UK universities on the brink of financial ruin
Congratulations to all who received their A-level results today!
The good news for this year’s cohort is that universities will likely be more generous in the number of places they will give out via clearing.
The bad news is that the reason for this increased generosity is the financial crisis that higher education finds itself in. My own first year of university was badly disrupted by strikes, and I fear this year may be the same.
In April I spoke about the precarious state of UK finances, and the situation looks even more dire 4 months on.
The Vice-Chancellor of East Anglia University, David Maguire, said that institutions will have to “aggressively” recruit more UK undergraduates to make up for the loss of funding due to a drop in international arrivals.
We find ourselves in the peculiar scenario where the universities will be chasing the students, rather than students scrambling to secure their place as usual. Maguire admitted that he didn’t believe there were “enough students to go around”.
The UK has always been a world-leader in university education; home to 4 of the world’s 10 highest rated universities. But with many institutions on the verge of bankruptcy, and the new Labour government claiming to have inherited a ￡22bn black hole in public finances from the Tories, it is not inconceivable that these institutions could go bust.
Keir Starmer certainly doesn’t want his legacy to be the government that let higher education collapse. But if he abandoned his previous pledge to abolish tuition fees altogether because of insufficient funds, it’s hard to imagine him committing to a government bail-out of big universities.
Higher education appears to be on a tipping point, and drastic changes are clearly needed if it wants to survive.
First, some context…
Context
The government introduced a cap on university tuition fees of ￡9250 a year in 2017, which has remained ever since. All universities charge this amount to UK students, but considering inflation, fees should really be around ￡12,000 a year to be worth the same in 2024.
It costs universities around ￡11,750 a year to teach each student, meaning that they make a ￡2,500 loss per student per year. To offset this, universities charge international students around ￡20,000 a year, depending on degrees, for their tuition. With high inflation since Covid, and the ongoing cap on home students’ tuition fees, universities have become increasingly reliant on foreign students to balance the books.
The previous government, responding to high levels of legal migration, banned international students from bringing dependents . This was a large driver of the dramatic increase in net-migration seen since 2020, with dependents making up just under half of the work visas issued in 2023.
This change obviously discouraged international students from applying to UK universities, with the sponsored study visas down 44% in the first three months of 2024 compared to last year.
This has left universities in a tough position, as they have become increasingly reliant on foreign students. The decrease in last year’s cohort meant that 40% of UK universities ?ran a deficit in the last financial year.
It has also meant that 67 institutions are currently carrying out restructuring programmes, with potentially mass redundancies to come. This has the potential to set off further industrial action, as lecturers and other university staff strike again to demand better pay and working conditions.
This happened during my own first year of university, and it was hard to know which lecturers were striking on which day or if my coursework was going to be marked.
The general secretary of the University and College Union (UCU) has recently written to the government, warning that “anything short of an emergency rescue package for the sector will be insufficient to stave off catastrophe”
The new Education secretary, Bridget Phillipson, said that these universities should not expect a government bailout and should use their own resources to manage the crisis.
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Thats the context, and now the argument …
Arguments
There are 2 sides to this argument:
Allow them to fail
Former Home Secretary Suella Braverman has suggested that Universities should be allowed to fail and potentially go bust.
It could be argued that higher education has grown too big in recent years, and overstretched its finances to an unsustainable level in response to increasing immigration.
These universities perhaps expected foreign students to keep coming, and immigration to remain high, thus expanding too much. Essex University is a prime example, who recently declared a ￡13.8 million shortfall , which they blamed on a 38% in foreign student applications. But their Colchester campus is full of new accommodation blocks built in the last 2 years or still under construction.
Many universities borrow large sums of money from banks to build these new projects, expecting the influx of foreign students to continue, but now that the numbers are declining, perhaps they have overstretched their finances.
It could also be argued that we have not always had this many foreign students, and the sector was able to cope. A 60% drop in foreign students would leave the numbers at around 200,000 a year, which was standard for most of the last decade.
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Too big to fail
The rebuttal to the previous point is inflation. University tuition fees have been capped since 2017, and thus universities have been losing more and more money on UK students. They therefore turned to international students to balance the books.
Even if universities have mismanaged money, allowing them to go bust punishes both the 2 million or so students and the 770,00 jobs supported by the sector, who are not responsible for this crisis.
Higher education is also a significant economic contributor, generating around ￡130 billion in 2022. It is also a source of national pride, and it would be an apocalyptic embarrassment if the UK allowed some of its top universities to go bust.
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Solutions
Both sides of the argument have correct claims. Yes it is true that universities have likely mismanaged their finances, but allowing them to fail is unfair on students and those working there.
Vice Chancellor of Leeds University said that while he doesn’t think institutions will go bust, there are “painful adjustments that many organisations will have to make”.
But it is also unfair to ask the government, and therefore the taxpayer, to bail out the universities, as the UCU general secretary has demanded.
The solution must be internal, and here are a few that ought to be looked at if we want to save higher education in the short term:
The government ought to conduct a review of university finances, and if poor management is found, allow for greater budget oversight from Westminster, like the Treasury has with the OBR.
The Office for Students (OFS) regulates university teaching, but nothing is in place to regulate their finances.
This body could force universities to reduce in size, likely reducing the number of available courses and their intake of students.
These measures may make unavoidable an increase in tuition fees, but if done with a long-term plan to abolish them altogether, and by cancelling the interest that students pay back, it could be politically viable.
Before the election, the Tories had a plan to close ‘rip-off’ courses that they believed had high dropout rates and low earnings potential. They estimated that this could save nearly ￡900 million, which it planned to reinvest into 100,000 new apprenticeships.
Despite being controversial, savings clearly need to be made to balance University finances, and Labour currently have no such plan. If courses are to be closed, it must not affect those midway through their degrees.
Some sector leaders have suggested that institutions may need to merge to stay afloat, but this would likely be complicated, messy and further spill the crisis onto students.
Savings and a temporary increase in tuition fees is likely the only way to solve the crisis in the short term, and must done in the least harmful way to students themselves.
Conclusions - Long term changes
Long term, the university sector must adapt, as its funding model has clearly slipped into decrepitude.
The government should make it a long-term ambition to abolish tuition fees, which the IFS say would cost around ￡10 billion a year. Making savings across other government departments is both possible and necessary to achieve this.
Moving many courses online, particularly those not requiring manual skills, like Humanities, is also a great option, with lower tuition fees for those choosing to study as distance learners, and support provided to those without laptops or computers.
Like government, the universities themselves need to make savings, reducing their size and focusing solely on providing a high standard of education.
If no solutions are adopted, either the UK will let universities go bust, risking the international embarrassment and resulting pandemonium of degree-less students and redundant staff, or the government will be forced to bail them out, which would be very unpopular.
It would seem like one rule for elite institutions, who can afford to mess around with their finances, and another for the general public; a repeat of the 2008 financial crash.
As I said in April, I don’t have the exact solutions, but these ideas are certainly viable and could help rescue higher education in both the short-term and future beyond.
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