With student numbers down and costs up, many of our universities and colleges are struggling financially. Facing an uncertain future, some institutions may have to review radically the type and number of courses they offer. The Undercover Academic looks at some of the causes and possible effects of current funding problems in higher education.

In May 2025, the Office for Students, the regulatory body for higher education in England, announced that 43% of the universities and colleges in their analysis expected to be in financial deficit this summer. Reduced student numbers, rising costs and overheads, and higher interest rates have all negatively affected the balance sheet. Over the past couple of years, several universities and colleges have closed courses, made academic and support staff redundant and disposed of land, buildings and other assets. Yet despite these measures, unthinkable not that long ago, the future still holds many practical and economic challenges with a small number of higher education institutions already in discussions with the OfS in case they are forced to close.

There were of course, externalities beyond the control of our academics and administrators. But were there also instances where some in HE were overly optimistic about the future and gave insufficient thought to those pesky ‘what if’ scenarios and contingency planning?

The Covid effect

Covid was an unforeseeable game-changer; dramatically affecting the sector’s finances and the scholar’s experience. Student isolation, followed by an inevitable nervousness about social gatherings and interaction, changed attitudes and behaviours in ways which can still be seen. There may be wider cultural and technological factors at work here, but student attendance, participation and engagement have all been affected. This in turn lessens the appeal of full-time university and college life, particularly as it’s now possible to do many more courses online.

University tuition fees have just gone up to £9535 per year and the much-reported rise in the cost of living will also have had a negative effect on the numbers of UK applicants for full-time places. At a deeper, societal level, a global pandemic undermines our confidence in the future as old career certainties disappear. The emergence of AI has further heightened this sense of job market insecurity. Some prospective students and their families may no longer be prepared to invest in full-time study routes into a world we’re less sure of and where great change may be just around the corner. The increase in the numbers of distance-learning, part-time and apprenticeship-type pathways into some built environment professions is evidence of this new pragmatism.  

The fall in the numbers of international students as a result of changes to the visa system has also been keenly felt. According to the OfS report, the expected number was 15.5% less than expected last year. Students from overseas pay higher fees and have helped balance the books for many years as Government financial support has reduced. 

Prior to Covid, most universities and colleges were growing – introducing new courses and constructing buildings to accommodate the anticipated rise in student numbers. Interest rates on borrowing were low and the outlook was bright. Now, some of those institutions have been left with underused or empty floor space and the repayments on the loans taken out to build them, but at much higher interest rates. This does beg the question whether sufficiently robust market research was carried out prior to expansion, or if there was a Plan B in the event of student numbers falling?

A downward spiral

There’s no doubt that the strongest universities and colleges will weather current unsettled conditions. But smaller, or less well-established institutions with fewer high-demand programmes are at serious risk of, if not sinking, then certainly capsizing.

We all know the elements of a classic ‘downward spiral’ in an organisation or project: it often starts with resource depletion – income streams start to dry up, then costs are cut, jobs are lost – putting more pressure on those left. The quality of the product and group morale starts to slip; talented people leave and fewer of them apply to join. Reputational damage ensues. Customers and stakeholders start to go elsewhere, decreasing income streams further…

Given that pay and conditions for staff in Higher Education have, for several years, been falling behind equivalent jobs in the private sector, a struggling institution may be unable to recruit any great teachers and support staff to deliver great teaching. It’ll be pretty much game over.

For some of our universities and colleges, there could well be a storm coming.