Tuition fees make up an increasing proportion of higher education funding, but frozen domestic fee caps and rising costs threaten the sector’s financial sustainability. The number of providers in deficit could rise further if new visa restrictions reduce international student numbers.

How is higher education funded?

The main income sources of the higher education sector are tuition fees (53%), research grants and contracts (14%), and direct government funding (12%). The total income of all providers in the UK was just over £50 billion in 2022/23, according to the Higher Education Statistics Agency (HESA).

Higher fees from 2012 increased international student numbers, and cuts in government funding have changed the balance of income sources linked to teaching in the UK. In 2011/12, tuition fee income made up 64% of the sector’s total teaching income sources. By 2022/23, this had increased to 93% according to HESA data.

A chart showing the changing makeup of higher education funding for teaching specifically. In 2000, funding body grants made up over half the teaching income for providers, with fees and education contracts making up the remaining funding. By 2023, fees accounted for over 90% of this funding.
Notes: These are the funding sources for teaching specifically, and not all funding HE providers receive. The data includes alternative (private) providers from 2018/19 and 2022/23 data excludes eight providers which had not finalised their data in time. Real-terms adjustment uses GDP deflators, smoothed across the years from 2019/20 to 2021/22 to remove pandemic-related distortions.
Sources: Higher Education Statistics Agency, Consolidated statement of comprehensive income and expenditure 2015/16 to 2022/23 (and earlier), Table 1; Higher Education Statistics Agency, Funding body grants 2015/16 to 2022/23, Table 7c; HM Treasury, GDP deflators at market prices, and money GDP March 2024 (Quarterly National Accounts); calculations from the House of Commons Library (.xlsx)

Higher education is devolved. The Scottish Government pays tuition fees for students in Scotland, but places are capped. Students elsewhere in the UK can receive government fee loans.

Are universities facing financial pressures?

The UK higher education sector had an income surplus in 2022/23, but HESA data shows 27% of publicly funded providers (42) were in deficit. England’s higher education regulator, the Office for Students (OfS), said 40% of all English providers (108) expected to be in deficit by the end of 2023/24.

According to one University and College Union branch, more than 50 universities have consequently announced redundancies and course closures.

The freezing of domestic tuition fee caps, reductions to teaching grants, and inflation have all contributed to this challenging financial environment. The Institute for Fiscal Studies (IFS) has said the real value of spending per student in England has fallen by 18% since 2012.

Students have also faced financial pressures in recent years. See Commons Library briefings on students and the rising cost of living and the value of student maintenance support.

How important are the fees of international students?

Universities generally charge international students higher fees than ‘home’ students. Undergraduate international fees are not capped and average around £22,200 per year, compared with £9,250 for home students in England and Wales, and £4,750 in Northern Ireland.

In 2022/23, tuition fees from international students were worth £11.8 billion to UK universities, according to HESA. This was 23% of total income, up from around 5% in the mid-1990s. These fees help to subsidise the ‘loss-making’ activities of research and teaching home students.

Following new restrictions on student visas, international student enrolments fell in January 2024 compared with the year before, according to data from the education software company Enroly. The OfS has warned lower-than-expected international student recruitment could threaten the financial sustainability of some providers in England.

See the Library briefing International students in UK higher education for more information.

How else could higher education be funded?

The Higher Education Policy Institute, a think tank, has published alternative funding models, including replacing fees with increased teaching grants, a new levy on graduate employers, and reforming loan repayment terms.

The merits of a tax on graduates have long been debated, with some arguing it would be a more progressive funding model and others saying it could politicise higher education funding.

The IFS’s student finance calculators for England and Scotland allow the consequences of different funding options to be modelled.

Authors: Joe Lewis and Paul Bolton

Photo Credit: Blenheim bedroom / Nottingham Trent University / CC BY-NC-ND 2.0

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