Thirteen universities face “a very real prospect” of insolvency following the coronavirus crisis unless they receive a government bailout, a study suggests.
High-ranking universities with large numbers of international students face the largest immediate drop in income, says the Institute for Fiscal Studies.
But the least prestigious universities are at the greatest risk, says the IFS.
The IFS says a targeted government bailout of the universities most at risk is the most cost-effective plan.
The fallout from Covid-19 “poses a significant financial threat” across UK higher education, with most institutions left with reduced net assets, says the analysis.
They say the total size of the sector’s losses is “highly uncertain” – anywhere between £3bn and £19bn, or between 7.5% and almost half the sector’s annual income.
The researchers’ central estimate is an £11bn loss, amounting to a quarter of the sector’s annual income.
Lockdown related losses include:
- fewer international student enrolments
- less income from student accommodation, conferences and catering
- losses on long-term investments
In addition, universities which are running pension scheme deficits will see them widen during the pandemic as investments stagnate.
But there are big variations between institutions, says the study.
Struggling for students
Universities with many international students which also have substantial pension obligations are often also higher-ranking institutions, with “large financial buffers” and the option of alleviating losses by admitting more UK-based students.
But this behaviour could harm less selective universities, which could see their potential students recruited by higher-ranking institutions.
Without significant redundancies, which would impact on teaching quality, universities are unlikely to be able to claw back much of the losses through cost savings, the researchers warn.
Some universities went into the crisis with far stronger finances than others, they add.
“Our analysis shows it is not the universities with the greatest losses, but the institutions in the weakest financial positions before the crisis, that are at the greatest risk of insolvency,” they conclude.
The researchers do not name names but, under their central estimate, suggest 13 universities, out of the UK’s 165 higher education institutions, would end up with negative reserves “and thus may not be viable in the long run without a government bailout or debt restructuring”.
The analysis, which was funded by the Nuffield Foundation, suggests a targeted bailout aimed at “keeping these institutions afloat could cost just £140m”.
IFS research economist Elaine Drayton said a targeted bailout would be by far the cheapest option.
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“However, rescuing failing institutions may weaken incentives for others to manage their finances prudently in future,” she warned.
“General increases in research funding avoid this problem, but are unlikely to help the institutions that are most at risk, as few of them are research active.”
The National Union of Students said the crisis had “exposed many of the flaws inherent in running our education like a market”.
“When funding is so unstable, it’s no wonder that our universities and the jobs of thousands of academic and support staff are now at risk,” said a spokesperson.
“We are of course especially concerned about the risk to students that this instability poses.”
The University and College Union’s general secretary, Jo Grady, called on the government “to step in and guarantee lost funding for universities so they can weather this crisis and lead our recovery on the other side”.
“We need a comprehensive support package that protects jobs, preserves our academic capacity and guarantees all universities’ survival,” said Dr Grady.
In a statement, the Department for Education said a government package announced in May, allows UK universities to access business support and job retention schemes, while the sector will also benefit from the pulling forward of £2.6bn in tuition fee payments to ease cash flow problems.
Additionally, research focused universities across the UK will see 80% of fees lost from international students covered by government, alongside £280m in extra research funding.
Alistair Jarvis, chief executive of Universities UK, said the body had been working closely with government on proposals to support universities.
Nicola Dandridge, chief executive of the universities watchdog for England, urged all registered higher education providers to inform the Office for Students if they encountered financial difficulties.
“In these circumstances, we will be proactive in ensuring students’ interests are protected, including helping make sure that students can find an appropriate course elsewhere should any provider close,” she added.