It was only a matter of time. You’ll have seen the story yesterday from the University of East Anglia saying it’s planning to make staff redundant and cut departmental budgets after facing a financial squeeze triggered by falling student numbers and the tuition fee freeze.
According to press reports, UEA is projecting a deficit of £23 million for 2023-24 which it fears could rise to £37 million in three years.
We can extrapolate from the UAE’s perilous financial position it is probably the canary down the mine in the tertiary education sector, indicating that it won’t be the only higher education institution that is in very financial serious trouble.
The facts are that, for many other universities, the fees paid by UK students no longer meet the full costs of their tuition.
For years UK universities have depended on the much higher fees charged to overseas students to subsidise their services, with a particular reliance on undergraduates from mainland China who became the cash cow keeping the whole creaky show on the road.
According to a report in the Economist last March, more than 140,000 Chinese students were enrolled in undergraduate or postgraduate courses, accounting for a third of non-EU international students across all universities, generating about £7bn in tuition fees annually. Any reduction in that income is going to cause serious damage to universities’ total income.
But since Covid and the increasingly frosty tone of our government towards China, many would-be students from that country have got the message and decided they are not welcome here anymore.
Before Covid, Brexit was also doing its fair share of damage by putting off European students from coming here, depleting another source of UK university funding.
When we factor in skyrocketing energy costs and above-inflation pay rises for a committed and strongly unionised work force, we must assume that some universities simply can’t remain financially viable unless there are some radical operational changes.
It gets worse. Another obvious point is that British undergraduates are already in a cost-of-living crisis that will inevitably cause many to drop out and leave university. Rental costs for undergraduates outside halls of residences in most university cities are eye-watering.
This is partially the fault of the universities themselves who have quietly succumbed to temptation and upped their undergraduate numbers beyond the limits that their cities can accommodate.
My undergraduate daughter shares a pretty grotty flat with seven others, paying more than £800 per month for a twelve-month contract with bills not included. And this isn’t unusual. Layer on top of this the terrifying prices increases in food and, even more so, energy, and you can see why many students can’t afford their bills.
With such a stressful backdrop it’s clear that being a student at the moment is not nearly as carefree and fun as previous generations and there are ongoing ramifications on students’ mental health, particularly after poorly handled Covid lockdowns.
Inevitably, these pressures will hit the less wealthy students hardest and at the same time doing incalculable damage to the government’s levelling up agenda. Sadly, it’s the poorer students who can’t rely on the Bank of Mum and Dad who are much more likely to be terrified of getting into serious debt and will be the first to jump ship.
If you think of ‘university’ in this country, most people tend to picture the dreaming spires of Oxford and Cambridge or the other ancient universities and their lovely stone-clad buildings.
Even these well-funded academic institutions, who still command the top places in the world rankings, are having to dig into their own pockets to bail out some of their undergraduates via hardship funds.
My suspicion, however, is that the universities currently running on petrol fumes will not have the means to help their students when they need it most.
Many of the newer universities have expanded their capacity by taking on bank debt to fund new facilities, predicated on the apparently insatiable demand from international students for a precious UK degree. If you look at the campus of the University of Essex with cranes seemingly everywhere and new buildings under construction, you’ll see what I mean. The same goes for Surrey. Both universities are very big enterprises now, with their success depending on their ability to keep driving the throughput of undergraduates.
Of course, only a year or so earlier, expansion made financial sense. Bank borrowing was cheap because interest rates were low. But Ukraine and some maladroit moves under the brief Liz Truss period in charge have put paid to this. Borrowed money has become very expensive very quickly in ways many would never have forecast.
In a business, higher interest payments versus falling revenues will always set the alarm bells ringing, and the same should be applied to universities. Which leads me to conclude, very sadly, that we must expect to see a handful of the UK’s 90-odd universities potentially going under in the next eighteen months, causing huge damage to many lives, inflicting severe reputational damage on the tertiary education sector.
By Tom Buchanan, MD and Founder of Paternoster Communications