Universities Risk Closures Amid Dropping Student Numbers: Regulator

A graduation ceremony at the University of Suffolk's campus in Ipswich, England, in October 2015. PA

Universities in England risk running out of funding and closing down amid a decline in student applications and inflationary pressures, an independent regulator has warned.

Decreasing numbers of UK and international student applications are “apparent,” casting doubt on reports by universities on projected income from student fees, the Office for Students (OfS) has found.

Universities and other higher education providers share their financial forecasts and expected student numbers with the OfS.

In a report, published on Thursday, the regulator said that the numbers it received for the sector as a whole “are just not credible.”

The picture across the higher education sector has become “increasingly challenging,” according to OfS chief executive Susan Lapworth.

Researchers found that many universities will need to make significant changes to their funding arrangements in the near future to avoid closure.

By 2026–2027 nearly two-thirds of institutions will be in deficit, the watchdog estimated, adding that 40 percent will face low liquidity at the end of the year. In the worst case scenario, over 80 percent would be in deficit and nearly three quarters would face low levels of liquidity.

“Some institutions will certainly be able to grow. But in a competitive market—and with some evidence that applicant numbers are falling—others will struggle to expand,” the OfS said.

Visa Schemes

The warning comes after a new rule came into force in January, barring most students from bringing dependants.

In the period between January and March, the number of foreign student dependant visas dropped by around 80 percent compared to the same quarter in 2023.

The new restrictions on visa is part of Home Secretary James Cleverly plan to cut net migration by 300,000 after over 1.2 million people moved to the UK in 2022.

On Mr. Cleverly’s request, the Migration Advisory Committee has looked into the UK Graduate visa scheme and found no evidence of “widespread abuse” for immigration purposes.

The committee recommended that the Graduate scheme, which allows international students to stay in the UK for two to three years unsponsored after graduating, should remain in its current form.

Ms. Lapworth said that the OfS report was “a signal” to universities to re-test their assumptions about increases in UK and international students.

She called on providers to avoid optimism bias and take action to remain “on a sound financial footing.”

Another highlighted concern in the report focused on the universities’ reliance on fee income from international students. There is a particular vulnerability where recruitment is predominantly from a single country, the OfS said.

International students typically pay higher fees than students from England.

In January, the Department for Education said it will launch an “urgent investigation into bad practice” by universities reps, recruiting international students.

Responding to allegations that thousands of overseas students use “back-door routes” to enter UK universities, the Russell Group said that admissions were equitable and consistent for all applicants.

High Costs

The OfS also noted that the ongoing cost-of-living crisis has contributed to the challenging financial outlook.

Among factors affecting the sector are the cost of living difficulties for students and staff, the affordability of university estates and the “significant cost” of adhering to net zero commitments.

Researchers also noted that undergraduate fees, frozen at £9,250 since 2017, don’t represent the same value today, given high rates of inflation in recent years. The “real-terms value” of income for teaching UK students is approximately 25 percent lower than it was in 2015-16, when adjusted for inflation, the OfS revealed.

If the trend continues, the regulator warned, universities will have to drop some of its research and courses. Some universities will have to leave the higher education market altogether, causing disruption for students and the sector as a whole.