The latest Office for Students assessment of the financial sustainability of higher education providers in England presents a mixed picture for the sector, with an unexpected headline improvement for 2024-25 being balanced against thinning margins and rising costs. Treasury teams will have to closely manage uncertainty around student recruitment, pressure on operating cash flow, lower liquidity, and compile realistic forecasts in a volatile environment.
The 2024-25 outturn was better than the sector had previously expected, with total sector income increasing by 2.7% and the proportion of providers reporting a deficit reaching only 35.8%, compared with the 44.2% previously forecast. Although the overall figures were positive, the improvement was not due to a strong underlying recruitment picture, and surpluses reported at the aggregate level were not evenly distributed across the sector.
The headline improvement in 2024-25 should therefore be treated carefully. It is positive that the sector performed better than expected at an aggregate level, but this does not remove the underlying risk. The OfS is clear that aggregate data masks significant divergence between providers, with larger teaching-intensive providers and level 4 and 5 providers being the main underperforming groups. Going forward, forecasts hinge on a strong rebound in UK and international student numbers despite headwinds in this area potentially dampening possible demand.
Treasury teams will have to carefully consider forecasts to ensure they are realistic, as this year’s better-than-forecast financial result was achieved through a mixture of other income sources and higher tuition prices despite student recruitment falling short of earlier assumptions. UK student recruitment increased, but remained below forecast, while non-UK entrants fell and were also below forecast. Considering much of the sector’s growth forecasts are heavily dependent on growth in student numbers, with providers forecasting a 19.9% increase in UK entrants and a 22.5% increase in non-UK entrants between 2024-25 and 2028-29, this year’s fall gives continued cause for concern.
Student numbers continue to be a key risk factor in forecasts, as price increases can only sustain institutional income for so long before having a negative effect on demand. Given the geopolitical and policy headwinds that may affect student demand as well as the sector’s medium-term cash generation plans remaining highly dependent on recruitment growth, which has not yet been evidenced in the latest outturn, there could be a real mismatch between forecasts and actual demand for tuition.
The macro environment remains difficult for higher education institutions because several pressures are operating at the same time. Although inflation has moderated from its peak, the sector is still absorbing higher cost bases across pay, energy, maintenance, and construction. This is not helped by the recent conflict in the Middle East pushing up energy prices and threatening to reignite inflation, which has generally moderated over the past few years. Although a ceasefire has been announced, some price pressure from supply disruption is still likely to feed through into CPI in the coming months. Conflict in the region may also have a negative impact on demand for tuition from international students, doubly weighing on financial sustainability.
Domestically, the student picture is mixed with demographics being supportive in the near term as the UK 18-year-old population is expected to rise between 2024-25 and 2028-29. However, the OfS notes that provider forecasts imply stronger UK undergraduate growth than demographics alone would suggest. Participation rates, affordability, course mix, commuting patterns, accommodation costs and graduate outcomes will all influence whether that potential demand turns into enrolled students.
Policy risk will likely be material in the coming years due to possible changes to immigration rules, visa compliance requirements, and the cost and complexity of recruiting international students already influencing institutional planning. The new international student levy adds further pressure. It is not built into all existing provider forecasts used for the OfS report, yet from August 2028, English providers are expected to pay £925 per international student per year. This will either reduce net income, be passed on through pricing where markets allow, or be absorbed through cost savings. None of these options are painless. For treasury teams, the practical implication is that international student income should be stress-tested on both volume and margin, not just headline fee income.
The impact will not be uniform across the sector and providers with a high reliance on international students, particularly in postgraduate taught courses, are more exposed to recruitment volatility, policy changes and pricing risk. Providers with smaller international cohorts may be less directly affected by the levy, but may still face wider market effects if competition intensifies or if perceptions of the UK weaken further.
Liquidity remains one of the clearest indicators of pressure in the sector, with indicators showing a deterioration since last year’s findings. Sector cash holdings increased only marginally from £14.8 billion at the end of 2023-24 to £15.0 billion at the end of 2024-25, but because expenditure increased more quickly, net liquidity days fell from 127 to 124. At the sector level, this may still look manageable, but the average conceals a wide spread of resilience across institutions.
The OfS data shows that the lower quartile for sector net liquidity days was 51 days, with some provider groups considerably weaker. Specialist creative providers reported an average net liquidity of 90 days, and Level 4 and 5 providers reported 77 days. The report also notes that 12 providers reported negative net liquidity days in 2024-25, and that 51 providers reported net liquidity below 10% of total expenditure. For treasury teams, this is a warning signal. Low liquidity reduces the ability to absorb any unexpected shocks, such as recruitment shortfalls, restructuring costs, delayed receipts, or unexpected regulatory and pension-related pressures.
Perhaps going hand in hand in the reducing liquidity metric, another area of note in the OfS findings was the increased reliance on credit banking facilities to support operating cashflow. While a Revolving Credit Facility is committed and thus provides a relatively certain form of funding, repeated reliance on short-term facilities on an ongoing basis can be costly due to commitment fees and likely indicates underlying weaknesses in liquidity and a need for consideration on the overall debt maturity structure and cashflow forecasts.
There has already been some response to these pressures, but the scale and pace of actions vary. Cost-saving activity is up with a 20.7% increase in restructuring costs from 2023-24 to 2024-25 but this only reached a total £218m across 65 institutions. Capital expenditure restraint is also evident across the sector, with spending on asset acquisition falling in 2024-25. This can support short-term liquidity, but it is not a permanent solution where institutions already face investment needs, backlog maintenance or student experience pressures. Deferring capital expenditure may protect cash in the near term, but it can store up future costs and weaken competitiveness if properties, digital infrastructure or specialist facilities deteriorate.
The strongest institutions will be those that move from reactive savings to integrated financial planning. That means aligning student number assumptions, course economics, capital strategy, debt strategy, liquidity policy and investment strategy within one coherent framework. Treasury teams will need to be central to scenario planning and sensitivity testing recruitment numbers, delayed restructuring benefits, weaker international margins, debt refinancing risk and reduced access to external liquidity.
The OfS points to the risk that repeated forecasts of future growth can mask the need for more fundamental structural change, including new business models, partnerships, mergers or consolidation. From a treasury perspective, waiting for growth to solve the problem is not a viable strategy. Institutions need clear liquidity triggers and integrated KPIs, realistic capital prioritisation and early engagement with lenders and governing bodies before financial pressure becomes entrenched.
Arlingclose can support higher education institutions in responding to and managing these pressures through our range of treasury advisory services. Independent credit analysis can help to assess and understand external counterparty risk as well as your internal financial position, including key metrics that are likely to affect covenant headroom, refinancing capacity, and market confidence. We can also assist with forecasting and stress testing your liquidity position, alongside the development of a treasury strategy aligned to forecasts for student numbers, interest rates, and an evolving operating environment. For more information, please contact jscottsoane@arlingclose.com.
18/06/2026
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