English universities have been warned about making “overambitious” student recruitment forecasts after the sector watchdog said institutions’ assumptions about future growth in enrolments were “likely to be unachievable”.
According to the projections, published as part of an Office for Students report on the financial health of the sector, universities are predicting a 10 per cent growth in recruitment over the next four years, including 78,000 more students from the UK and the European Union.
The OfS says it has “particular concerns” about the “reliability” of the forecasts given that a demographic decline in the number of UK 18-year-olds will only just have turned a corner by 2021. It is estimated that there will still be 41,000 fewer UK school-leavers in 2021 compared with 2017.
It “suggests a significant level of overambition across the sector”, even if separate assumptions about the growth in overseas recruitment – which is forecast to rise by 56,000 students by 2021-22, bringing in an extra £1.7 billion in fee income – come to pass.
“In our view, this aggregate growth ambition is likely to be unachievable over the forecast period, particularly at a time when the number of 18-year-olds in England will continue to decline until 2020,” the report says.
“This matters because tuition fees, which are dependent on student numbers, are an increasingly important source of income for individual providers.
“A provider whose financial viability and sustainability is underpinned by reliance on fee income based on student recruitment targets which prove to be unrealistic is exposing itself to significant risk.”
The universities forecasting the biggest increases in student recruitment are the 44 least-selective institutions, which together are projecting a 12.2 per cent increase in student numbers from this year to 2021-22, including a 35.7 per cent uplift in overseas students and 9.7 per cent bump for UK/EU enrolment.
This comes despite past analyses showing that lower-tariff universities have been among those hardest hit by falls in domestic recruitment since caps on undergraduate numbers were lifted.
Overall, the OfS report – Financial Sustainability of Higher Education Providers in England – says universities are in “reasonable financial health”, although it stresses that this masks huge variations among individual institutions.
It says the financial forecasts submitted by universities to the OfS suggest a “general weakening” of performance this year, with 54 providers predicting a deficit in 2018-19 compared with 47 recording a deficit last year.
Some of the biggest downward shifts in surplus/deficit this year are forecast to be at the 29 most selective universities, with surpluses on average falling to 0.9 per cent of income for such institutions, from 3.1 per cent last year.
The report suggests that this is in part the result of “a small number of providers including in their forecasts provisions for increased pension costs relating to the Universities Superannuation Scheme”.
Sir Michael Barber, chair of the OfS, said universities “should be wary of relying on overambitious recruitment targets, and look at student numbers realistically rather than over-optimistically”.
“This is particularly important at a challenging time for the sector overall. Uncertainties ahead include the UK’s future relationship with the EU, possible policy changes resulting from the Augar review, and increased pension costs. Universities need to have a good grip on costs and base their actions on realistic forecasts,” Sir Michael said.
“It remains our position that we will not bail out universities or other higher education providers facing financial failure. However, we are ready to work creatively with any provider facing challenges – especially if they come to us with any difficulties early. Were problems to develop, we would seek to intervene to protect the interests of students.”
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