Nearly half of English universities are facing a financial deficit this year after their performance lagged behind forecasts, according to the latest Office for Students (OfS) analysis of sector finances.

The regulator report finds the financial sustainability of English universities?has declined for the third year running, driven mainly by falls in international student numbers and rising costs.

It warned the outlook for this year has worsened, with 43 per cent of institutions forecasting a deficit.

International student recruitment was down 15.5 per cent in 2023-24 compared to initial predictions, mainly?because of a decline from January 2024 onwards, when the government ban on dependant visas came into force.

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This reduction in students is predicted to continue in 2024-25, with entrant numbers projected to be 21 per cent lower than previous forecasts.

The government is thought to be considering additional limits on international student visas and the graduate route in its upcoming immigration White Paper, which could further damage incoming numbers.

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Although some universities are predicting future financial growth, the OfS has warned they may be too optimistic, particularly when it comes to estimating rebounds in student numbers.

While providers forecast an increase of 23.9 per cent in tuition fee income between 2023-24 and 2027-28, over 60 per cent of this increase is expected to come from international students¡¯ tuition fees, the regulator said. Universities are predicting 19.5 per cent growth in non-UK students and 26 per cent growth in domestic student entrants.

¡°We remain concerned that predictions of future growth are often based on ambitious student recruitment that cannot be achieved for every institution,¡± said Philippa Pickford, director of regulation at the OfS.

¡°Our analysis shows that if the number of student entrants is lower than forecast in the coming years, the sector¡¯s financial performance could continue to deteriorate, leaving more institutions facing significant financial challenges.¡±

The regulator¡¯s future models, which do not account for mitigating actions universities are taking, suggested up to 200 institutions could be in a financial deficit by 2027-28, in the worst-case scenario.

However, the OfS said it has seen ¡°increasing numbers of providers taking action to manage financial pressures, including protecting their liquidity through cost management, boosting student recruitment and strategically assessing their asset base¡±.

As a result, financial performance and liquidity in 2023-24 was better than forecast, but still worse than the previous year.

Despite the stark findings, Pickford said the OfS is not expecting any medium or large sized institutions "to fail in the next academic year".?

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While she encouraged universities to ¡°continue to explore opportunities for growth¡±, she warned against ¡°superficially attractive options¡± such as subcontractual partnerships.

¡°Many institutions are working hard to reduce costs. This often requires taking difficult decisions, but doing so now will help secure institutions¡¯ financial health for the long term,¡± she said.

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¡°This work should continue to be done in a way that maintains course quality and ensures effective support for students.¡±

Vivienne Stern, chief executive of Universities UK, described the report as ¡°deeply sobering¡± but ¡°unlikely to surprise anyone¡±.

¡°Falling per-student funding, visa changes which have decreased international enrolments, and a longstanding failure of research grants to cover costs have been creating huge pressures in all four nations of the UK which are now reaching breaking point,¡± she said.?

The OfS report?comes as new data was published by the Higher Education Statistics Agency (Hesa), outlining the finances of providers in the UK in 2023-24.

This shows 48 per cent of institutions that are members of Universities UK were in deficit once pensions adjustments were excluded. This was up from 32 per cent the year before and 22 per cent in 2021-22.

Some of the largest deficits as a percentage of income were seen at Bishop Grosseteste 51¹ú²úÊÓƵ (-19 per cent), the 51¹ú²úÊÓƵ of Hull (-12 per cent) and Aberystwyth 51¹ú²úÊÓƵ (-10 per cent).

Hollie Chandler, director of policy at the Russell Group, said institutions are ¡°working hard¡± to mitigate against these challenges, but also need action from government.?

¡°As well as increased per-student funding, this must include a stable and welcoming immigration system, protecting the current graduate route, so universities can continue to recruit international students,¡± she said.

UCU general secretary Jo Grady reiterated calls to protect international students from any immigration policy changes. ¡°If Labour instead chooses to act like Reform-light and erect more barriers to those wanting to study here, there is a danger universities could go under,¡± she warned.?

Bridget Phillipson, education secretary,?said, ¡°These concerning figures are further evidence demonstrating why the increase to tuition fees and the package of reforms I announced last year were necessary.

¡°The dire situation we inherited has meant this government must take tough decisions to put universities on a firmer financial footing, so they can deliver more opportunity for students and growth for our economy through our plan for change.

¡°I asked the Office for Student to refocus their efforts on monitoring financial sustainability last year. Further reforms are needed to fix the foundations of higher education, and universities must do more to make their finances work.¡±

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helen.packer@timeshighereducation.com