End of term highlights university cash woes

June 11, 2024

While many university students will be celebrating exam results in the coming weeks, more than a few seats of learning face ending the academic year in a parlous financial state with a very uncertain future.

Saddled with debt and competing unrealistically for bright students, 40% of UK universities could end this year in the red, according to sector regulator the Office for Students. Assuming it’s desirable for troubled establishments to stay open, the only short term fixes appear to be more government funding or higher fees – the latter obviously very unpopular, politically.

There are somewhere between 130 and 166 universities, depending on differences between ranking tables and inclusion of subject-specific higher education (HE) establishments. Very broadly, the ‘original’ pre-1992 universities dominate the top 50 in rankings, followed by former polytechnics and others in HE. Nonetheless, the capped tuition fees of £9,250 p.a. don’t fall significantly from Oxford and Cambridge at the top of the list – indeed many far more modestly ranked universities charge exactly the same. Modest fee increases to just below £10,000 seem very likely, just to keep things limping along, but HE experts say a sustainable solution for the sector needs to be agreed within 18 months to avoid permanent closures.

The subjective view of value and the imperative to send more young Britons to university is not for discussion here, but a domestic supply-demand imbalance may be a factor among a complex mix of adverse dynamics. The worst financial impact seems to be coming from the frozen (since 2017) fee cap, marking a big real-term cut, and signs that overseas student numbers are set to fall. The latter has been critical, higher overseas fees historically subsidising UK students by more than £2,000 per head. Brexit cut the number of EU students in half, as well as removing access to £800m a year in grants.

Lower status universities face a significant drop in applications, resulting in job cuts and strikes; for some of these, the graduate visa, which allows international students to stay in the UK for up to three years after completing a course, has been a vital source of income. By contrast, some of the more prestigious names are overrecruiting, increasing class sizes and stretching accommodation.

It is highly likely that a number of universities are close to breaking their banking covenants. Several are already in dire need of restructuring their borrowings to put them on a more sustainable footing. Regardless of this year’s election, regulators and the main political parties have already indicated ‘no bail out’; any support will be limited to temporary cash flow issues, not tackling a more fundamental lack of demand.

University managers and finance leaders face a list of serious financial issues to address immediately:

· Price / yield optimisation for overseas students

· Identifying a realistic timetable to an ultimate covenant breach

· Urgent talks with lenders, agreeing new financial targets

· Legal liabilities (including broader contract exposure) triggered by breaches

· Pension liabilities

· HMRC issues

These are just the tip of the financial iceberg. It may be that a reset of the model for British university funding is long overdue, but stricken individual establishments failing to act will harm tens of thousands of students already being educated there.

Higher Education leaders should waste no time in seeking professional advice to help address the list above, as well as other challenges unique to their own situation. Buchler Phillips is available for a no-obligation consultation to assess priorities and suitable courses of action.

This article is written by Jo Milner, Managing Director at Buchler Phillips, an independent boutique firm, with an impeccable Mayfair London heritage, specialising in corporate recovery, turnaround, restructuring and insolvency.

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