9th Report - Higher Education and Funding: Threat of Insolvency and International Students

Key findings

• The Office for Students fears 24 providers, including seven with over 3,000 students, are at risk of insolvency and market exit in the next 12 months; 45% of providers could run deficits in 2025–26 without mitigation.
• Undergraduate tuition fee freezes since 2012/13 have eroded university core funding in real terms, forcing institutions to over-rely on uncapped postgraduate and international student fees (£10.9 billion of £25.3 billion total tuition income comes from international students).
• Universities face compounding pressures: inflation, higher employer National Insurance contributions, increased Teachers' Pension Scheme contributions for post-1992 institutions, commercial debt exposure, and research funding consistently short of the promised 80% of full economic cost.
• The proposed £925 per international student levy from 2028 raises concerns that providers may be unable to absorb costs and it could disproportionately hit institutions serving disadvantaged communities.
• No bespoke insolvency regime exists for higher education; uncertainty over legal position means liquidation could force immediate cessation of trading, with insufficient student protection plans.

Recommendations

• Establish a formal early-warning and intervention protocol triggered when the Office for Students categorises an institution as at risk of insolvency, setting out clearly when government intervention is warranted and providing a menu of responses from restructuring to orderly exit.
• Legislate to clarify the legal position on insolvency of different legal forms (Higher Education Corporations, Royal Charter bodies) and create a bespoke higher education insolvency regime prioritising student teach-out, protection of strategically critical courses, and avoidance of geographical 'cold-spots'.
• Significantly strengthen and expand student protection regulations to protect not only students but also staff and local communities in event of large provider collapse.
• Confirm commitment to funding research at 80% of full economic cost and undertake a review of long-term sustainability of research funding.
• Work with the sector to address sharply rising pension costs without undermining staff pensions; review cumulative cost of regulation via the Office for Students.
• Issue clear guidance to institutions seeking to exit or scale back franchising arrangements and develop a sector-wide governance improvement programme (including measures such as deferring senior leaders' performance-related pay until after they leave office).
• Review VAT treatment preventing sharing of back-office services and work with Competition and Markets Authority to ensure competition law does not inhibit productive collaborations.
• Strengthen coordination between universities, further education colleges, combined authorities, metro mayors, local authorities and government departments; reform Strategic Priorities Grant to support high-cost and strategically vital subjects.
• Align immigration policy with higher education sustainability by making the Home Office a co-owner of the International Education Strategy; monitor impact of immigration changes closely and review graduate visa reforms after 18 months.
• Publish full details of international student levy's costs, distributional impact, and interaction with existing maintenance loans and Lifelong Learning Entitlement; engage meaningfully with the sector on price sensitivity.

Key actors

Helen Hayes, Office for Students, Baroness Smith, Susan Lapworth, Bridget Phillipson, Department for Education, UK Research and Innovation, Competition and Markets Authority