The Office for Students’ (OfS) annual financial sustainability report shows that, while higher education institutions reported a small improvement in financial performance in 2024-25, they remain under continued pressure due to volatile student recruitment patterns and rising costs.
Data published today shows that more than a third (35.8 per cent) of institutions reported a deficit for 2024-25. While this is lower than expected, this figure is forecast to rise to four in ten institutions (42.7 per cent) for 2025-26.
The improvement in financial performance was not evenly shared among higher education providers, with performance varying significantly between different types of institution. The analysis shows how increased adjusted surplus levels from medium, smaller, and specialist institutions have offset an aggregate deterioration in performance for larger research- and teaching-intensive institutions, among others. Even among these groups, the performance of individual universities and colleges varied widely, with some faring much better or worse than institutions of similar types and sizes.
Nearly a quarter of institutions reported that they incurred costs from restructuring activities, such as voluntary redundancy schemes, in 2024-25. Sector-wide, these costs rose sharply by 20.7 per cent to £218.2 million, with the most significant rise reported by larger research-intensive institutions.
In the longer term, institutions have forecast a return to stronger performances from 2026-27 onwards. However, this anticipated recovery is again heavily dependent on the higher education sector’s expectations of a significant increase in student recruitment, which remains unpredictable.
OfS modelling suggests that, if institutions do not meet these optimistic recruitment projections, a substantial number would face deficits, reduced operating cash flow, and declining liquidity. Without effective mitigating action, this would significantly increase financial risk across the sector and heighten the likelihood of disruption to students. As well as general recruitment challenges, the report identifies other risks that have persisted for a number of years, such as an overreliance on fee income from international students.
Philippa Pickford, Director of Regulation at the OfS, said:
‘A financially resilient higher education sector is essential to delivering high quality education and maintaining meaningful student choice.
‘Today’s analysis shows that, while the sector has reported a modest improvement in financial performance, significant challenges remain. We’ve warned of the risks of overoptimistic forecasting, and we remain concerned that this fixation on expected future growth is constraining the pace and scale of actions that institutions need to take to secure their long-term sustainability.
‘We’re pleased to see more institutions are responding to the warning signs, but much of this work appears to be targeted at addressing short-term issues. Put bluntly, that isn’t going to be enough. Our view is that institutions should base their plans on more prudent forecasts to secure their long-term financial health and ensure they can continue to deliver a high quality education for students.
‘It’s also important that we’re vigilant about global factors that may compound financial challenges, such as the ongoing conflict in the Middle East. We encourage institutions to remain alert to risks associated with increased energy bills, reduced student recruitment, and the cost of supporting students who might need help to manage mounting living costs.
‘We remain committed to working collaboratively with the sector to help it navigate this challenging environment. As part of that commitment, we will share information on how we can assist institutions going through a merger or acquisition, how we actively safeguard financial sustainability with institutions shortly, and the aspects of governance we think can make or break financial performance.
‘We hope that this will give institutions more transparency about how and why we make regulatory decisions, as well as helping them to better understand and tackle their own financial risk proactively. In the meantime, we encourage every university and college to read today’s findings and reflect on how they can drive continuous improvement and ensure long-term value for students and the public.’
Notes
- The Office for Students is the independent regulator for higher education in England. Our strategy for 2025 to 2030 seeks to ensure that students from all backgrounds benefit from high quality higher education, delivered by a diverse, sustainable sector that continues to improve.