OfS: Four in 10 universities struggling with finances

The financial performance of universities and colleges is forecast to decline in 2024-25 for the third consecutive year, with four in 10 institutions expecting a deficit this year, according to new report from the Office for Students (OfS).

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.

OfS said 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% in UK student entrants and 19.5% 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.”

She added: “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.

“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.”