Universities can’t grow themselves out of trouble forever

The UK higher education sector has a problem. With much of its per-student income capped at an unrealistically low level, it’s been trying to grow itself out of trouble. And, by and large, this strategy has worked. But there’s a limit to how much most universities can grow. And some of them are pretty much there.

Universities (and other types of higher education providers) generate money in three ways. They teach students. They undertake research. And they provide commercial services, either for students (e.g. accommodation) or for everyone else (e.g. consultancy).

There’s a limit to how much universities can charge students for accommodation and such like before they start to look like they’re taking advantage. And commercial income from other sources is (massive university publishing houses aside), generally not huge.

Research income, on the other hand, can be quite substantial for some universities. But there’s a pretty saturated market for the available funding. And much public research funding only covers 80% of the associated costs (if that), which is clearly sub-optimal and creates a built-in financial deficit.

Which leaves income from teaching. In England, universities are allowed to charge ‘home’ (i.e. English) students a maximum of £9,250 a year. The fee has been capped at roughly this level since 2012 (it was initially £9,000, but was raised to the current level in 2017). But thanks to inflation its real-terms value has been decreased by about a third.

When the £9,000 fee was introduced, it didn’t really cover the cost of teaching most subjects. And now it doesn’t even come close.

Things are a bit different for Welsh, Scottish and Northern Irish students enrolled at English universities, but the fundamental principal of them not being a massive money-earner still applies. Ditto for English students studying at universities elsewhere in the UK.

And so, for most universities, breaking even financially in the teaching of home students is about the best they can hope for. And even this is quite a challenge. Which, when you factor in the loss they’re making on publicly-funded research activities, is a problem.

Thankfully, though, the fee cap applies only to home students. It does not apply to students from overseas. And this is where universities have spied an opportunity. Because as long as you can convince overseas students to come to study at your institution, and provided they can get a student visa, you can charge them pretty much whatever you want.

This has worked well, because it turns out there’s a significant number of reasonably well-off families around the world who want their offspring to gain a degree from a prestigious (or, indeed, any) English university. And so many universities have ‘pivoted’ to designing and delivering programmes – especially, in many cases, lucrative taught masters programmes – that appeal to this international audience.

If we’re being honest, this is probably the only thing that has stopped a significant number of universities from going bust.

But there’s a problem. Because most universities can only fit so many students into their lecture theatres, laboratories, halls of residence, etc. They can introduce things like ‘flipped’ teaching (essentially reducing the number of lectures and replacing them with guided self-study) and elements of online/asynchronous study, but that can detract from the student experience and make students wonder why they’re paying upwards of £20,000 (sometimes well upwards) a year to watch YouTube. (Even though, I should probably point out at this juncture, these approaches do actually have pedagogical benefit.)

And there’s another problem. Because the current UK Government is significantly less amenable to immigration – including temporary student immigration – than its predecessors. Which is creating a more ‘hostile environment’ for those who would come here to better themselves. It also places increased monitoring and compliance burdens on the universities themselves.

And so many universities are at an impasse. Or they shortly will be. The international student growth strategies that have worked well until now are starting – as one university finance director observed to me recently – to falter.

And there’s no obvious solution.

My concern is that universities may opt for less-obvious solutions, some of which may also be less than wise. And that isn’t going to help anyone, regardless where they come from.

Simon Perks is the founder and director of Sockmonkey Consulting. He helps organisations with a social purpose to make better decisions, to improve their performance and to drive positive change. Sign up for his free monthly newsletter here.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s