What the OfS is doing to help universities and colleges ensure their long-term financial sustainability

Our proposed new strategy says that the Office for Students (OfS) is here to ensure that students from all backgrounds benefit from high quality education, delivered by a diverse, sustainable sector that continues to improve.

A core part of our work in protecting the interests of students is monitoring the financial sustainability of the higher education sector. Students make a considerable investment in their studies, and our regulation is designed to ensure that they are confident that they can choose a high quality course from a financially stable institution.

We recently announced a temporary refocus of our priorities, which will allow us to dedicate more resources to working with individual higher education providers on financial sustainability. We expect these changes to be in place until August 2025, although they will be reviewed regularly in the interim.

These changes were made in response to a challenging economic environment, which has increased the financial risks faced by universities and colleges. In November we published an update to our annual financial sustainability report, which found the pressure is continuing to build. This pressure can be largely attributed to student recruitment numbers being lower than many institutions had previously forecast.

Without taking steps to address financial risks, our 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 less than 30 days’ liquidity.

We need to ramp up our work in this area now to get ahead of a worsening financial picture for some providers.

So, what can you expect from us in the coming months as we progress this work?

What’s changing

More timely information on finances

The financial returns that institutions submit each year help to inform our understanding of their positions. We know that the landscape is constantly evolving, so we will be working with the sector to collect more timely information and ensure we understand how finances are changing closer to real time.

Institutions are already required to report material adverse events to us, for example if there is a significant financial downturn or if they forecast low levels of cash. We will continue to ask universities and colleges facing large or complex financial challenges to submit information about their cashflow more regularly.

Scaling up engagement

We know that data alone can’t give us the full picture of each institution’s plans to respond to, and address, financial risks. That’s why we work with institutions in a variety of ways to monitor their finances and why we’ll be scaling up our engagement with institutions across the entire sector. For some, this will be conversations to understand more about what they’re doing to ensure their financial sustainability. We may also ask individual institutions for further information, for example on how recruitment is going and the potential impact that might have on finances or arranging to visit them in person.

Engagement on financial sustainability doesn’t necessarily mean we are concerned about the viability of a university or college. We know that every higher education provider is different, so it’s important that we’re able to have open conversations with the people who know their institution best. These conversations are to help us to understand their context, whether they are exposed to risk or not, and to ascertain whether we need to establish a deeper understanding of their financial management. This work is one of the ways we are operating across the sector to meet our financial monitoring duty under section 68 of the Higher Education and Research Act 2017.

We’ll also continue to engagement with the sector on financial sustainability in collaboration with staff at universities and colleges, management and governance, students, student representatives, and other sector stakeholders. As well as engaging with the sector more frequently and signposting sources of advice and support, we’ll be providing more opportunities for people to share their views with events such as roundtables. Our aim is to build trust and encourage institutions to be open and transparent as we work together in the interests of students.

A deeper understanding of financial management

For some providers we may wish to undertake a more detailed review to gain a better understanding of financial sustainability and how this may affect students.

In this case, we may undertake this work directly, or we may work with financial consultants which have recently been appointed to work with the OfS. We have brought five consultancy firms onto a framework agreement, ready to assist us with their skills in accountancy, auditing, and due diligence. We’ve already drawn on their expertise to help us understand, in greater depth, the financial plans of a number of institutions.

Using consultants provides us with additional capacity and a greater range of expertise to support our financial monitoring and assessment. We’ll do this when we think the financial context for individual providers is particularly complex; for example, if there is significant strategic change or a complex business model as part of an approach to understand the financial health at an institution and manage any risk. As part of this monitoring, we may also support institutions to take early, necessary actions to improve their financial position and protect the interests of students.

The experts from these firms can offer targeted advice to the OfS as we work with individual providers and working with them will be a routine part of our financial sustainability work. Using consultants is not a signal that a provider is experiencing a higher level of financial risk or that it is at risk of financial failure.

What next?

We know that many institutions are already taking steps to improve their financial position, for example stress-testing their finances and developing practical and realistic contingency plans in the event that risks crystallise and escalate. This is something we encourage all universities and colleges to do at an early stage to support sustainability in the face of financial risks.

Some institutions are proactively transforming their operating models and looking at how they can generate efficiencies to better protect their future financial sustainability. There are further steps being taken across the sector on efficiency, such as UUK’s newly formed Taskforce Efficiency and Transformation and we would encourage institutions to engage with or pay close attention to opportunities and discussions in this area.

It’s important that we continue to regulate in this area in the interests of students and to shore up the fiscal future of the sector.

We value the positive interactions we’ve already had with institutions as we undertake this important work and look forward to tackling these shared challenges together in the interests of students.