The Office for Students’ (OfS’s) annual financial sustainability report shows that the financial performance of universities and colleges is forecast to decline in 2024-25 for the third consecutive year.

Data published today shows that levels of surplus and liquidity are expected to decline across the sector, with 43 per cent of institutions included in the analysis forecasting a deficit for 2024-25. This contrasts with last year’s forecasts made by institutions, which suggested an improvement in financial performance for 2024-25. The primary reason for the deterioration is lower than anticipated levels of recruitment of international students.

There is evidence that many universities and colleges are taking steps to address financial risks, and this work needs to continue in future years. Many institutions have ongoing cost reduction programmes to help underpin their financial sustainability. Some are reducing the number of courses they offer, while others are selling assets that are no longer needed.

In aggregate, forecasts continue to predict growth of 26 per cent in UK student entrants and 19.5 per cent in international student entrants between 2023-24 and 2027-28. If these optimistic projections are not achieved, the deterioration in financial performance for the sector will probably continue in future years – unless significant reform and efficiencies are delivered.

As well as recruitment challenges, other risks identified in the report include:

• continuing decline in the real-terms value of income from UK undergraduates
• inflationary and economic pressures on operating, maintenance and capital costs
• overreliance on fee income from international students, with a particular vulnerability where recruitment is predominantly from a single country
• cost of living challenges for students and staff
• access to the skills, knowledge and capacity to deliver necessary operational change and strategic financial reform
• rapid growth in risky subcontractual partnership arrangements, where these play a material role in an institution’s financial model.

Philippa Pickford, Director of Regulation at the OfS, said:

“Our independent analysis, drawn from data institutions have submitted, once again starkly sets out the challenges facing the sector. The sector is forecasting a third consecutive year of decline in financial performance, with more than four in ten institutions expecting a deficit this year.

“We still do not expect to see multiple university closures in the short term. But the medium-term pressures are significant, complex and ongoing. While institutions are working hard to navigate this challenging situation, we remain concerned that predictions of future growth are often based on ambitious student recruitment that cannot be achieved for every institution. Our analysis shows that if the number of student entrants is lower than forecast in the coming years, the sector’s financial performance could continue to deteriorate, leaving more institutions facing significant financial challenges.

“Many institutions are working hard to reduce costs. This often requires taking difficult decisions, but doing so now will help secure institutions’ financial health for the long term. This work should continue to be done in a way that maintains course quality and ensures effective support for students.

“Universities and colleges should also continue to explore opportunities for growth to achieve long-term sustainability. But some superficially attractive options, such as rapid growth in subcontractual partnerships, require caution. We have highlighted the risks of this type of arrangement to students and taxpayers – partnerships must offer high quality courses to students with the intention and ability to succeed.

“We recognise that the operating environment remains really challenging for institutions. We welcome the work of Universities UK’s taskforce on efficiency and transformation as it seeks to identify areas for increased collaboration and to develop a shared understanding of how best to secure the sector’s finances into the long-term.

“Where any institution is at risk of closure, we will work closely with partners to do all that we can to protect students’ interests.”

Sector Reaction

Education Secretary Bridget Phillipson said:

“These concerning figures are further evidence demonstrating why the increase to tuition fees and the package of reforms I announced last year were necessary.

“The dire situation we inherited has meant this government must take tough decisions to put universities on a firmer financial footing, so they can deliver more opportunity for students and growth for our economy through our Plan for Change.

“I asked the Office for Student to refocus their efforts on monitoring financial sustainability last year. Further reforms are needed to fix the foundations of higher education, and universities must do more to make their finances work.”

Vivienne Stern MBE, Chief Executive of Universities UK, said:

“While deeply sobering, this report from the OfS is unlikely to surprise anyone in the sector, or in Whitehall for that matter.  Falling per-student funding, visa changes which have decreased international enrolments, and a longstanding failure of research grants to cover costs have been creating huge pressures in all four nations of the UK which are now reaching breaking point.

“We know universities are doing everything they can at an individual level to manage costs, and our Efficiency and Transformation Taskforce is supporting efforts to unlock greater efficiencies through further collaborative working. But the scale of the challenge means none of this will be enough without government on the pitch too. To protect our world-leading sector and the jobs, growth and opportunity it provides, we need increased per student funding; stable international student visa policy; and to protect the research funding system.”