There have been calls from many quarters for our universities to prepare for radical change as the impact of the pandemic progresses over time. Some conclude that the open market in uncapped student numbers is fatally flawed and led us to be less prepared for a time of crisis. Any notion of there being short-term disruption is dissipating as the full impact emerges. There will have to be ongoing measures to combat the spread until an effective vaccine is deployed across the world. Meanwhile, university managements will be looking firstly at the bottom line and financial stability. They will be staring at ‘net liquidity’ and ‘liquidity ratios’ with some horror as income falls and they regret taking out so many loans for new buildings and paying themselves too much. The loss of international students will affect some much more than others. Meanwhile, thought must be given to supporting students and particularly those struggling with disadvantages. Hopefully, this period will not be marked by a widening inequality gap in the scramble for survival.
Financial stability will dominate the thoughts of senior management at this time. The stress on staff and equality of students will be much lower down the pecking order. This is not entirely out of lack of concern. It is simply because a failing university facing closure would be a far worse option for everyone.
Mary Curnock Cook, a former chief executive of UCAS, made a plea this week for ‘A student-centric bailout for universities’ in a posting by the Higher Education Policy Institute (HEPI). Her suggestions are sensible and vital to maintain the confidence of students. The likely effect on students at this time was also looked at by TEFS in March with ‘Exam nightmare on and off-campus’. Those at a disadvantage by having fewer resources will feel the greatest impact of the move online and it is hoped that they will not be forgotten and left behind.
In anticipation of extended disruption, most universities are already working hard to record teaching materials to be used online from the coming academic year. This is needed to keep the majority of students on their side for now. As a former lecturer, I can easily see that this will be a monumental task and managements must appreciate the incredible stress put on staff at this time and over the coming months. The most radical plans have been seen at Durham University where over 25% of face-to-face lectures will be cut. In response, the lecturers are suspicious and wary of such a move (The Guardian today ‘Lecturers condemn Durham University's plan to shift degrees online’). However, the race to maintain and finance their operation means that staff are probably not the main concern as the financial hit looms.
But what is behind this impending financial crisis?
Whilst many UK students are likely to decide to enter university next year, the fear of many universities is that there will be a catastrophic decline in non-UK students. Indeed, many currently enrolled may not be able to return.
As a result, all universities are looking closely at their income and costs. Their financial plans are all based upon a guaranteed income from students into the future. Universities are usually seen as a ‘good bet’ when it comes to offering loans and seeking guarantees. But this is an inherently precarious existence when there comes a time of disruption. Stark media reports have emerged in the last few days that predict ‘Universities brace for huge losses as foreign students drop out’ (The Guardian 11th April 2020)
The focus of management now will no doubt be on the horrors of ‘Net Liquidity’ and 'Liquidity Ratios’. These measure the ability to meet short-term obligations from cash reserves. One way to do this is to estimate how long a business can meet its costs with no income. A simple guide from Universities UK (UUK) ‘University Funding Explained’ offers some insight. They note that in 2014/5, for universities in England, net liquidity was around four months. They expected this to narrow further to around two months in 2017–18. UUK concluded that “Therefore, universities in England are not holding large cash reserves. The fall is due to universities increasingly spending their cash on new facilities and refurbishment”. For some universities, that will be the stark new reality. However, it is an average figure and the overall distribution of net liquidity would be more interesting to look at. The simple fact is that some of the elite universities are sitting on vast reserves after generating an annual surplus over many years. These are not often transparent in the accounts and some will be able to survive for well over 12 months.
The overall situation was well explained earlier this week by Andrew Connors, the Head of Higher Education at Lloyds Bank, in a HEPI posting ‘Another perfect storm? The likely financial impact of Covid-19 on the higher education sector’. He observed that “Many institutions are modelling reductions of between 80% and 100% in international student number” and that this is “the most significant concern”. Even before the knock-on effects of a longer-term reduction in student numbers, the hit is estimated to be greater than £100 million.
Are all universities likely to see that same effect?
