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Analysis: Higher Education Finance – Research Professional News
Harriet Swain analyzes the latest Hesa and OfS financial reports
One reason universities have been frantically warning about potential financial collapse if the government canceled graduate visas is that it is true.
Figures released yesterday by the Higher Education Statistics Agency on the finances of higher education institutions have shown that a significant number are now in deficit – South Bank, Wolverhampton, Middlesex, Huddersfield, Surrey and Durham among them.
Also yesterday, the Student Office published its annual analysis of the financial sustainability of the sectorwhich concluded that a greater number of providers are expected to go into deficit in the future, largely due to the risk that they will not be able to recruit the number of national and international students they expected.
It highlights four other key risks affecting the sector: the decline in the value of undergraduate student income combined with inflation in operating costs, the over-reliance on tuition income from international students, the cost of property maintenance and investment to reduce carbon emissions and the cost of living. pressures that affect both student recruitment and the support students need.
Financial performance was weaker in 2022-23 than the previous year, and around 40 percent of providers expect to be in deficit in 2023-24, although they anticipate an improvement from 2026.
But the OfS warns that if the projected growth in student numbers does not materialize, almost two-thirds of institutions would be in deficit by 2026-27. It modeled a “reasonable worst-case scenario,” which assumes a significant reduction in the number of international students and no cost cutting, and concluded that it would leave more than 80 percent of institutions in deficit and three-quarters with low liquidity.
Worst scenario
Philippa Pickford, director of regulation at the OfS, said at a press conference yesterday that this worst-case scenario had become more likely since recent information emerged in January about falls in applications.
She said that although suppliers were overly optimistic in their projections, this made them seem even more unlikely.
According to the OfS report, the latest information from the sector suggests that international student recruitment in the 2023-24 cycle could be 40 per cent or more lower than the same point in the previous year, and this could continue into the following year.
Meanwhile, providers have predicted a huge increase in the average tuition fee received from international students. “Given the increasing volatility in the international market and the sensitivity in some specific countries to prices and other economic factors, there is uncertainty about whether this increase will be achievable”, he states.
Commenting on the report, Susan Lapworth, chief executive of the OfS, said that “increasing numbers will need to make significant changes to their funding model in the near future to avoid facing a material risk of closure”.
“Today’s report is a signal to all institutions to retest their assumptions about rising UK and international student numbers,” she said. “The numbers being communicated to us for the sector as a whole are simply not credible.”
Trust in international students
This is all very different to the noises the regulator made last year, when it described finances as “generally in good shape”, with revenue and expenditure surpluses significantly better than the previous year – a year in which the sector was still struggling. recover from the pandemic. .
However, even then, he raised concerns about universities’ over-reliance on international students, writing to 23 of them with high levels of recruitment in China on the same day he published his report “to ensure they had contingency plans in place”. in case there is a sudden drop in this income stream.
At the time we wondered whether the OfS knew something we didn’t, speculating about possible geopolitical developments. In fact, the main threat came from the UK government and its plans to reduce migration.
The Migration Advisory Committee report, published on Tuesday, said new restrictions on the postgraduate visa route would mean: “Universities across all UK nations will face further substantial financial hardship, leading to job losses, course closures and a reduction in research and, in the end, extreme, it is not inconceivable that some institutions would fail.” He added that any policy change would have to explain “how the financial consequences for the sector would be addressed”.
Should ministers decide to ignore this and get rid of the route anyway—something many in the industry fear could happen–they may want to argue that universities were warned.
Take responsibility
Certainly, the OfS report puts a lot of emphasis on universities’ responsibility for dealing with financial challenges – whether it’s accusing them of unrealistic projections, urging them to take early action to deal with difficult finances, and urging them to get in touch quickly if they fear that may be harmed. in financial problems.
In an informative briefing accompanying the report, he claims to have worked with institutions whose governing bodies responded late to financial challenges and – worryingly – some whose leaders did not have a detailed understanding of which of their activities generated surpluses and which were losses. However, it allows “many universities to continue to manage their finances well”.
At the same time, it highlights that universities’ efforts to meet costs by cutting courses may limit student choice in some subject areas and regions. Not that he has the power to do anything about it, he insists.
“The OfS has an important role in monitoring and reporting on financial sustainability and intervening to protect students’ interests, as far as possible, if a provider is at risk of closure,” the report states. “But we do not have the powers or capabilities to intervene to preserve provision or providers in support of sustaining the system as a whole.”
If this is a criticism of the government, universities will be only too happy to join in.
Vivienne Stern, chief executive of Universities UK, said: “As the OFS recognised, universities are taking action on the ground to improve efficiency, but these decisions are being made without clear government oversight of the overall impact. A university closing a language or humanities course might not seem to matter. Many universities that do this together leave the country with significant knowledge and skills gaps. This could have unintended and damaging consequences for students, regional growth and the UK economy. Universities can, and already are, doing a lot to steady the ship – but we need the government to help, not make things worse.”
Tim Bradshaw, chief executive of the Russell Group, said: “The application data suggests that recent changes in government rhetoric and policy, including the ban on postgraduate students bringing dependents, are having a negative impact on the number of international students. Any additional restrictions would significantly destabilize the sector and ultimately result in less spending in local communities, fewer opportunities for domestic students and less research in the UK.”
Questions to answer
But the regulator also has questions to answer. Many were raised last September in a highly critical report from the House of Lords Industry and Regulators Committeewhich called on the OfS to speak more regularly to universities about their financial situation and “ensure it is aware of the systemic challenges facing the sector”.
He will face further questions next week in the Lords debate on the report, which takes place on Tuesday.
This year’s more pessimistic OfS review into the financial sustainability of institutions could be a response to criticism from the Lords. Few would not realize, after reading it, that there are systemic challenges, even if little help is offered to resolve them. Or it could just be that when universities warned that finances were tight, they were right.
All in all, it has not been a good week for a government looking for an easy answer when the Office for National Statistics publishes the latest net migration figures next week. Firstly, the MAC failed to provide evidence that international students were abusing the system, which could have allowed ministers to say they were combating migration by cracking down on graduate visas. Now the OfS presents data that suggests that if they reduced visas, some universities could go out of business and be responsible not only for thousands of dissatisfied students, but also the resulting impact on local communities and international reputation.
It will be interesting to see how the government responds.
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