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The financial outlook for UK higher education has worsened, increasing the risk of a large provider becoming bankrupt, according to the university regulator.
The sector’s finances are “towards the most pessimistic end” of modelling from last May, increasing the risk of a “sudden market exit” by a large provider, according to reports from an Office for Students board meeting in December, which were published on Wednesday.
Universities have announced redundancies since the start of the year in an effort to offset the mounting pressure from softening international recruitment and rising employment costs. Unions warn that more than 10,000 staff jobs are at risk.
The board papers outline OfS plans to address escalating risks to the sector by increasing engagement with university finance directors and lenders, improving data-sharing on student recruitment, and triaging at-risk providers based on student numbers.
The minutes reported that the OfS financial assessment team was being “bolstered” and professional services firms had been contracted to provide “additional expertise”, because it had “limited in-house capacity and capability” at present.
The OfS has created the equivalent of 10 new full-time positions since July last year after the government had provided an extra £1.5mn in funding to support its work on financial sustainability, according to a freedom of information request by the Financial Times.
Almost three-quarters of institutions are expected to be in deficit in the academic year starting September 2025 after about 150 providers failed to meet international recruitment targets last year, according to OfS estimates published at the end of last year.
The estimates signalled a deterioration in the state of the sector’s finances since May 2024, when the OfS modelled a best-case scenario of no change in student recruitment.
The Department for Education said in November that tuition fees in the 2025-26 year would increase with inflation, the first rise since 2017. The government is expected to continue to link fees to inflation.
Glen O’Hara, professor of modern and contemporary history at Oxford Brookes University, said previous years of frozen domestic fees and weakening international recruitment had created a financial “doom loop”.
Jo Grady, University and College Union general-secretary, said the Labour government needed to provide emergency funding to “avert catastrophe”.
“If the prime minister continues to sit on his hands, over 10,000 jobs will go, courses will close and one of the UK’s last truly world-leading sectors will crumble,” she added.
The OfS said it had consistently warned of increasing challenges and called for universities to take “bold” action.
“We are working closely with a small number of universities to better understand the actions they are taking to ensure students’ interests are protected. Despite ongoing financial challenges, it remains the case that we don’t expect a significant number of institutions to close in the short term.”
DfE said it had taken tough decisions to bolster universities’ financial sustainability and was committed to “fixing the foundations” of higher education. “We welcome international students who make a positive impact on the UK’s higher education sector, economy, and society as a whole,” it added.