It seems that not all universities are equally exposed to the effects of loss of income from the decline in international students. WONKHE has produced a very useful analysis of the situation across institutions with ‘Too big to fail? A request for government support for providers following Covid-19’. This is an excellent overview of the various income streams across our universities. Income from international students that are non-EU is a substantial proportion for many. The Elite Russell Group universities are apparently buffered to some extent by QR income for research arising from their more advantageous positions in the REF dating back to 2014. They are also more likely to have greater reserves to fall back on.
However, research income is exclusively geared to fund specific research projects and there is a shortfall in funding overheads attached to every contract. This ‘sting in the tail’ was outlined by TEFS with ‘Follow the money’ in November 2018. For example, the UK Research Councils will only fund 80% of the full economic costs and charities offer no contribution to overheads. This means that looking at total income gives a false picture of the liquidity of a university and how exposed it might be at this time.
The impact on student numbers.
TEFS has looked at another way to view the situation based upon student numbers. Russell Group (24), pre-92 universities (37) and post-92 universities (64 of those founded since 1992) can be easily distinguished through their ‘Research Power Ranking’ at the last REF in 2014. This is presented in tables by Times Higher Education with a ‘Table of excellence’ and ‘REF 2014: Overall ranking of institutions including market share’. The ranking offers a proxy measure that reveals some insight into the financial strength of an institution in relation to research income. The ‘Research Power Ranking’ combines the volume of research, staff numbers and quality to produce a ranking to give a “more accurate indication than GPA of the relative amount of quality-related research funding each institution is likely to receive”.
There is a considerable spread of student numbers across different sized institutions. Figure 1A shows the total numbers of students at UK universities in
Mary Curnock Cook, a former chief executive of UCAS, made a plea this week for ‘A student-centric bailout for universities’ in a posting by the Higher Education Policy Institute (HEPI). Her suggestions are sensible and vital to maintain the confidence of students. The likely effect on students at this time was also looked at by TEFS in March with ‘Exam nightmare on and off-campus’. Those at a disadvantage by having fewer resources will feel the greatest impact of the move online and it is hoped that they will not be forgotten and left behind.
In anticipation of extended disruption, most universities are already working hard to record teaching materials to be used online from the coming academic year. This is needed to keep the majority of students on their side for now. As a former lecturer, I can easily see that this will be a monumental task and managements must appreciate the incredible stress put on staff at this time and over the coming months. The most radical plans have been seen at Durham University where over 25% of face-to-face lectures will be cut. In response, the lecturers are suspicious and wary of such a move (The Guardian today ‘Lecturers condemn Durham University's plan to shift degrees online’). However, the race to maintain and finance their operation means that staff are probably not the main concern as the financial hit looms.
But what is behind this impending financial crisis?
Whilst many UK students are likely to decide to enter university next year, the fear of many universities is that there will be a catastrophic decline in non-UK students. Indeed, many currently enrolled may not be able to return.
As a result, all universities are looking closely at their income and costs. Their financial plans are all based upon a guaranteed income from students into the future. Universities are usually seen as a ‘good bet’ when it comes to offering loans and seeking guarantees. But this is an inherently precarious existence when there comes a time of disruption. Stark media reports have emerged in the last few days that predict ‘Universities brace for huge losses as foreign students drop out’ (The Guardian 11th April 2020)
The focus of management now will no doubt be on the horrors of ‘Net Liquidity’ and 'Liquidity Ratios’. These measure the ability to meet short-term obligations from cash reserves. One way to do this is to estimate how long a business can meet its costs with no income. A simple guide from Universities UK (UUK) ‘University Funding Explained’ offers some insight. They note that in 2014/5, for universities in England, net liquidity was around four months. They expected this to narrow further to around two months in 2017–18. UUK concluded that “Therefore, universities in England are not holding large cash reserves. The fall is due to universities increasingly spending their cash on new facilities and refurbishment”. For some universities, that will be the stark new reality. However, it is an average figure and the overall distribution of net liquidity would be more interesting to look at. The simple fact is that some of the elite universities are sitting on vast reserves after generating an annual surplus over many years. These are not often transparent in the accounts and some will be able to survive for well over 12 months.
