Sharp rise in number of universities in deficit, report says

The number of funding-short universities has risen sharply in recent years, with experts warning that students need to know if their course offers good value for money.

In 2019/20, almost a third – 32% – of universities had an in-year deficit, compared to just 5% in 2015/16.

The National Audit Office (NAO) found that 20 universities that have had a deficit for at least three years range in size from 200 students to over 30,000, while in 2020/21 33 of 247 providers (13%) had projected that, by the end of the year, they would not have enough money to continue funding at least 30 days of expenses from their cash or credit reserves.

“The number of providers of all types that appear to face near-term risks to their financial sustainability and viability is small but not insignificant,” the NAO said in a report.

He added that, during the pandemic, “immediate risks” have been created for university finances, such as the potential drop in tuition fees for international students.

Universities have also had to spend money to adapt to distance learning.

The NAO found there were “common weaknesses” in student protection plans, with universities being “overly optimistic” about the risks they faced.

He said the Office for Students (OfS) also lacked strong metrics to judge the value for money students are getting from courses, with a survey in February and March 2021 revealing that only 33% of undergraduates thought that the university offered good value for money, while 54% thought it did not.

The NAO recommended that the Department for Education work with the OfS to “agree on the best way to measure the impact of the regulatory regime for the higher education sector”.

He added that the OfS should communicate “more effectively” to build trust in its approach as a regulator.

Labor MP Meg Hillier, Chair of the House of Commons Public Accounts Committee: “In recent years the higher education sector has come under increasing financial pressure and Covid has only added to the pressure.

“The OfS plays a vital role in monitoring the financial health of education service providers. He’s gotten off to a good start in the tough times, but clearly needs to do more to get suppliers on board with his approach.

“However, although more than half of students believe their course is not profitable, the OfS has no measurement for this. Students deserve better.

“It is essential that the OfS, DfE and higher education institutions work together on these initial issues to create a strong and positive regulatory environment that best supports students.”

Gareth Davies, head of the NAO, said: ‘While no higher education provider has failed under Student Office regulations, the number of shortfalls has increased significantly.

“The industry issues that were causing financial stress before the impact of Covid-19 have not gone away and will continue to add pressure.

“The financial viability of the sector can have a profound impact on the value for money of education for two million students each year.

“The Student Office should improve its communication with individual providers to build trust in its approach. As it matures as a regulator, it should also make better use of its knowledge to reduce risks that could lead to financial failure.

Nicola Dandridge, Chief Executive of the OfS, said: “We welcome the NAO’s focus on the financial sustainability of higher education providers. This is an issue of considerable importance to students and the wider communities that universities and colleges serve, as well as to taxpayers.

She added: “We have worked closely with a small number of suppliers who have reported concerns about their financial situation.

“There are – as the report rightly notes and as we have made clear – considerable variations in financial performance and prospects between different providers. However, predictions by others that dozens of providers would fall victim to the financial pressures of the pandemic did not materialize.

“We are carefully considering the NAO’s recommendations on areas where we could do more in our engagement with universities, colleges and other providers.

“So, for example, we are now advancing work to gather providers’ views on a range of issues, including financial viability, and we will consider the views of the NAO in this context.”

A Department for Education spokesperson said: ‘Universities and colleges have done a fantastic job throughout the pandemic. Despite the challenges they have faced, this NAO report and the most recent OfS report make it clear that, overall, the higher education sector remains financially resilient.

“Higher education is a key part of our skills revolution, which is why we have recently put in place reforms to strengthen the sustainability of our world-class higher education system, including ensuring that the system student loans is fairer for students and taxpayers. This is backed by almost £900million to support teaching and students, including the biggest increase in government funding for the higher education sector. for over a decade.