The higher education regulator has accused universities of being “over-optimistic” about the number of students they are likely to recruit over the next four years, and has urged them to be more realistic at a time of uncertainty in the sector.
The Office for Students (OfS) report on the financial sustainability of the higher education sector in England concludes that universities – as a sector – are in “reasonable” financial health. It warns however that the general picture masks significant variations between individual providers and forecasts a deterioration in universities’ financial performance over the next year.
The OfS chair, Michael Barber, urged any universities that were in trouble to report their difficulties to the regulator and seek help at an early stage. He also reiterated an earlier warning that the OfS would not bail out any university facing financial failure.
Forecasts for student recruitment are significant because of projected income from tuition fees. According to the OfS report, the sector is predicting a 10% growth in student numbers over the next four years, equivalent to an increase of 171,000 full-time students.
Of those, 56,000 are overseas students (an increase of 20.7%) and 78,000 are undergraduates from the UK and the EU, despite a projected 5% decline in the UK population of 18-year-olds 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,” the report says. “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.”
Barber said: “Universities should be wary of relying on over-ambitious recruitment targets, and look at student numbers realistically rather than over-optimistically. This is particularly important at a challenging time for the sector overall.”
Uncertainties ahead include Brexit, potential policy changes following the Augar review of higher education funding, and rising pension costs within the sector. “Universities need to have a good grip on costs and base their actions on realistic forecasts,” he said.
The sector reported an income of £33bn in 2017-18, a 7.4% increase on the previous year. Surpluses fell from £1.12bn in 2016-17, to £1.02bn in 2017-18, and borrowing was up from £9.9bn in 2016-17 to £12bn the following year and projected to rise to £13.3bn by the end of 2021-22.
The number of providers reporting a deficit went up from 40 in 2016-17 to 47 the following year, and is expected to go up to 54 in 2018-19 but fall after that. By the end of 2017-18 the sector had net liquidity of £12bn (equivalent to 138 days’ expenditure), £1.3bn up on the previous year, but is forecast to fall to £8.1bn by the end of 2020-21 (equivalent to 90 days of expenditure).
A Department for Education spokesperson said: “To ensure students are protected – through the OfS – we have required universities to set up protection plans that will set out what students can expect in the event of course, campus or department closure, or if an institution exits the market.”