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The UK is home to one of the oldest higher education systems in the world; in more than 900 years, no university has gone bankrupt. This week, however, the head of the country’s biggest union in the sector resorted to a desperate plea with ministers for a financial rescue package to stave off imminent disaster. The long-predicted crisis has arrived.
The Roots of the Crisis
For years, a succession of reports has pointed to the perilous state of the financial framework on which UK universities stand. Home tuition fees have been frozen at £9,250 ($11,925) since 2017, up just £250 over the past 12 years. In real terms, they are worth just under £6,000 at 2012 prices. But whereas their US counterparts have private endowments that are an enormous source of funds, British universities have no other major source of income to fall back upon. They have thus become ever more dependent on the higher fees paid by foreign students. With the number of international students already in decline since early 2020, it was only a matter of time before this bit them.
Financial Pressure and Projections
A new OfS financial-sustainability report forecasts that some 40% of providers—108 out of 269—expect to be in deficit this financial year, which closes on July 31. That would be before the real extent of lower international-student recruitment is felt. “Challenging” is the word used 13 times to characterize the situation in the report. At the pessimistic end, international students are forecasted to slump by 168,000 to 261,000 in the year ending 2026-27, compared to the year ending 2023, in one scenario. This was estimated to see net income in the sector fall annually by around £9.7 billion, with 84% of institutions pushed into deficit. Even under the choppiest ride, where everybody loses, it’s possible that overall net income might fall slightly because of all student numbers in a significant contraction.
A sharp decline of international students is not impossible. A 60 per cent fall would bring the intake back to the level between 2012 and 2018. The latest Home Office statistics show a 17 per cent fall in student visa applications in the first half of this year against the corresponding period last year. It is from July to September that represents the busiest period in applications, so it is therefore not until later in the year that there can be a fuller assessment of the position.
Even if there is some last-minute surge in demand, it cannot mask an unsustainable funding model in the long term. Growth in international students may have masked revenue shortfalls, but it has come at the cost of squeezing domestic applicants, who are increasingly being crowded out of competitive courses. At the same time, the sector will soon need to accommodate a larger cohort of UK students, with 200,000 more 18-year-olds forecast in 2030 than in 2020.
Government's Position and How the Sector Reacts
That’s the bailout request from Jo Grady, general secretary of the University and College Union, which represents 120,000 staff, it has bounced back off the new Labour Government. Cuts to staff and courses, being felt in universities such as Lincoln, Huddersfield, Goldsmiths in London, and Kent.
The chief executive, Vivienne Stern, described how many of the group’s 142 member institutions were in serious difficulty. The collapse of a large institution would test the government’s determination to allow the sector to fix its own problems. Higher education is one of the big drivers of UK GDP and employs 768,000 full-time staff, while producing more than £130 billion of output in the academic year ending in 2022.
The Way Ahead
Fundamental changes to the financing structure are unavoidable. Domestic tuition fees will probably need to be reset and indexed for inflation although student debt is high already. Fees may also need to be differentiated based on cost of delivery and future value to the graduate. For instance, the cost of educating a dentist is higher than a nurse, yet the tuition fees typically are the same.
This makes it inevitable that institutes will consolidate courses, and retrenchment goes further than that. Sharing administrative finance, HR, and technology functions between institutions in close geographical proximity is a no-brainer; it’s really only getting under way.
For parents of children heading for university in a few years, better brace yourselves-and the purse. The UK university crisis is in its infancy; its eventual solution is certain to require a massive amount of structural change.
