Governance News Alert: OfS: Financial sustainability of higher education providers in England 2025 & HESA: Higher Education Provider Data: Finance

The Office for Students (OfS) report sets out the regulator’s view of the current financial condition of the sector and its resilience to financial challenge. It is based on its analysis of the financial data returned to the regulator by providers in England (excluding further education colleges). The report covers audited data showing actual performance for the years from 2022-23 to 2023-24, and providers’ own forecast data for the years from 2024-25 to 2027-28. It looks at patterns across the sector and groups of providers.

The Higher Education Statistics Agency (HESA) data covers the income and expenditure of providers in the UK in 2023/24 and in previous years. Bullet points from this data are at the end of the at-a-glance section.

The full OfS report can be found at: Financial sustainability of higher education providers in England: 2025 - Office for Students

The full HESA data can be found at: https://www.hesa.ac.uk/data-and-analysis/finances

At-a-glance:

• Financial performance of universities and colleges is forecast to decline in 2024-25 for the third consecutive year
• 43 per cent of institutions are forecasting a deficit for 2024-25. This contrasts with last year’s forecasts made by institutions, which suggested an improvement in financial performance for 2024-25. The primary reason for the deterioration is an expected 21 per cent reduction in new international student entrants
• Financial performance continues to vary significantly between different categories of higher education provider, with the larger teaching-intensive and medium provider groups moving into overall deficit, although there is also significant variation for individual providers within the groups
• Many institutions are taking steps to address financial risks with ongoing cost reduction programmes. Some are reducing the number of courses they offer, while others are selling assets that are no longer needed
• Institutional forecasts continue to predict growth of 26 per cent in UK student entrants and 19.5 per cent in international student entrants between 2023-24 and 2027-28.  The OfS said it was “concerned” that this expected recovery is based on overly ambitious recruitment figures
• If these projections are not achieved, the deterioration in financial performance for the sector will continue in future years – unless significant reform and efficiencies are delivered
• Risks identified in the report include the continuing decline in the real-terms value of income from UK undergraduates; inflationary and economic pressures on operating, maintenance and capital costs; and access to the skills, knowledge and capacity to deliver necessary operational change and strategic financial reform
• Over-reliance on fee income from international students continues to be an issue, with vulnerability where recruitment is predominantly from a single country
• The rapid growth in risky sub contractual partnership arrangements, where these play a material role in an institution’s financial model, was also identified as a risk
• In OfS modelling, a ‘No growth’ scenario - where student recruitment is stagnant from 2024/25 onwards - net income losses, relative to forecast, could reach £3 billion by 2027-28, with 167 providers in deficit. In the most severe model, the income losses could reach £4.4 billion, with 200 providers in deficit
• In the HESA data, UK higher education providers total income in 2023/24 was £52.3 billion, down from 52.6 billion the previous year. The reduction is mainly explained by a fall in tuition fee and education contract income
• Total expenditure between 2022/23 and 2023/24 fell from £49.6 billion to £42.8 billion, the HESA release shows. Over this period, staff costs fell from £25.2 billion to £18.3 billion

Implications for governance:

More than 40 per cent of institutions are forecasting a deficit for 2024/25 as volatility and uncertainty continues to characterise the higher education landscape: a situation that the OfS describes as “stark”.

Through monitoring activity, the OFS reports an increasing number of institutions taking action to manage this financial pressure. Despite efforts by providers in England to make cost savings, including through course closures and redundancy programmes, aggregate expenditure increased between 2022-23 and 2023-24.  However, HESA data, which covers institutions across the UK, shows total expenditure falling in that period from £49.6 billion to £42.8 billion, driven by a 27 per cent fall in staff costs, which could be a consequence of redundancy programmes and hiring freezes.

Governors will be well aware of the challenges facing institutions and of the fact, highlighted by the OfS, that financial performance varies significantly across different types of higher education provider.

This variation is underpinned by recruitment patterns. In response to falls in non-UK student recruitment there has been an increased focus on UK students for 2024-25. While some providers, particularly in the larger and higher tariff groups, have seen a big increases in recruitment in this competitive environment, others are facing significant reductions in both non-UK and UK student entrants. 

Going forward, institutions’ forecasts for recruitment growth are, once again, too optimistic, according to the regulator. 

UCAS January deadline data for the 2025-26 cycle shows that the number of UK undergraduate applicants has increased by 0.4 per cent compared with the same point last year. A lot can change over the next few months, but if this is taken as a guide for acceptances, it is a considerably lower rate of increase than the 3.7 per cent growth in numbers that providers have forecast for 2025-26. 

The OfS points to Office for National Statistics (ONS) data which suggest an increase of 10.1 per cent in the UK 18-year-old population between 2023-24 and 2027-28. If the proportion of UK 18-year-olds entering higher education remained at 36.4 per cent, the number of UK undergraduate students entering higher education could potentially increase by 40,000 students by 2027-28. However, the sector’s forecasts far exceed that, with an increase of 100,000 UK full time undergraduate students.

According to Philippa Pickford, Director of Regulation, the regulator is “not expecting to see multiple university closures in the short term”. But the medium-term pressures are significant, complex and ongoing. “While institutions are working hard to navigate this challenging situation, we remain concerned that predictions of future growth are often based on ambitious student recruitment that cannot be achieved for every institution,” she says.

Governing boards may want to be assured that forecasting at their institution is as accurate as possible to help it to manage financial risks going forward. 

To protect operational expenditure, some institutions have halted capital expenditure and infrastructure improvements.

While born out of financial necessity, the OfS expressed concern that underinvestment in facilities, infrastructure and equipment could lead to a situation where more urgent and significant maintenance investment is required: “Unavoidable investment may be required in the very short term, so it is important that providers identify, plan, fund and undertake necessary investment,” it warns.

Diversifying income streams has been a focus in higher education in recent times and the report highlights some areas of growth. Net income from transnational education between 2022-23 and 2023-24 increased by 13.6 per cent and it is forecast to increase by a further 28.1 per cent by 2025-26. 

Over the same period, income from contracted-out activity increased by 31.9 per cent, with activity forecast to increase by a further 16.5 per cent by 2028-29. But there is a health warning here too. While franchising may be a “superficially attractive option”, the OfS points to the risks it has uncovered of this type of arrangement to students and taxpayers: “Partnerships must offer high quality courses to students with the intention and ability to succeed,” says the report.

Reactions to the report from across the sector called for better funding and a stable international visa policy.

Vivienne Stern, chief executive of Universities UK, warned that institutions in all four nations of the UK were now “reaching breaking point”.

“We know universities are doing everything they can at an individual level to manage costs, and our Efficiency and Transformation Taskforce is supporting efforts to unlock greater efficiencies through further collaborative working. But the scale of the challenge means none of this will be enough without government on the pitch too,” she said. “To protect our world-leading sector and the jobs, growth and opportunity it provides, we need increased per student funding; stable international student visa policy; and to protect the research funding system.”

The government is expected to publish a white paper on immigration shortly. In the meantime, the key OfS message to university and college management and governing boards is that they should “continue to grapple with these serious issues to build resilience and support sustainability, while continuing to provide a high quality education for students from all backgrounds”.