The overall situation was well explained earlier this week by Andrew Connors, the Head of Higher Education at Lloyds Bank, in a HEPI posting ‘Another perfect storm? The likely financial impact of Covid-19 on the higher education sector’. He observed that “Many institutions are modelling reductions of between 80% and 100% in international student number” and that this is “the most significant concern”. Even before the knock-on effects of a longer-term reduction in student numbers, the hit is estimated to be greater than £100 million.
Are all universities likely to see that same effect?
It seems that not all universities are equally exposed to the effects of loss of income from the decline in international students. WONKHE has produced a very useful analysis of the situation across institutions with ‘Too big to fail? A request for government support for providers following Covid-19’. This is an excellent overview of the various income streams across our universities. Income from international students that are non-EU is a substantial proportion for many. The Elite Russell Group universities are apparently buffered to some extent by QR income for research arising from their more advantageous positions in the REF dating back to 2014. They are also more likely to have greater reserves to fall back on.
However, research income is exclusively geared to fund specific research projects and there is a shortfall in funding overheads attached to every contract. This ‘sting in the tail’ was outlined by TEFS with ‘Follow the money’ in November 2018. For example, the UK Research Councils will only fund 80% of the full economic costs and charities offer no contribution to overheads. This means that looking at total income gives a false picture of the liquidity of a university and how exposed it might be at this time.
The impact on student numbers.
TEFS has looked at another way to view the situation based upon student numbers. Russell Group (24), pre-92 universities (37) and post-92 universities (64 of those founded since 1992) can be easily distinguished through their ‘Research Power Ranking’ at the last REF in 2014. This is presented in tables by Times Higher Education with a ‘Table of excellence’ and ‘REF 2014: Overall ranking of institutions including market share’. The ranking offers a proxy measure that reveals some insight into the financial strength of an institution in relation to research income. The ‘Research Power Ranking’ combines the volume of research, staff numbers and quality to produce a ranking to give a “more accurate indication than GPA of the relative amount of quality-related research funding each institution is likely to receive”.
There is a considerable spread of student numbers across different sized institutions. Figure 1A shows the total numbers of students at UK universities in
2018/18 from the latest HESA data (* see note below). Figure 1B shows the % of those students who come from the UK. This perspective is encouraging as it illustrates the extent to which many UK students are served in our system. However, it is also clear that the elite Russell Group universities have a lower proportion of UK students than the others. This might partially explain why they also appear to accept a lower proportion of their students from low participation (sometimes misrepresented as ‘disadvantaged’) areas of the UK (see TEFS 19th October 2018 ‘OfS progress on widening participation: Reserve your seat now for 2204AD’).
Figure 2 illustrates the mean proportion of non-UK students at our universities. The differences are highly significant (p <0.01) and further emphasise that there is a three-tier system in place. Looking further across the distribution of
Figure 2 illustrates the mean proportion of non-UK students at our universities. The differences are highly significant (p <0.01) and further emphasise that there is a three-tier system in place. Looking further across the distribution of
non-UK students at each institution reveals a pattern that is disturbing and, in places, surprising. Figure 3A shows a clear trend with Russell Group universities leading the competition for non-UK students. Figure 3B on the same relative scale shows that a large proportion of these students are from China. If these students stay away, there will be a significant impact on those affected. But it seems that there is a more even spread of numbers of students from our EU neighbours as shown in Figure 3B. Brexit fallout next year is likely to greatly affect all universities on top of the current crisis and be ongoing. The distribution of numbers of students from all other countries combined further emphasises the negative impact on the elite universities.
How is the government reacting?
The possibility of some institutions suffering from financial collapse is a real one. If a sizeable proportion of UK students decide to defer enrolling for a year in order to resit their exams next year and to avoid the real possibility of online learning from home, then there will be an even greater reduction in income. This means that
The office for students is set to impose number controls as a possible trade-off for economic assistance. This is most likely to take the form of short-term loans. But basically, a ‘bailout’ that they hitherto refused to contemplate.
