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UK Universities are on the Brink of Bankruptcy

Updated: Apr 23

The UK has always been a world-leader in university education; home to the famous Oxford, Cambridge, Imperial College London and many more. In fact, we have more top-rated institutions than the rest of the EU put together. 

It is therefore surprising that higher education has slipped into a financial crisis in the last decade. Michelle Donelan, the UK’s Science Secretary, denied that any such crisis is taking place. However, with 40% of UK universities predicted to go into the red this year, the government would be foolish to ignore this issue. 

The government has increasingly argued that university campuses are a breeding ground for anti-conservative ‘woke’ values. They even appointed a ‘free speech champion’ in 2021 and threatened to fine institutions that imposed restrictions on freedom of expression. Given the hostile relationship with the Conservative Government, it’s not inconceivable that universities may be allowed to go bust. The ramifications could be severe, especially for students midway through degrees, but more significantly, for Britain’s economy and international reputation. 

This crisis demands a solution, and likely requires a fundamental restructuring of the UK’s higher education system. 

University finances have been acutely vulnerable for decades, and recent political decisions threaten to place the majority on the brink of bankruptcy. 

Tuition fees were initially set at £9000 per year in 2012, and then increased to £9250 in 2017. All Universities charge this amount to UK students, regardless of the specific degree or respective university ranking. Taking the last 12 years of inflation into account, fees should actually be around £12,000 a year. Given that it costs around £11,750 to teach each student, universities are making a £2,500 loss per student per year. If we extrapolate this out to the 2.2 million home students across the UK, this amounts to around £5.5 billion in losses nationally. 

Universities offset this deficit by charging international students around £20,000 a year (depending on their specific degree) for tuition. Most leading universities get the majority of their fees from foreign students and have become increasingly reliant on them to stay afloat. This has led to reports that some institutions have lowered the equivalent grade requirements for international students compared to UK students. The fact that allowing evident unfairness in their admissions process is their only hope of survival, highlights the alarming scale of this issue. 

This crisis has been exacerbated further by two recent political developments. Brexit pulled the UK out of the EU’s Horizon funding scheme, which was previously worth around £800 million a year to UK universities. While the UK did rejoin the scheme in December 2023, the loss of funding over the last few years badly damaged University finances. 

Secondly, the government banned international students from bringing dependents, which was a mostly reactionary move after the high levels of net-migration into the UK became apparent. This development clearly discouraged many potential foreign students, with 2023 seeing the lowest level of non-EU applications in 6 years. Given the reliance on funding from international students, should this trend continue, many universities could face bankruptcy.

We are already seeing the effects of this crisis, and the worst could still be to come. 39 higher education institutions are making plans to cut costs, with Coventry University aiming to make £100 million in savings over the next 2 years. Essex University recently declared a £13.8 million shortfall, which it blamed on a 38% drop in foreign student applications. The last 2 years have seen persistent strikes across higher education regarding staff pay, causing massive disruption to my own 1st year of university. Given the financial pressures they face, university bosses say that they can’t meet the pay demands of lecturers. The result was a marking and assessment boycott last summer, unfairly spilling this complicated political mess on innocent students. 

This crisis demands a solution on a grand scale, but many of the immediate options will inevitably produce short-term pain.

Student Finance England announced a change to tuition fee loans for the 23/24 academic year, with the threshold for repayment lowered from £27,295 to £25,000, and the loan now cleared after 40 years, up from 30 years previously. This places more burden on students themselves, and less on the regular taxpayer. Even with this, around 39% of students will still not repay their loan in full. 

Another solution is for universities to cancel courses and lay off staff to cut costs in the coming years. However, this would obviously be highly unpopular, potentially depriving students, with offers, the chance to attend university, or rendering the degrees of those midway through their course to be void. 

An increase in tuition fees for home students seems inevitable but would also be extremely unpopular. The government would be paying millions, possibly billions, in extra tuition loans, most of which they would never get back, placing the debt burden firmly on the regular taxpayer. 

The only alternative would be to remove government loans entirely, meaning that students would be entirely responsible for paying for their education. While this would solve the funding issues, it would price out poorer students from attaining a degree, representing a wholly unfair restriction on equality of opportunity. 

The government could reverse their policies on international students bringing dependents. There are undoubtedly students abusing the system, but it is unlikely that they constitute a majority. Given the financial benefits foreign students bring, perhaps the solution is either removing possible loopholes, or closer monitoring of their activities. 

If no solutions are adopted, and universities across the country face imminent bankruptcy, the government could be forced to bail them out, as it did with the banks in 2008. Again, this would be publicly unpopular, as like 2008, it would seem that it was one rule for the elite institutions, who can afford to mess around with their finances, and another for the general public. 

The higher education system is in an unprecedented crisis, and no immediate solutions seem plausible. This calls into question the place of universities in wider society, and whether the entire model is still fit for purpose. 

The issue of tuition fees has always been contentious, with successive Labour leaders, including Keir Starmer, promising to abolish them. This now looks unlikely, with Labour set to inherit a dire economy with little room for extra spending commitments. 

The system is clearly broken, and desperately needs a rethink. Our universities have always been a source of national pride in the UK, with a strong reputation abroad for both rich history and high-quality education. It would be a great shame for weak finances to kill one of the UK’s most redeeming features. 

My goal is not to provide the exact solution, but to illuminate the scale of this crisis. Once the precarious state of university finances becomes widespread knowledge, a debate will inevitably ensue about how to solve this problem, and how to reform a system on the brink of collapse.

Image: RichTea

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