A recent report from the Higher Education Policy Institute (HEPI) has sent shockwaves through the UK higher education sector, warning that many universities are engaging in 'excessive' financial risks that could jeopardize not only their own futures but the stability of the entire system. Titled A Degree of Regulation: Building a More Financially Sustainable and Resilient Higher Education Sector, the paper by former Department for Education adviser Tom Richmond highlights how aggressive growth strategies, heavy borrowing, and over-dependence on volatile revenue streams have pushed some institutions to the brink. As English universities grapple with persistent deficits—nearly half projected to operate in the red for 2025-26—this analysis underscores the urgent need for regulatory guardrails to protect students, staff, and taxpayers alike.

The backdrop is a sector under strain. The Office for Students (OfS), the independent regulator for higher education in England, has repeatedly flagged financial vulnerabilities. Cash holdings dropped 9.8% from 2022-23 to 2023-24, while surpluses, operating cash flow, and net liquidity all declined. Five providers are already under 'Student Protection Directions' due to material closure risks, with 71 more under formal monitoring. Against this, the HEPI report argues that self-regulation has failed, calling for targeted interventions to prevent a cascade of failures.

🔴 High Borrowing: Debts Outpacing Income

One of the most alarming trends identified is excessive borrowing. On average, university debts stand at 28% of annual income, but 38 providers exceed 50%, 10 surpass 100%, and five top 200%. The University of Northampton exemplifies the danger, with debts equivalent to 137% of its income after funding a £330 million campus via a Treasury-guaranteed bond. Arts University Bournemouth (137.3%), Coventry University (86.7%), and others like Oxford Brookes (59.4%) and Cardiff (67.4%) also feature prominently.

This leverage amplifies vulnerability to shocks. Low liquidity exacerbates the issue: 21 providers have ≤30 days' cash, 43 have 31-60 days. Richmond notes that such positions mirror pre-2008 banking excesses, where unchecked debt fueled growth but sowed seeds of crisis. For European peers, where public funding dominates (e.g., Germany's stable model), UK's market-driven approach stands out as uniquely precarious.

Rapid Expansion: Growth Without Foundations

Post-2012 removal of student number caps unleashed explosive growth, but often without matching infrastructure. Canterbury Christ Church University nearly tripled its size over a decade, while private for-profit Arden University grew 3,217% and University of Law 1,811% from 2015/16 to 2024/25. BPP University surged 421%.

This 'growth at all costs' mentality strains resources. Overcrowded lectures at elite institutions like Manchester, Lancaster, and Nottingham force overflow rooms or online streaming. Accommodation shortages hit 207,000 beds in 2022; Bristol housed students 30 miles away in Wales. Such practices erode quality, risking student dissatisfaction and regulatory scrutiny.

International Students: A Volatile Lifeline

International fees, often £38,000 for undergrads and £30,000+ for postgrads, prop up finances—providers forecast a 24% rise by 2027/28, over 60% from abroad. Yet numbers peaked then dipped 21% below forecasts due to visa curbs. Ten universities take ≥5,000 Chinese students; five ≥5,000 Indians (BPP: 11,995 Indians). Richmond warns of 'cash cow' treatment, exposing institutions to geopolitical shifts, as seen in Nigeria's recent decline.

In Europe, countries like the Netherlands (capping non-EU students) and France (balanced funding) mitigate similar risks better than UK's fee-heavy model.

Franchising Boom: Hidden Dangers

Franchised students (degrees delivered by partners) reached 135,850 (5.7% total) in 2022/23, doubling recently. Lead providers pocket 12.5-30% fees with 30-50% margins; 53% of £4.1m student loan fraud linked to franchises. Global Banking School ballooned to 32,110 via franchising; Canterbury Christ Church, Bath Spa, Buckinghamshire New have majority franchised students.

Photo by Trnava University on Unsplash

• 80,000 franchised at unregistered providers.
• Risks: quality dilution, fraud, sudden partner collapse.

Grade Inflation: Marketing Over Merit

First-class degrees rose from 7% mid-1990s to 30% in 2025; 78% get top two classes. 22 providers hiked Firsts >20pp since 2010 (Teesside +28%). Report links this to recruitment marketing, eroding credential value.

Stakeholder Reactions: Calls for Action

Richmond: "Some providers have ignored students’ interests." HEPI's Rose Stephenson: Recommendations "challenging but necessary." Universities UK urges government collaboration; DfE stresses autonomy but supports foundations. Unions fear job losses; students worry about course viability.

HEPI's Eight Recommendations: A Regulatory Toolkit

Richmond proposes eight measures:

• Cap growth at 5% annually (10% for small providers).
• Intl levy as % of excess fees (10-30%).
• Franchising approval/caps (50% to 20% by 2030).
• Mandate buffers, liquidity, debt limits, stress tests.
• Teaching cap based on staff capacity.
• Guaranteed accommodation/seating.
• Publish course size maxes.
• Standardize classifications (15/35/35/15%).

These balance autonomy with protection, akin to banking post-2008.

European Context: Lessons from the Continent

While UK relies ~50% on fees, continental Europe favors public funding (Germany 80%+ state, Netherlands balanced). France/Italy face enrollment drops but less debt risk. UK's model amplifies volatility; EU's Bologna Process emphasizes sustainability.

Impacts: Job Cuts, Course Closures, and Beyond

Deficits drive 105 unis to redundancies; 50 at closure risk. Students face disrupted studies; research stalls; local economies suffer. Northampton's bond raises sector-wide contagion fears.

Photo by Shashank Raghuvanshi on Unsplash

Outlook: Toward Resilience

Government tuition uplift helps marginally, but systemic reform needed. Providers diversifying revenue (endowments, industry ties) and efficiencies (shared services) offer hope. With regulation, UK HE can rebound stronger, prioritizing quality over quantity.