The Office for Students (OfS) has issued a stark warning about the financial sustainability of higher education institutions in England following an update to its annual financial sustainability report published in May 2024 that takes into account reductions in the numbers of students entering higher education.

The new analysis factors in changes to UK undergraduate tuition fee levels for 2025-26 and the increase in national insurance contributions for employers announced in the Budget. It finds that nearly three quarters (72%) of higher education providers could be in deficit by 2025-26, while 40% would have fewer than 30 days’ liquidity.

The OfS stresses that the updated picture is underpinned by financial data compiled by most providers in 2023, meaning many providers will already have adjusted their expectations and taken action to address changes in student recruitment, and other risks, since submitting their forecasts. With this caveat, the report sets out the following further findings:

• Acceptances of UK undergraduate students through UCAS have increased by 1.3% in 2024 compared with the same point in 2023. However, this is significantly below the sector’s forecast of a 5.8% increase.
• Recruitment of UK undergraduate students has mainly increased in larger, higher-tariff providers. It has mainly 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% 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%.

Commenting on the report, chief executive of the OfS Susan Lapworth 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.

‘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.’

The OfS will continue to model financial variables for updated forecast data as it is submitted and will report on this in its comprehensive annual report on financial sustainability in 2025.

The new analysis can be accessed in full at the OfS website.

(This Bulletin article was the subject of a ResearchConnect news alert.)