‘Bold and transformative action’ needed to address financial sustainability – OfS

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.’

Notes

1. The Office for Students is the independent regulator for higher education in England. Our aim is to ensure that every student, whatever their background, has a fulfilling experience of higher education that enriches their lives and careers.
2. Read the OfS’s ‘Financial sustainability of higher education providers in England report: 2024’, published on 16 May 2024.
3. The OfS modelling considered provider-level data from UCAS on recruitment of UK undergraduate students, assuming no growth in UK postgraduate students and a reduction in international students which varied by the tariff level of the provider. More details are set out in the report.