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More than two in five universities in England will fail to balance their books next year despite an inflation-linked rise in tuition fees, the sector regulator has warned.
Some 114 of England’s 276 higher education institutions, or 41 per cent, are expected to report deficits in 2026-27, according to analysis published on Thursday by the Office for Students. The figure is up from sector forecasts of just 64 in May.
Almost 45 per cent of universities are set to report a deficit this year, on the back of a long-term funding squeeze and volatile student recruitment.
The regulator’s findings come weeks after education secretary Bridget Phillipson pledged to permanently link tuition fees for domestic undergraduates to inflation in order to help stabilise universities’ finances.
In its latest financial sustainability update, the OfS said that while fee increases would help offset “some of the income shortfalls created by recruitment challenges”, they were “not sufficient to fully address” the sector’s financial pressures.
The watchdog — whose chair last month called on vice-chancellors to strengthen governance in order to avoid insolvencies — urged institutions to “critically assess the level of optimism embedded” in their forecasts.
The OfS analysis did not account for the impact of a proposed levy on tuition fees paid by international students, which the government wants to go towards funding maintenance grants for disadvantaged home students.
But it estimated that the levy — due to be set at 6 per cent — would cost “in the region of £760mn or £780mn” annually if introduced in 2027 or 2028, offsetting the tuition fee uplift, which is expected to boost annual income by up to £439mn.
Philippa Pickford, OfS director of regulation, said the sector had “become more realistic and prudent” but that some universities continued to rely on “unrealistic expectations of growth”.
“We do not expect multiple universities to close in the short term. But some institutions need to take radical action,” she added.
The OfS report also raised concerns about a cash crunch in parts of the sector: 71 providers are forecast to have less than 30 days’ liquidity in 2026-27, up from 39 as estimated by institutions in May.
Liquidity levels were particularly vulnerable to student recruitment trends, the watchdog said, adding that growth in enrolments was still lower than the “overly optimistic” provider figures despite a recent recovery.
Large research-intensive universities have increased their intake of UK undergraduates in recent years in response to softening international demand from markets such as China. But growing competition for domestic students had left small and specialist providers facing “more challenging conditions”, the OfS said.
Nick Hillman, director of the Higher Education Policy Institute, a think-tank, said universities had to factor in upfront costs around redundancies and restructurings, despite pressure from policymakers to adapt.
The proposed international student levy was a big reason why “things may just go on getting worse”, he added.
Responding to the OfS report, Universities UK, a lobby group, said ministers had been “vocal about the importance of universities to economic growth . . . but the international student tax will hinder, not help, their ability to create a brighter future for the country”.
The Department for Education said: “This government inherited a university sector facing serious financial challenges, with tuition fees frozen for seven years.
“We have taken action to put the sector on a secure financial footing, including raising the maximum cap on tuition fees annually and refocusing the Office for Students to support universities to face the challenges of the future.”
