English universities are taking excessive financial risks that threaten not only their own survival but that of others in the sector, a leading thinktank has warned.
The Higher Education Policy Institute (Hepi) has identified a series of dangerous practices, from unsustainable borrowing to over-reliance on students from single countries, which it argues are undermining the entire higher education system. Its report, authored by former Department for Education adviser Tom Richmond, calls for urgent government intervention to curb what it terms “the most damaging behaviours”.
A Catalogue of Financial Risks
The thinktank’s analysis details several specific hazards. One is the rapid, unchecked expansion of student numbers. Canterbury Christ Church University has nearly tripled in size over the past decade, with one of its degree programmes, business and management, enrolling 27,000 undergraduates in 2024-25 alone. Meanwhile, private provider Arden University has undergone a more than thirtyfold increase. Arden’s own data forecasts its full-time undergraduate student population will reach 22,005 by October 2025. The Office for Students, the sector regulator, has previously noted an increased risk of future breaches of student outcome requirements at Arden.
Excessive borrowing is another critical vulnerability. The University of Northampton is highlighted as having debts equivalent to 137% of its annual income, a position largely due to it securing a public fixed-rate bond, guaranteed by the Treasury, to fund a £330 million campus. The university’s 2023-24 annual report indicates its long-term debt is subject to fixed-rate agreements and financial covenants linked to a £231.5 million bond issued for its Waterside Campus. The same report projects a £4.6 million deficit for 2024-25 after adjustments.
Hepi also warns of over-reliance on international students, with 10 institutions accepting over 5,000 students annually from China and five from India, leaving them exposed to global market volatility. This comes as stricter visa rules have led to a significant drop in study visas issued in early 2024, projecting a net reduction in annual tuition fee income.
Further risks are identified in the explosive growth of franchised provision, where a university authorises another body to deliver its courses. The Global Banking School, for instance, saw its franchised student numbers balloon from 2,140 in 2019/20 to 32,110 in 2023/24. The report also criticises rampant grade inflation, suggesting generous final grades are being used as a marketing tool. In 2023-24, 28.8% of graduates were awarded first-class honours, a figure Hepi believes undermines degree credibility.
Broader Sector Pressures and Proposed Fixes
These specific risks exist against a bleak financial backdrop for the sector. England’s higher education regulator, the Office for Students, warned last November that nearly half of institutions (45%) were facing deficits in 2025-26, with 124 providers potentially reporting a shortfall—a higher figure than previous forecasts. The cost of living crisis is also impacting students’ ability to study, with many taking on increased work hours.
In response, Hepi’s report, “A Degree of Regulation: Building a More Financially Sustainable and Resilient Higher Education Sector,” proposes a suite of stringent measures. It suggests capping annual growth in student numbers at 5% and introducing a “teaching resource cap” to prevent universities from enrolling more undergraduates than they can support with teaching staff.
To bolster financial resilience, Hepi recommends universities be required to hold “capital buffers” and observe minimum liquidity requirements. It also states universities must ensure sufficient accommodation and lecture hall capacity for all students they enrol, following reports of overcrowding.
On academic standards, Hepi proposes standardising degree classifications, limiting providers to awarding 15% first-class honours, 35% as a 2:1, 35% as a 2:2, and 15% as a third. To curb franchising risks, it recommends government approval for such deals and a cap on income from franchising at 20% of a provider’s total income.
Rose Stephenson, Hepi’s director of policy and strategy, acknowledged the recommendations were challenging but necessary to foster a debate about the sector’s future. The University and College Union (UCU) responded to aspects of the report by emphasising the significant contribution of international students and calling for an end to “hostile environment” policies.
Universities UK, representing 142 institutions across the UK, said it was essential for the government to work with the sector to put universities on a sustainable financial footing. A Department for Education spokesperson said universities were responsible for their own finances but that the government was committed to “fixing the foundations” of higher education. The Office for Students has previously stated it will not provide bail-outs but will intervene if necessary to protect student interests.
