“Three or Four Universities” on the Brink of Bankruptcy

Student debt has been in the headlines recently. But it turns out that students who owe tens of thousands of pounds once they graduate aren’t the only ones who are struggling.

With reports that three British universities are on the brink of bankruptcy, how are institutions which are allowed to charge some of the highest fees in the world getting into such serious financial difficulties?

Experts blame a falling number of 18-year-olds and declining numbers of international students applying to British universities. Universities have expanded as student numbers have risen, expansion funded by debt borrowed on the assumption that student numbers would continue to rise. However, now that applications have begun to stagnate, there are too many university places and not enough applicants.

In this climate of increased competition to attract students, some universities are inevitably losing out. Nick Hillman, Director of the Higher Education Policy Exchange think-tank has warned that some universities who have seen a fall in applications are “resorting to taking bridging loans to tide them over until their student fees come in. They are borrowing just to survive.”

If student numbers don’t begin to pick up again, there is a very real prospect that some universities might go bust.

Matt Robb, an education specialist for management consultancy EY Parthenon, claims that “there are about three or four universities where it is possible [they could go bankrupt].

“They are universities that are in places that are not attractive for students to study, or they are smaller universities that are close to more popular institutions. Some of them may never have been financially viable in the first place. If there is no compelling public interest, let them go bust.”

Robb is among those who argue that, if the higher education sector is going to operate as a marketplace in which competition drives up standards, we have to accept that institutions that can’t compete will go out of business. Perhaps universities that don’t offer a good enough standard of teaching don’t deserve to stay open.

However, letting universities fail would have serious consequences. Students whose university went bankrupt halfway through their course would be left in limbo, having spent years and paid thousands of pounds studying for a degree they might never receive. A university closing down would have a devastating impact on the local area, especially in a smaller town where the university might be the main employer. Lenders who previously saw universities as safe investments could back away, undermining funding for all of higher education.

It would be an extremely brave Education Minister to stand by and let all this happen. Surely a last-minute bailout would be arranged, even if not allowing universities to fail goes directly against the government policy of treating universities like independent businesses.

The past couple of decades have been boom years for universities. Applications (from the UK and abroad) have soared, as have tuition fees. But as money has poured into higher education, competition has intensified, with new universities established and existing institutions expanded. This has maximised their income, but debt-fuelled expansion has also left them vulnerable to any future slump in demand.

Now it appears that the good times may be coming to an end, universities could be heading from boom to bust, with consequences for the government, employees and students. Adding into the mix the impact of Brexit on international student numbers, and ongoing disputes between management and academic unions – Britain’s universities face an uncertain future.

Ian White, Newspaper Associate Editor

Image: [Pixabay]