analysis


The financial sustainability of higher education providers in England


The Office for Students (OfS) which regulates higher education providers in England, has reported on the financial health of higher education providers and found a mixed picture, with mounting pressures on university budgets. Here are its key findings


O


UR analysis suggests that the sector overall is currently in reasonable financial health. However, this


general picture masks considerable variations in financial performance between individual providers. Providers’ forecasts indicate a general weakening of financial performance over the next year, with improvements thereafter. Some of this forecast improvement is due to ambitious assumptions about growth in student numbers. Most providers are assuming growth in the total numbers of UK, EU and overseas students, with 122 (out of 183) projecting increases in total student numbers of more than 5% over the next four years. The majority of these providers are not reliant on such projected growth to ensure their financial viability and sustainability, but they may need to reduce their projected costs if their student recruitment ambitions are not met. We are closely monitoring those providers that are reliant on growth in student numbers to continue to meet our requirements for financial viability and sustainability. Collectively, providers forecast the number of overseas students to increase by approximately 56,000 full-time equivalent (21%). Fee income from overseas students is projected to rise by £1.7 billion (38%), suggesting an anticipated increase in the average fee charged to overseas students. The Government’s recently announced international education strategy aims to support the sector to increase the number


8 highereducationestates


of overseas students. However, the higher education sector continues to face uncertainties, including the UK’s future relationship with the EU; potential changes in government policy following the review of post18 education funding; and as a consequence of student choice following a continuing decline in the 18-year-old UK population to 2020. The consequences of these uncertainties will require individual providers to adapt to different degrees. Providers also face increased cost


pressures, not least following recent valuations of large multi-employer pension schemes and more general inflationary pressure on costs. In light of the uncertainties and challenges they face in the foreseeable future, providers will need to re-assess their financial assumptions and forecasts and ensure that adequate contingency measures are in place to navigate an uncertain environment and ensure financial viability and sustainability. 8. The OfS will continue to monitor individual providers for early signs of financial difficulties and will intervene where we consider there to be increased risk that a provider may not be viable or sustainable in the future. Uncertainty in the current environment could lead to greater focus from lenders on the financial viability and sustainability of individual providers. Many providers rely significantly on the availability of borrowing to fund capital investment programmes and any reduction in the confidence that lenders have in the financial viability and sustainability of the


sector could affect the availability and/or cost of borrowing for some providers. Most providers are assuming growth in their total student numbers in Years 3 to 6. Of the 183 providers we analysed, 122 have forecast an increase in their student numbers by more than five per cent during this period. Taken together, the sector in aggregate is forecasting an increase in total student numbers (including UK, EU and overseas students) by approximately 171,000 FTE (over 10%) over the next four years. Further analysis of these forecasts suggests that providers are aiming to increase the numbers of full-time undergraduate UK and EU students by approximately 78,000 FTE (7%) in the four- year forecast period. This is despite a decline of approximately 5% in the 18- year-old UK population over the same period. From 2021 onwards, this population will begin a sustained period of increase, which could present opportunities for providers to increase recruitment. In the meantime, it is our view that the current aggregate growth forecasts and related fee income are likely to be unachievable over the forecast period. Providers forecast the aggregate number of overseas students to increase by approximately 56,000 (21%). Total fee


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