Financial sustainability for the higher education sector – where are we now?

20 October 2021

In our July 2021 briefing to the Higher Education sector, we discussed the impact of the recent analysis from the Office for Students’ (OfS) on the Financial sustainability of higher education in England 2021.

A few of the highlights we discussed included: 

  • the projected student number growth of 12.3 per cent over the period to 2025;
  • a position of managing liquid resources through deferring capital spend; and 
  • accessing additional facilities or drawing on reserves. 

Managing these challenges is very much a feature of going concern assessments taking place across the sector this autumn.

During the briefing we also noted the risks to the cost base associated with higher levels of inflation and pension scheme obligations. Those inflationary pressures are certainly materialising, as are some unforeseen costs associated with utilities supply. Pension scheme costs remain high on the agenda for higher education providers, with, for example, the USS recently reporting that contributions to pension schemes are set to increase and benefits are set to change.

Now that the 2021/22 recruitment cycle is finished, we can find further clarification on the forecast increase in student numbers that was included in the OfS report:

2018 2019 2020 2021
UK 426,730 424,550 441,720 448,080
EU (non-UK) 29,850 30,350 29,630 12,920
Not EU 38,330 40,720 44,300 46,610
Total 495,410 495,620 515,650 507,610

Source: Statistical releases – daily Clearing analysis 2021, UCAS

Overall, undergraduate student tuition fees into the sector have decreased for 2021/22, and this will then be a smaller cohort rolling through for the three/ four years of their undergraduate degree.

The OfS publication showed significant variability by tariff group – the higher tariff group was projecting the smallest growth in home and international students. The lower tariff group projected the highest growth for home and international students. However, as the level 3 student outcomes for 2021 demonstrated an increase in higher grades, more students met the thresholds for the higher tariff institutions. 

UCAS data for the 2021 cycle shows that entry into higher tariff institutions increased by 4,450 students from 2020. Lower and medium tariff institutions reduced by 7,260 and 5,220 students respectively. The loss of income disproportionately impacts on institutions differently which is in part connected to their tariff and the extent of the impact is in part connected to the proportion of income represented by undergraduate fees as well the quantum.

Some of the higher tariff institutions did not enter into clearing, which is not unusual for many. However, some also did not enter into adjustment, which is perhaps more unusual; this was as a consequence of already being at capacity. This reflects the increased number of students achieving higher grades in 2021, which brought more students (of an overall smaller total) into the higher tariff institutions catchment. This impact on grades has been noted by Ofqual who has stated that they intend to normalise the profile over two years – though this may well mean an atypical recruitment pattern by tariff for 2022 as well.

Many institutions will need to revisit their forecasts. RSM can support Higher Education providers with the development of financial plans and provide assurances for those charged with the governance of these establishments. We regularly work with education providers to review forecasts, stress test assumptions and establish future funding needs and how these may be met. Where providers are expecting some elements of financial stress RSM can lead discussions with existing and prospective lenders, help navigate the funding options and provide advice in relation to the governance risks.

In the Interim Conclusion of the Review of Post-18 Education and Funding (also known as the Augar review) issued in January 2021, the Government intending to provide a full conclusion to the Review of Post-18 Education and Funding at the next Comprehensive Spending Review was highlighted. It has also been reported over recent days that the graduate repayment threshold will be reduced, bringing forward when graduates start paying back loans and increasing the percentage of loans that would be repaid.

Whilst this won’t be the only factor in potential students’ decision making, it is interesting to note that the Prime Minister and the Chancellor both name-checked apprenticeships in their speeches at the Conservative Party Conference in October 2021 with the Prime Minister saying ‘we all know that some of the most brilliant and imaginative and creative people in Britain and some of the best paid people in Britain did not go to university and to level up you need to give people the options the skills that are right for them’. RSM works with universities assessing their funding compliance arrangements for apprenticeships and also advising on how to maximise their usage of their own levy funds.

As T Levels enter their second year, we await the spending review with interest to see whether rhetoric will become policy to reduce the cost to the taxpayer of higher education and to increase the flow of people into higher and degree apprenticeships.