Four in 10 higher education institutions are expected to be in financial deficit this year, with smaller and specialist providers showing signs of recovery as some larger research- and teaching-intensive institutions appear to be in decline. 

New figures from the Office for Students (OfS) show that the English higher education sector reported a small improvement in financial performance in 2024-25, with total sector income up by 2.7 per cent compared with the previous year, driven primarily by higher income from tuition fees and education contracts. 

Separate data published at the same time by the Higher Education Statistics Agency (Hesa) show that combined income among higher education providers rose from £52.5 billion in 2023-24 to £53.9 billion in 2024-25, while their combined expenditure rose from £43.4 billion to £53.1 billion.

Lincoln Bishop and Coventry universities, as well as the universities of Bedfordshire and Derby, had some of the largest deficits as a percentage of their total income, according to this data. 

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Universities UK members with the largest deficits as a percentage of total income (excluding pension adjustment)

In total, according to the OfS, 35.8 per cent of providers reported a deficit in 2024-25, which the regulator said was a “notable improvement” on expectations in the previous return, when 44.2 per cent of the sector had forecast a deficit for the same period.

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Institutions’ performance is expected to deteriorate in the current academic year however, with 42.7 per cent forecasting deficits, before returning to a stronger position in 2026-27. 

The OfS said this recovery is “heavily dependent” on a “significant” expected increase in student recruitment. The regulator warned providers against “over-optimistic” forecasting. 

Overall student recruitment declined in 2024-25. Domestic student recruitment increased by 3.5 per cent – 8.6 per cent below the sector’s previous forecast but non-UK entrants fell by 7.7 per cent, which was 9 per cent below forecasts. 

According to Hesa, 52 per cent of the sector’s income came from tuition fees in 2024-25. International students’ fees accounted for 23 per cent of total income, the same proportion as in 2023-24.

“We remain concerned that this fixation on expected future growth is constraining the pace and scale of actions that institutions need to take to secure their long-term sustainability,” said Philippa Pickford, director of regulation at the OfS. 

The OfS also said that sector-wide improvements “mask substantial variation in financial performance”, with “significant differences both between and within provider typologies”. 

While overall adjusted surpluses increased by 14.7 per cent, this was primarily driven by small, medium and specialist providers. 

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“The aggregate gains for these cohorts more than offset a deterioration in performance among larger research-intensive, larger teaching-intensive and Level 4 and 5 providers,” the OfS said in its report. 

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It added that while there was an overall reduction in aggregate surplus among larger and lower-level providers, “nearly half of these providers experienced a surplus increase”. 

The regulator said it had seen “an increasing number of providers” taking action to address their financial position, but warned that much risk management “remains predominantly short term in nature”. 

“Put bluntly, that isn’t going to be enough,” said Pickford. “Our view is that institutions should base their plans on more prudent forecasts to secure their long-term financial health and ensure they can continue to deliver a high-quality education for students.”

She added that the sector needed to remain “vigilant” about global factors that could worsen financial challenges, including the conflict in the Middle East.

Libby Hackett, chief executive of the Russell Group, said the figures confirm “that large parts of the sector are under unprecedented financial strain”. 

“We need close collaboration and a joined-up policy approach to put universities back on stable footing so they can continue delivering for the UK’s workforce, public services and communities,” she said.

Vivienne Stern, chief executive of Universities UK, said universities are “working hard to ensure their long-term stability” but other costs, including the incoming international student levy and the recent national insurance rise, are adding to pressures. 

“We need a serious conversation how degrees are funded and whether the government’s share matches the value universities deliver for wider society,” she said.  

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helen.packer@timeshighereducation.com