A degree of regulation: Building a more financially sustainable and resilient higher education sector

Excessive risk-taking by higher education providers must be curtailed.

With concerns mounting over the financial health of the English higher education sector, a new report from the Higher Education Policy Institute (HEPI) – written by Tom Richmond, a former adviser to ministers at the Department for Education – argues many universities have taken too many financial risks, which not only threatens their survival but also that of other institutions.

The report, A degree of regulation: Building a more financially sustainable and resilient higher education sector (HEPI Debate Paper 45), calls on the Government to introduce new measures to curb the most damaging behaviours now evident across the sector.

The report identifies many examples of providers taking too many risks. Some providers have increased their student numbers very quickly. For example, Canterbury Christ Church University has almost tripled in size over the last decade while Arden University has grown by over 30 times. Moreover, an overreliance on international students has left some universities too exposed to the volatility in international recruitment, with 10 institutions accepting over 5,000 students a year each from China and five universities accepting over 5,000 from India. The report’s analysis confirms the widespread concerns expressed by Government Ministers and others about franchised provision, with Global Banking School seeing its franchised student numbers growing from 2,140 in 2019/20 to 32,110 in 2023/24. Excessive borrowing is another risk to financial sustainability, with the University of Northampton having debts equivalent to 137 per cent of its annual income.

The report also highlights how some providers’ failure to prioritise sustainability and resilience is having a detrimental impact on the student experience. Higher-tariff providers have hoovered up thousands of additional students since the pandemic, yet this does not appear to have been accompanied by a commensurate increase in staffing. In addition, universities recruiting more students than there is available accommodation has become a widely reported phenomenon. Meanwhile, the unjustified growth in top degree classifications– more than quadrupling from 7 per cent to 30 per cent over the past two decades – strongly suggests some providers are willing to use generous final grades as a marketing tool to prospective students, despite the damage this could do to the value of a student’s degree certificate and even the reputation of UK higher education on the global stage.

The report offers a ‘toolkit’ of eight separate measures that could be taken to prevent excessive risk-taking without affecting the autonomy of providers that have acted appropriately.

Protecting society’s interests:

1. Constraining provider growth: providers would be limited to 5 per cent annual growth in student numbers;
2. Reducing the reliance on international students: the International Student Levy should only be charged on fees above the maximum tuition fee loan for domestic undergraduates and postgraduates;
3. Restricting franchising arrangements: providers would require government approval for any franchising deal (including existing ones), and providers should be capped at receiving no more than 20 per cent of their income from franchising.
4. Imposing financial buffers: providers would be required to hold ‘capital buffers’, adhere to limits on debt levels and meet minimum liquidity requirements as well as being subject to ‘stress tests’ to assess their financial resilience;

Protecting students’ interests:

5. Implementing a ‘teaching resource cap’ on the number of undergraduate students that can be recruited: providers would be barred from accepting more undergraduates than they are able to support in terms of their overall teaching capacity;
6. Ensuring providers have enough physical space for the students they enrol: providers would be made responsible for ensuring that any student who requires accommodation can secure a suitable living space within a very short travel distance of their place of learning, and every student on a course can be seated within a single venue (for example, a lecture hall) regardless of the course size;
7. Introducing transparency over the maximum number of students on every course: at the start of each application cycle, providers would be required to publish (and subsequently adhere to) the maximum number of students they will admit onto each course;
8. Standardising degree classifications: all providers would be limited to awarding 15 per cent of classifications as a ‘First’, 35 per cent of classifications as an ‘Upper Second’, 35 per cent as a ‘Lower Second’ and 15 per cent as a ‘Third’.

Tom Richmond, author of the report and former adviser to two Education Secretaries, said:

There is so much good work being done by so many higher education providers and academics to deliver a great experience to their students, but my analysis suggests that some providers have taken too many risks, ignored students’ interests and damaged the reputation of the sector by pursuing extra tuition fee income above all else.

Given the pivotal role of higher education in our society and economy, the Government should set new boundaries that aim to curtail excessive risk-taking and promote financial sustainability because, ultimately, the interests of the sector are more important than the interests of any single provider.

Rose Stephenson, Director of Policy and Strategy at the Higher Education Policy Institute, adds:

This report sets out a series of recommendations that are intentionally forthright. We recognise they may be challenging and will prompt a range of views across the sector.
However, they reflect the scale and urgency of the issues facing higher education today. If we are serious about building a more sustainable and resilient system, it is important that we engage with these ideas and foster an open, constructive debate about the sector’s future.

Reports:

Read the full report (PDF)

Notes to Editors

1. HEPI was founded in 2002 to influence the higher education debate with evidence. We are UK-wide, independent and non-partisan. HEPI is funded by organisations and higher education institutions that wish to see vibrant policy discussions.
2. Tom Richmond is an education policy analyst and host of the ‘Inside Your Ed’ podcast. He has spent over 20 years in the world of education, which has included working as a teacher, think tank director and advisor to two Education Secretaries and ministerial teams at the Department for Education.