Higher education finances and funding in England

Concerns about the financial stability of higher education providers

The financial sustainability of the higher education sector in England has come under increasing strain following reductions to government grants and an ongoing freeze in undergraduate tuition fee caps. Recent inflationary and cost of living pressures have also placed demands on universities in relation to pay settlements, energy costs, and building projects.

In May 2024, England’s higher education regulator, the Office for Students (OfS), said 40% (108) of all providers 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.

There are growing concerns about the higher education sector’s reliance on international tuition fees. The House of Commons Public Accounts Committee has warned that higher education providers are potentially exposing themselves to significant financial risks if future growth in international student numbers is not as high as they expect. Other risks facing the sector, as identified by the professional services firm PwC, include the likelihood of increased expenditure (for example, through higher pension obligations for some universities) and a reduction in the growth rate of domestic undergraduate students.

Higher education sector income and expenditure

In academic year 2022/23 the total income of higher education providers in England was £44.0 billion. This has increased by almost 200% in real terms over the 30 years to 2022/23 (as shown in the chart below), while over a similar period the total (headcount) number of students has increased by 71% and the number of academic staff by 110%.

The main change in the make-up of this income over time has been the increasing share from tuition fees and the falling share from direct government funding through the higher education funding bodies. Fees made up 24% of income in 2005/06 and increased to more than 50% from 2019/20 onwards, while funding body grants fell from 39% in 2005/06 to 12% in 2022/23.

Income from fees paid by home and EU students increased after the undergraduate fee cap was raised to £3,000 in 2006 and £9,000 in 2012, but its share of total income has fallen in recent years. The share of income from non-EU overseas fees has increased steadily since the mid-1990s and more rapidly from 2018.

In 2022/23, 41 publicly funded universities in England (32% of the total number) had a financial deficit: their total expenditure was greater than their total income. This figure has increased in the last two years.

Public funding of higher education in England

Public funding to higher education providers is delivered directly through the two funding bodies (the Office for Students and Research England) and indirectly through tuition fee loans. The Office for Students allocated around £1.4 billion for teaching in 2023/24. The majority of this was for courses which cost more to provide than can be met through tuition fees alone.

Most direct funding for teaching was removed when the fee cap was raised to £9,000 in 2012. Total direct government funding for teaching has fallen by more than 60% since 2010/11.

Direct funding for research through Research England, which supports research capacity and infrastructure (rather than specific research projects) has broadly maintained its real value since 2010.

The proportion of public funding for higher education through each route is shown in the chart below.

In 2023-24 just over £11 billion was lent to students in England in undergraduate fee loans and postgraduate loans. This makes up the bulk of all public financial support to higher education providers. However, the long-run costs of these loans to government is less than their value to providers, as most graduates will repay some of their loan. The estimated long-run costs to government of funding these loans is currently around £3 billion a year.

Total public expenditure on higher education in England, including direct funding, long-run cost of fee loans, plus long-run costs of maintenance loans and targeted support for students, was £10.3 billion in the 2023-24.

Alternative funding models

According to the Institute for Fiscal Studies (IFS), the simplest way of improving the financial position of the UK’s higher education providers would be to raise the tuition fee cap for undergraduate students and/or increase the amount of funding provided through teaching and research grants.

More significant reforms to the higher education funding model have also been proposed and modelled by the consultancy London Economics as part of work commissioned by the University of the Arts London, the University and College Union, and in a collection of essays published by the Higher Education Policy Institute. These include:

• A specific tax paid by graduates
• A graduate employer levy paid by organisations that employ graduates
• A reformed student loan repayment system, with stepped repayments that mean higher-earning graduates make repayments at a higher rate than lower earners

The IFS’s student calculator for England allows users to look at the potential impacts that changes to the student finance system would have on public spending and graduate repayments.

Further reading

• Higher education in the UK: Systems, policy approaches, and challenges
• Higher education around the world: Comparing international approaches and performance with the UK
• International students in UK higher education
• Students and the rising cost of living