Three-Quarters of Universities Could Be in Deficit by Next Year, Says Office for Students

File photo of university graduates on Oct. 12, 2011. Chris Radburn/PA Wire

Nearly three-quarters (72 percent) of higher education (HE) institutions could be in deficit by academic year 2025/2026 and 40 percent could have fewer than 30 days’ liquidity, the universities regulator has warned.

The Office for Students (OfS) said in its report published on Friday that the sector is also facing a £3.4 billion reduction in net annual income.

The forecast is an update to projections from the OfS published in May that said by 2026/2027, nearly two-thirds of HE institutions could be in deficit and many universities will need to make significant changes to their funding arrangements to avoid closure.

The OfS said: “Our modelling indicates that many more providers than forecast must overcome financial challenges in the coming years.

“By 2025-2026, based on current trends and not taking into account significant mitigating action, we estimate a net income reduction for the sector of £3,445 million and, without significant mitigating actions, a sector-level deficit of—£1,636 million.”

Falling Student Numbers

One of the main challenges the watchdog said that universities are facing is falling student numbers—both home and overseas.

The analysis found that while the number of undergraduate students applying from the UK through UCAS has increased slightly by 1.3 percent in 2024 compared with the same point last year, this is still “significantly below” the sector’s forecast of 5.8 percent.

There were also 16 percent fewer international applications. The regulator noted that there had been declines in enrollment from certain countries which usually send a lot of students to the UK to study. This includes Nigeria and Bangladesh, where student enrollment fell by more than 40 percent between 2023 and 2024.

Commenting on the figures, the OfS’s Chief Executive Susan Lapworth said, “Today’s report demonstrates just how challenging recruitment is for many institutions, with modelling suggesting that many more institutions will report a deficit and low liquidity than had been forecast.”

Vivienne Stern, chief executive of Universities UK, said the analysis was a “source of serious concern.”

Stern said: “Universities are financially responsible organisations, who work hard to carefully plan and manage their finances. Across the sector tough decisions have already been made to control costs, and universities will look to go further still to be as efficient and effective as possible.”

Increased Competition

Last month, a report from the Higher Education Policy Institute (HEPI) had said that a downturn in applications from home 18-year-old applicants in the last two admission rounds could signal a trend of declining participation which, when coupled with a shrinking youth population, could see university student numbers fall.

HEPI said that falling participation could result in greater competition between institutions for applicants, with less prestigious universities suffering as a result of being unable to compete with the likes of the Russell Group.

The OfS has also noted that recruitment of home undergraduate students has mainly increased in higher-tariff providers and appears to have decreased across smaller institutions.

Lapworth said the competitive recruitment market for home students “means some universities will lose out and will need to update their plans.”

The OfS chief executive added: “In our model, larger research-intensive and teaching-intensive universities appear to be, in aggregate, in better financial shape than other types of institutions. Medium- and smaller-sized institutions, along with specialist providers, are more likely to be affected by financial challenges in the years ahead.

“But there are significant risks right across the sector, for all types of institution. And that means students are exposed to risks to the quality of their education.”

Preparing for Potential Closures

Universities are facing financial pressures, with experts saying that closures and mergers could become common in the future.

The sector-wide challenges have become so serious that the government has tasked the OfS with focusing on monitoring the financial sustainability of higher education providers.

In preparation for possible closures, the universities regulator put to tender a contract for hiring consultants to assess financial risk at higher education institutions.

According to the bid published in August, contractors will help the watchdog ensure that students’ interests are protected during any changes or transitions, “including potential market exits.”

Tuition Fees Increase

Earlier this month, Secretary of State for Education Bridget Phillipson announced that home undergraduate tuition fees would rise for the first time in eight years.

From April 2025, tuition fees will rise in line with inflation, from £9,250 to £9,535 a year.

Phillipson told the House of Commons, “It is no use keeping tuition fees down for future students if the universities are not there for them to attend.”