Unveiling the Fiscal Challenges for UK Higher Ed

Higher ed fiscal instability is not just a United States issue. Institutions in the United Kingdom are also feeling the impacts of stalled funding, increased global economic pressures and declining trust in ROI. 

UK universities contributed 768,000 jobs and £130 billion to the UK economy in 2021-2022, with approximately £15 billion generated from international students. 

However, many UK universities now face financial sustainability challenges not only because the funding from the central government is likely to remain the same but also because other factors are at play.

The Challenges

Educators may notice that most UK university websites state the institutions are “exempt charities subject to regulation by the Office for Students under the Charities Act 2011.” UK universities are considered public sector organizations or large businesses, and the charitable status may encourage collaboration across the sector to enhance academic research and teaching for the public benefit. Yet, some argue that the availability of fees and research grants, growth of student numbers, an increase in ranking and students’ satisfaction can easily “compromise” the quality of “education and research” and poses a significant concern for the future of UK higher education. 

University leaders have been vocal about how the system for funding UK higher education is no longer working. Given the charitable status designation and the 2012 funding reforms — direct funding, student loans and the tuition fee cap — universities have had to rely on fees from international students to improve their finances. 

However, this revenue stream is now threatened due to the Home Office’s implementation of immigration limits on international students bringing dependents (i.e., family members) to the UK starting January 2024. After the changes, only international students of specific research-led master’s and PhD programs can bring their dependents to the UK.

1. Conflict Between Immigration Policy and International Education Strategy

The Home Office hopes new immigration rules may decrease UK net migration and perhaps start managing the rapid increase of dependent visas granted to all sponsored study-related visas from 2020, primarily from a handful of countries. With these changes, universities may be unable to meet the 2019 International Education Strategy target of growing international students to at least 600,000 by 2030. 

Although universities met projected targets in 2020-2021, the growth was primarily driven by the countries specifically noted in the new immigration policies, such as India and Nigeria. According to Kevin Prest, senior analyst with Education Insights, there were steep declines in the number of international students from India (14% decrease) and Nigeria (29% decrease) in 2023, which suggests the target is becoming more challenging to maintain, let alone exceed.

International students and UK universities also seem more worried about further changes that the Home Office may introduce to the UK’s graduate post-study work visa, which enables graduate students to stay in the UK for two to three years after completing a course in the UK without employers’ visa sponsorship. Any changes may affect graduates’ mobility and career options in the UK. As such,b students’ desire to consider the UK as a country for study may decrease. Consequently, Universities UK’s members have demanded the UK government indicate if there are any further changes to post-study work visas, as these may impact the number of international students universities manage to recruit. The government has not yet responded to the members’ inquiries, suggesting that such policies may not change.

2. Slow Global Economic Growth

In countries, such as Nigeria, the official currency has lost its value against the pound, contributing to the decrease in Nigerian students’ financial ability to study in the UK as tuition fees become more expensive. 

For domestic students, the cost-of-living crisis potentially increased students’ financial pressure to not only be concerned about paying the maintenance fee but also worry about being unable to repay student loans. A Russell Group Students’ Union study found that 1 in 4 students cannot afford food, and 18% of the 8,800 university students surveyed may drop out of their courses because of financial challenges.

3. Challenged Value of Higher Education

Careers and Enterprise Company data indicates an increased understanding of apprenticeships, from 39% in Year 7 to 80% by Year 11. UCAS also noted that 59% of Years 9 to 12 consider apprenticeships. Such trends may challenge students’ perspectives on the value of higher education. Students and graduates also stress that 3 in 10 graduates earn less than those who did not go to universities, and only 37% of students agree that their degree is worth the money.

Now what?

The abovementioned factors introduce crucial risks to UK universities’ financial sustainability. PwC’s report (2024) indicates that about 40% of Universities UK members forecasted a deficit in 2023/2024, underscoring the urgent need for action to ensure the future of UK higher education.

1. Responding to the Changes

A 2024 Universities UK report highlights that UK universities are already responding to the changes by restructuring and implementing curriculum transformation programs to ensure the curriculum meets the needs of future students, for example, the Curriculum Transformation at the University of Edinburgh.

2. Diversification

Revenue diversification may still be a way forward. Diversification may include generating revenue from varied sources, such as online learning, commercializing university physical assets and investment returns.

3. Reform the Income Contingent Loan System

The Universities UK report suggests keeping but reforming the existing student loan system to ensure students have equal opportunities by ensuring maintenance grants are available for students who need them the most.

4. Take Practical, Student-Centered Actions

Willetts argues that the current system is still working. However, universities must take practical actions, such as increasing maintenance loans to tackle the social mobility that low-income students face, as they might be spending more time in paid work instead of engaging with their studies.