The higher education funding crisis

Few in the higher education sector would not claim that there is an urgent need for increased funding from government. However, does that mean we have a funding crisis?

The minister responsible for universities thinks not. In May this year, Mr Halfon was keen to stress that 75% of universities had good finances and suggested that at least some of the issues faced by those institutions which were struggling were ‘down to the management of that particular university and the leadership, rather than the funding system’.

Despite Mr Halfon’s defence of the funding system, it remains the case that the continued freeze on regulated tuition fees for home undergraduates in England has drastically reduced their value. Originally set at £9,000 for 2012 entry, and increased just once since then, an analysis recently released by DataHE reveals these fees are now worth only £6,150 in real terms – that is a reduction of 32%. Put the other way, if these fees had increased by inflation, they would now be £13,530.

The practical implication of this real-terms reduction in income is significant. For example, an institution with 12,000 full-time, home, undergraduate students in 2023/24 might have expected £162.4m had fees kept pace with inflation but will in fact receive £111m – a funding gap of £51.4m. The latest Transparent Approach to Costing (TRAC) data published by the Office for Students (OfS) shows that, across the UK, the deficit on publicly funded teaching is now well in excess of £1 billion.

This position is forcing institutions to seek out and rely on more alternative sources of income, notably by growing enrolments of international students. While international students add to the vibrancy of university life, both academically and culturally, it cannot be right that UK universities are required to subsidise the costs of teaching UK students and producing world-leading research by charging higher fees to international students.

The absurdity of this situation was picked up recently by Private Eye which carried a cartoon where one agitated person remarked to another: ‘Bloody overseas students – coming over here, keeping our universities solvent’. Additionally, and quite apart from the ethical issues with this funding model, there are also now increasing concerns from MPs about the extent to which universities have become vulnerable to international influence through their relevance on fees from overseas students, especially China.

As it has been confirmed that tuition fees will not rise until 2025/26 at the earliest, and due to changes to student loan repayment terms, far from investing more in higher education, expenditure expected public sources is set to drop further.  Changes to the loan system in England for full-time undergraduates starting this September mean that 61% of the loan outlay is expected to be repaid in full, significantly up from 27% in 2022/23. The situation is even more drastic for students on Plan 5 loans entering in 2023/24, which have a lower repayment threshold and longer repayment terms, as government figures project that only 27% of the loan outlay will not be repaid, dropping to 23% in 2027/28.

The result of this pressure is being evidenced in institutions’ financial forecasts, with an analysis by the Office for Students (OfS) finding that 96 providers are forecasting deficits in 2022/23, with 35 of these expecting to report a deficit for three consecutive years (2020/21 to 2022/23). In the words of the OfS: ‘At the current trajectory, we would expect the sustainability of some providers to come under threat over the longer-term if further action is not taken. The mitigations providers may need to adopt could have an impact on their approach to, and the variety of, higher education provision in England.’

The impact of marketisation since the removal of the student number cap in 2015 means that some institutions are faring better than others. Such disparate fortunes have been highlighted during the recent marking and assessment boycott. The ability and not only the willingness of Queen’s University Belfast to breach the terms of national pay bargaining, resulting in their suspension from UCEA, is a clear example of the extent of those diverse fortunes.

And while institutions face growing difficulties, this reduction in funding is affecting students too as the value of maintenance loans has fallen far behind inflation. Loans for living costs in 2023/24 are increasing by only 2.8%. The equalities analysis undertaken by the Department for Education found that this uplift would ‘have a negative impact for students with and without protected characteristics’. To maintain the value of the loan students were entitled to as recently as 2020/21 would have required a 13.7% – a difference of 10.9 percentage points.

With maintenance loans dwindling in real terms, students now work more than ever to cover their increasing costs. The 2023 Student Academic Experience Survey, produced by HEPI and Advance HE, revealed that for the first term since the survey began in 2015 more students are in paid employment than not: 55% compared to 45%. In 2015 only 35% of students were in paid employment. The average number of hours students work has increased too: from 4.8 hours in 2019 to 7.5 hours in 2023.

The impact of the cost-of-living crisis on students, exacerbated by reduced maintenance loans and increasing reliance on work, is therefore severe. The All-Party Parliamentary Group for Students found evidence of students ‘eating less and skipping meals to cut food costs, limiting heating and hot water to reduce energy bills, and having no disposable income to socialise, take part in hobbies, sports, or societies’.

Given such evidence, it seems undeniable that the sector if facing a funding crisis. At the very least, the current settlement is unsustainable for universities and students alike. How can we get out of this crisis?

1. There needs to be a general acceptance, in parliament and elsewhere, that there is a crisis. It is a crisis affecting different institutions to different extents, but it is a crisis across the entire sector and no institution is immune from the effects.
2. We need to emphasis it is a crisis which is affecting students as much as universities. This crisis is limiting student choice, forcing more students to rely on paid employment, and restricting institution’s ability to offer support.
3. The structure which links institutional income to tuition fee levels needs to be severed. For as long as increasing the latter is deemed politically untenable the former will dwindle. The system needs a radical and pragmatic overhaul, keeping those aspects which work well and moving on past those which create barriers.