Many English universities are taking excessive financial risks that threaten not only their own survival but that of others in the sector, a thinktank has warned.
High levels of borrowing at some institutions and rapid expansion of student numbers are among the dangers identified in a report by the Higher Education Policy Institute (Hepi).
It also flags over-reliance on international students and the growth of franchised provision – where a degree-awarding body authorises another to deliver all or part of a course – which it says are putting the sector at risk.
On rapid expansion, the report says Canterbury Christ Church University in Kent has almost tripled in size over the last decade, while Arden University, a private institution, has undergone a more than thirtyfold increase.
On international students, Hepi is concerned about universities that bulk recruit from individual countries, including China and India, leaving them exposed to volatility in the global recruitment market.
“Excessive borrowing is another risk to financial sustainability, with the University of Northampton having debts equivalent to 137% of its annual income,” Hepi said.
It also criticised the hugely increased number of firsts awarded to graduates, which it said “strongly suggests some providers are willing to use generous final grades as a marketing tool to prospective students”.
It is understood that the size of Northampton’s borrowing ratio is because it secured a public fixed-rate bond, guaranteed by the Treasury, to build a £330m campus.
Graphic showing highest external borrowing levels
The higher education sector is facing severe financial challenges, with fewer international students due to stricter visa rules, and many universities are cutting jobs and courses. England’s higher education regulator, the Office for Students, said last November that nearly half of institutions in the country were facing deficits.
The report’s author, Tom Richmond, a former adviser at the Department for Education, said: “There is so much good work being done by so many higher education providers and academics to deliver a great experience to their students. But my analysis suggests that some providers have taken too many risks, ignored students’ interests and damaged the reputation of the sector by pursuing extra tuition fee income above all else.”
The report, called A Degree of Regulation: Building a More Financially Sustainable and Resilient Higher Education Sector, urges the government to introduce new measures to curb “the most damaging behaviours”.
It suggests providers should be limited to 5% annual growth in student numbers. It recommends universities should be required to hold “capital buffers” and observe minimum liquidity requirements to improve financial resilience.
Graphic showing the fastest growin universities
To protect students’ interests, Hepi recommends a “teaching resource cap”, which would prevent universities from accepting more undergraduates than they are able to support in terms of their overall teaching capacity.
It said universities should be responsible for ensuring sufficient accommodation and large enough lecture halls for all the students they enrol, after reports of overcrowding in university spaces and a lack of housing.
Hepi also recommends standardising degree classifications, so all providers would be limited to awarding 15% of classifications as a first, 35% as a 2:1, and the same for 2:2s, and 15% for a third. In 2023-4, 28.8% of graduates were awarded firsts.
Rose Stephenson, Hepi’s director of policy and strategy, acknowledged that the recommendations were challenging but said: “If we are serious about building a more sustainable and resilient system, it is important that we engage with these ideas and foster an open, constructive debate about the sector’s future.”
Universities UK, which represents 142 universities in England, Wales, Scotland and Northern Ireland, said: “It is essential that the government works with us to put universities on a sustainable financial footing and ensure this world-leading sector not only endures economic hardship but also thrives.”
A Department for Education spokesperson said: “Universities are independent from government and are responsible for managing their own finances, but this government is committed to fixing the foundations of higher education and restoring universities as engines of opportunity, aspiration and growth.”
