University cash crisis to get worse despite tuition fee rise, BBC told

Almost three quarters of universities in England will face financial problems next year - despite tuition fees increasing, the BBC has been told.

A report published on Friday reveals how financial issues faced by most universities are even worse than previously thought. The Office for Students (OfS) predicts more than a third are likely to have serious cash flow problems.

Speaking exclusively to the BBC, Sir David Behan, the regulator’s chairman, called for radical change, saying course closures and university mergers might be needed for financial stability.

The government is considering the long-term funding and reform of universities.

Tuition fees in England will rise for current and existing students by £285 to £9,535 a year for those on full-time degrees, in autumn 2025.

Even so, new analysis by the OfS, the independent regulator of higher education in England, shows a worsening position for universities.

The regulator had said it expected 40% of universities to be in financial deficit in 2023-24.

Now the OfS says by 2025-26, 72% could be spending more money than they have coming in and may have to use an overdraft or financial reserves, with a total £1.6bn deficit forecast across the sector.

In 40% of institutions, cash flow may become so tight there will only be enough money in the bank to cover one month at a time of bills including salaries.

Education Secretary Bridget Phillipson said the OfS findings show "why universities must do more to make their finances work".

Sir David Behan, the OfS chairman, says a university going bust “isn’t imminent now”, but to reduce the risk higher education needs to be “radically reimagined”.

He suggests universities should think about “a transformation of their offer”, looking closely at the length and range of courses, and how to increase degree apprenticeships where tuition fees are covered mainly through the levy on larger employers.

Apprentices are paid to work while they study, so students end up with less debt.

Sir David says universities also need to collaborate more, and should consider mergers or whether courses at nearby institutions are too similar - saying it "doesn't make sense" for those universities to compete with one another.

But, he says, as some universities reduce the number of courses on offer he doesn’t want to see “cold spots” where students in more rural locations don’t have a choice of courses at their nearest university.

The outlook has worsened for universities because they have recruited fewer UK and international students than predicted.

For home students, the OfS says, Ucas figures suggest numbers have increased by around 1.3% this year, compared with the optimistic 5.8% universities had predicted.

Universities that traditionally required higher entry grades have fared better, because they have simply taken a bigger share by accepting some students with lower results.

This has led to lower recruitment and increased pressure in universities that accept middling grades, and some smaller institutions.

International recruitment has also fallen, with overall visa applications down by about 16% this year, and 20% fewer applications from India alone.

Since January, most international students have been banned from bringing family members to live with them in the UK.

The rule was introduced last year by Rishi Sunak's government, which committed to bringing immigration numbers down.

All of this comes as the government considers what to do about university funding in England from 2026, in a review likely to conclude next year.

The OfS report acknowledges that the scale of change needed will not be easy.

Vivienne Stern, chief executive of Universities UK, which represents 140 institutions, says universities are already "making tough choices to control costs", adding that the sector "needs to continue evolving".

She says the size of the challenge "is a source of serious concern".

The University of East Anglia (UEA) in Norwich has cut £30m in the last 18 months - almost 10% of its annual spending.

Prof David Maguire, the vice chancellor, says “difficult decisions” have led to a 20% reduction in the number of courses, increased lecture group sizes, less one-to-one contact between academics and students, and fewer staff in student support including in mental health and counselling.

Unlike big city universities, there are no nearby institutions to collaborate with, so remaining financially sustainable is crucial, especially for the many local students who live at home.

Prof Maguire says universities need to know what tuition fees or direct funding they will get through to the next election.

“We don’t want boom and bust, where one year we’re up, the next year we’re down," he says.

"That doesn’t help anybody.”

The increase in National Insurance contributions the university has to pay as an employer will more than wipe out the increase in tuition fees next year, he adds.

As universities cut back there is a risk to the student experience - this year the largest annual study of undergraduates found only 36% in England thought their course was good or very good value for money.

Sir David says he expects “absolute transparency” about what students are getting in return for fees, whether on contact hours or important services such as mental health support.

He suggests business degrees are one area that might need more scrutiny to demonstrate which offer the best outcomes for students.

Teddy Darvill-Cutts is a UEA occupational therapy student who says he can see where his tuition fee goes.

“I'm surrounded by all this up-to-date technology, everything's working well,” he says.

But another UEA student, Amber Bramham, says not “all students see the benefits equally”.

The financial pressures on universities could lead to very visible changes such as institutions focusing on a smaller number of courses to which they can recruit well.

The forecasts published on Friday will also form part of the public debate, and private negotiations between universities and ministers considering whether tuition fees should rise further in the future.

The heat is now on universities to bring down costs, with renewed scrutiny from ministers and the regulator over how they spend money.

This could renew pressure around vice chancellors pay, even though it is a tiny fraction of the spending of universities with a turnover of £500m or more.