In 2023/24, many UK universities reported major deficits amid growing sector-wide pressures and a worsening financial outlook. In response, universities are focusing on assessing their financial resilience and strategic planning to secure a sustainable future.

The UK’s higher education sector is facing a convergence of financial, demographic, and policy-related challenges that threaten institutional sustainability and long-term viability.

Over 40% of UK universities are currently experiencing significant financial distress, with an increasing number of institutions implementing redundancy or restructuring programmes to manage budgetary pressures. According to the Office for Students, the regulator for higher education in England, 43% of institutions are projected to operate at a deficit during the 2024/25 academic year, with a number facing their third consecutive year of financial losses.

What challenges are the higher education sector facing?

1. Fees and inflation

Economic factors and government policy have placed significant strain on the financial sustainability of UK universities. Tuition fees for domestic undergraduate students have been frozen at £9,250 since 2017, and although they are set to rise slightly to £9,535 from August 2025, this increase does not compensate for the cumulative impact of inflation over the past decade. If fees had kept pace with inflation since 2012, they would now be close to £15,000. This stagnation in fee income has left universities struggling to cover rising operational and staffing costs, which has been further exacerbated by the increase in employer National Insurance contributions announced in the 2024 budget.

2. International student decline

Compounding the sector’s financial pressures is a sharp decline in international student numbers, driven largely by restrictive visa policies and broader economic and geopolitical factors. Between January and July 2024, visa applications dropped by 16% compared to the same period in 2023, potentially resulting in 60,000 fewer students and a £1.14 billion loss in income across the sector. The UK government’s 2023 decision to ban dependents from accompanying international students on taught master’s programmes has particularly affected applicants from countries where family accompaniment is often essential (the OfS cite countries such as Nigeria and India who fall within this category). Additionally, students are now unable to switch to work visas before completing their studies, further reducing the UK’s appeal compared to countries like Canada and Australia, which offer more flexible and attractive post-study work options.

3. Cost of living

Other well-known deterrents include the rising cost of studying and living in the UK, which has made it a less affordable destination for many prospective international students. The Higher Education Policy Institute indicate that post-Brexit sentiment and political rhetoric may also have damaged the UK’s global reputation. Meanwhile, other countries are actively enhancing their international student offerings, making them more competitive and appealing destinations.

4. Changing domestic student landscape

Market dynamics are also reshaping the domestic higher education landscape. A report from the Higher Education Policy Institute highlights a reversal in student participation rates over the past two years, with a projected 20% drop in demand between 2030 and 2040 due to demographic changes and a decline in the number of 18-year-olds. Rising living costs and inadequate maintenance support are pushing potential students to enter the workforce earlier, rather than pursue higher education. Alternative routes to the workplace are also proving more favourable such as apprenticeships. Furthermore, the fixed fee structure has led to increased competition among universities, with higher-tariff institutions (loosely defined as those with more competitive admissions and higher average UCAS Tariff points) attracting more students. Between 2013 and 2024, applications to higher-tariff universities rose by 40%, while those to lower-tariff institutions fell by 13%, reflecting a shift in student preferences and institutional competitiveness. Although opportunities do exist through the use of technology, especially Artificial Intelligence (AI), and the associated influx of more attractive courses that target a growing demand for skills such as coding and machine learning, the sector needs to be careful to strike the right balance between the wider economic climate and specific prospects that may buck the trend.

How can higher education institutions demonstrate resilience in the face of such challenges?

A university can demonstrate resilience through strong financial planning, strategic adaptability, and effective risk management. This includes regularly conducting financial scenario planning and stress testing to assess the impact of inflation, timing and costs of major capital projects, changes in student recruitment and use of partners, and government policy. Institutions should maintain healthy cash reserves, monitor and comply with loan covenants (if applicable), and be prepared to renegotiate financial arrangements if needed. Diversifying income streams, such as expanding domestic recruitment, developing online and international programmes, and increasing research and trading income, can also reduce reliance on any single source, such as international student fees, though this will need to be managed with rigour and caution to ensure that the Institution’s core offerings and work remain stable. Universities must demonstrate a data-driven approach to forecasting student pipelines and course profitability and show that they are not overly dependent on international tuition income. This includes having a clear international recruitment strategy that accounts for visa restrictions, cost-of-living pressures, and global competition, especially in the context of uncertainty around government policy in these areas. Additionally, institutions should evidence cost control measures in response to inflation and fixed tuition fees, ensuring that budgets and forecasts reflect realistic savings, in a timely manner. As an example, student numbers for the 2025/26 academic year will be known by mid-October and as such, Institutions should be able to react quickly to re-forecast their projections in order to identify any significant shortfalls that cannot be funded, and the institutions systems must be designed well enough to capture this information.

What should your institution do?

When preparing 2025 financial statements ahead of the Autumn audits, the sector wide financial sustainability concerns must be fully factored into going concern assessments and Annual Financial Returns submitted to the OfS, with Board members ratifying the assessment when the financial statements are approved for signature. The going concern assessment is required to cover a period of no less than twelve months from the date the financial statements are approved for signature, with auditors likely to place increased emphasis of their work on this area in light of the current economic climate and well-publicised examples of struggling universities (e.g. University of Dundee). Demonstrating a range of different scenarios that acknowledge student numbers, recruitment strategies and cost control in the assessments will go some way in evidencing that the institution is able to withstand the uncertainties on the horizon.

Now is the time to think about your yearly accounts, the information you need to collate, and any professional support you might need.