must overcome financial challenges in the coming years.
By 2025-26, based on current trends and not taking into account
significant mitigating action, we estimate a net income reduction
for the sector of £3,445 million and, without significant
mitigating actions, a sector-level deficit of -£1,636 million,
with up to 72 per cent of providers being in deficit, and 40 per
cent having low liquidity.
- While these results are spread across all types of providers,
the forecasts of larger, especially teaching-intensive, providers
appear to be particularly at odds with the optimism in their
previous forecasts.
Commenting, Susan Lapworth, chief executive of the OfS,
said:
‘This updated analysis starkly illustrates the financial
challenges that continue to face universities. I know that
institutions are acutely aware of these risks and are striving to
address them. A competitive recruitment market for UK students
means some universities will lose out and will need to update
their plans. And all institutions will be alive to the impact of
a sharp reduction in visa applications for international
students. Our annual report in May cautioned about recruitment
forecasts that were too optimistic. Today's report demonstrates
just how challenging recruitment is for many institutions, with
modelling suggesting that many more institutions will report a
deficit and low liquidity than had been forecast.
‘We continue to see significant variation across the sector. In
our model, larger research-intensive and teaching-intensive
universities appear to be, in aggregate, in better financial
shape than other types of institutions. Medium- and smaller-sized
institutions, along with specialist providers, are more likely to
be affected by financial challenges in the years ahead. But there
are significant risks right across the sector, for all types of
institution. And that means students are exposed to risks to the
quality of their education.
‘Our modelling estimates the financial challenge ahead for
providers and it does not conclude that significant numbers of
universities will close in the short term. But that does not mean
that institutions can rely on student recruitment rebounding in
the coming years. Many universities have already taken steps to
secure their long-term sustainability. For those that have not,
the time to do so is now. That is increasingly likely to involve
bold and transformative action to reshape institutions for the
future – while continuing to deliver for the students of today
and tomorrow.
‘Where an institution is running into financial difficulties, we
continue to encourage its leaders to contact us at an early
stage. We will work cooperatively and collaboratively with them
to understand the situation and the actions they are taking, and
on solutions that ensure students are effectively
supported.'
