There’s little doubt that the UK’s higher education sector is experiencing a funding crisis.

Universities are facing the same pressures as other businesses – higher borrowing costs, increasing wages, and rising prices from suppliers (not least energy) – while also seeing stagnant or declining revenues in real terms.

In England, Wales and Northern Ireland, the maximum tuition fees universities can charge is £9,250 per year, rising to £9,535 from 1 August 2025. This represents a less than six per cent increase on the £9,000 cap per year that was introduced as part of the reform of tuition fees in 2010. If fees had kept pace with inflation in goods and services the cap would be around £13,500 per year, meaning universities are being asked to do the same with considerably less.

This same cap applies to those who are studying for their degree in Scotland but are from elsewhere in the UK. However, Scottish universities have the added challenge that students who are resident in Scotland at the time of their application do not pay tuition fees. Instead, Scottish universities receive a funding package from the Scottish Government to teach Scottish students which equates to roughly £7,610 per head (considerably less than the cap in the rest of the UK).

As a result, universities across the UK rely on overseas students (who pay significantly more to attend) to subsidise teaching costs. In Scotland, UK and overseas students make up 41% of the enrolment but 85% of total fee income.

However, the number of overseas students studying at UK universities has fallen sharply in recent years, choking off a much-needed funding source. The number of sponsored study visas fell 31%, from 600,024 in 2023 to 415,103 in 2024. This has been attributed in large part to UK government reforms aimed at cutting net migration.

In this context, it’s not surprising that many institutions are having to make tough choices, with Universities Scotland warning that the sector is in a “precarious state”.

A report from the Office for Students, a non-departmental public body of the UK Department for Education, predicts that 72% of universities in England will be in financial deficit by the 2025-26 academic year. Perhaps more concerningly, the same report found that in 40% of institutions, cash flow may become so tight that they are operating on a month-by-month basis.

In practice, these tough choices mean cutting courses, redundancies, and selling off assets to generate cash.

The worst-case scenario, where institutions enter a restructuring or insolvency process, presents significant challenges from both a legal and wider economic perspective.

Most universities are not companies and therefore not governed by the Companies Acts. This means processes like administration and other typical corporate insolvency processes are not currently available as a matter of law. This means that for many universities (which are governed by other regimes such as statute and royal charter), liquidation may be the only available route, which is a terminal process and not designed for the rehabilitation of a business in distress. An additional complication is that many universities are also registered charities, meaning some processes will require the consent or involvement of the charities’ regulator.

It has been mooted by some that consolidation of the sector may be required by merging institutions (as has been done previously with some colleges), but these are incredibly difficult to do due to the nature of university constitutions.

There is also the potential contagion effect of a university going into insolvency, which would have a significant knock-on impact on students (it’s not clear what protections there would be for those currently enrolled) and for companies in the supply chain whose businesses depend on the university – such as student accommodation providers.

All of this makes for a complex landscape that is challenging to navigate. It’s imperative that those education establishments that are on the brink of financial distress take advice and early action to ensure they explore the full range of options available to them.

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