The idea behind restricting the number of UK students arises from the real danger of some universities ‘poaching’ students from others. It is a simple reaction that opens the door to more UK students entering the elite universities to make up the deficit caused by fewer international students. If one considers the differential in fees involved (£9,250 per year for UK and EU students and anywhere between £12,000 and £20,000 for international students) then one international student would have to be replaced by almost two UK students. This would lead to mass migration across the system that would lead to a catastrophic collapse for the losers.
How will universities react?
Universities UK has gathered evidence and report that UK universities will need a major cash injection in the short term. The UUK report from earlier this month, ‘Package of measures proposed to enable universities to play a critical role in rebuilding the nation’ illustrates a rapidly deteriorating situation. In their paper, sent to the Chancellor Secretaries of State for Education and Business, and to the Ministers for Universities and Science, Research & Innovation, there is a full admission that the higher fees that non-UK students pay are used to subsidise research and STEM provision with “Some research activities and high-cost STEM provision will stop as income from international students is used to cross-subsidise these areas”. The research-led elite universities will fear the loss of their international standing and reputation above all. After all, it is their ‘reputational premium’ that attracts students, not necessarily the quality of teaching.
In the absence of additional financial support, various toxic options now emerge into view. In his article for HEPI, Andrew Connors advises that with income falling, they must be “be relentlessly challenging on expenditure and costs”. Cutting costs will inevitably lead to staff losses and what is euphemistically called ‘rationalisation’. The easy option is to remove those on temporary or 'zero hour' contracts. Then look at those doing research with little or no teaching. Either they bring in more funding with overheads go or they take on much more teaching or they leave. This scenario is more likely to affect the elite research-based universities. They maintain their positions in REF simply because they have more staff doing research only paid for by more QR and international student fees.
The traditional way to do this is to also merge courses. This presents the illusion of efficiency at the cost of quality and diversity. An inherent reality in university courses is that it takes one lecturer to deliver a lecture to say, 20 students. If that lecturer goes, then the students merge with another class so that another lecturer now takes on 40 students. The problem with this approach is that this has already been done many times over and further ‘rationalisation’ would be damaging. Some classes are now as large as several hundred students. I have been involved in managing several such exercises and can confirm that senior management tends to ignore the impact on students and the brutal increase in workload and insecurity for staff.
Conclusion.
The situation is clearly deteriorating fast with many challenges coming from different directions. Compensating for the financial loss will be top of the list of worries. Some are calling for this time to herald a watershed in how our higher education system operates in the future. Meanwhile, it must now have dawned on all concerned that the free-market approach to student numbers has led us to where we are today. TEFS has in the past called for a radical review of how universities are funded, not just about student fees (see TEFS 11th June 2019 ‘Augar Under the Microscope: STEMing the Tide’). The aim would be to end the rampant cross-subsidy of activities and offer proper support for research. A lower student fee, supported by grants and loans to offer equality of access to all, would be the central basis of the deal. Numbers would be capped to reflect the health, environmental, economic, and cultural development of the country. More expensive STEM subjects must be supported with additional grants and not cross-subsidised from fees paid by other students; from the UK or otherwise. Importantly, REF should be abandoned as an expensive and divisive failed experiment and research funded by a partial return to a comprehensive ‘duel support’ system. Competitive ‘peer review’ research projects must be fully funded with their outcomes better assessed. This would give greater clarity and openness about how our institutions operate. More importantly, there should be a clear contract with all students such that they are offered complete equality of opportunity and time for their studies. In 2018 TEFS suggested a student 'Bill of Rights' when analysing the Government's response to the TEF consultation. Those with fewer resources and less time would be supported “for an equal chance to study alongside their peers. These and other ideas must lie at the core of any contract where the government and the students fund the endeavour”.
It should become a right and not a mere aspiration.
Mike Larkin, retired from Queen's University Belfast after 37 years teaching Microbiology, Biochemistry and Genetics. He has served on the Senate and Finance and planning committee of a Russell Group University
*Note – Data sources
Higher Education Statistics Agency HESA. https://www.hesa.ac.uk/
Times Higher Education. REF 2014 results: https://www.timeshighereducation.com/news/ref-2014-results-table-of-excellence/2017590.article.
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