Debt levels at UK universities rise amid fresh challenges to higher education sector funding

Commenting on today’s front page story in The Times highlighting the rise in debt held by many of the UK’s universities, Lisa Randall, RSM’s head of education said: 

‘This latest warning about the growing threat of a credit crunch facing UK universities comes amid fresh challenges to the sector’s funding. The recent change by the Office of National Statistics to include student loan debt on the Government’s balance sheet means that it is now in the Government’s interest to reduce loans to minimise the impact on the deficit. This will inevitably increase the pressure on higher education providers to reduce their fees. 

‘While the Government has stated that it is committed to maintaining the principle that there should be no cap on the number of students who benefit from post-18 education, many universities will nevertheless be keeping a close eye on the outcome of the Augar review expected later this year. The review panel is looking at ensuring the funding system provides value for money and works for both students and taxpayers, and that the right incentives are in place to promote choice and competition across the sector.

‘We anticipate that the review, when published, will call for the introduction of shorter and more flexible courses such as accelerated degree programmes to provide greater choice to students. However, this may result in reduced fee income for universities. We also expect a greater emphasis on technical qualifications and a move away from more traditional academic routes for post-18 learners. Again, this may pose a threat to income streams from some more academically-focused institutions.' 

Lindsey Cooper, a restructuring partner at RSM UK said: 

‘A few years ago, the prospect of a UK university going bust would have been unthinkable. However, this is no longer inconceivable and indeed, it could arguably be viewed as a sign that competition in the market is working as it should. 

'Currently there is no formal insolvency regime for Higher Education unlike Further Education where a special administration regime has recently been introduced with a special objective to protect existing students at an insolvent institution.

'Many of the traditional Universities are statutory bodies governed by Royal Charter and as such there is no mechanism for them to be formally wound up through an insolvency process, although they could wind down and cease to operate or look to merge with another institution. The newer post-1992 universities may be limited companies and as such the normal insolvency regime will apply and they will be able to enter into an insolvency procedure such as administration. We don’t anticipate many formal university failures but there is a strong likelihood of more merger type activity within the sector as has been seen in the Further Education sector.'