13 universities could go bust without bailout due to coronavirus

Around a dozen universities could go bust without financial support from the Government due to the coronavirus crisis, a new analysis suggests.

An estimated 13 universities across the UK – which educate approximately 130,000 students – could end up with negative reserves by 2024, Institute for Fiscal Studies (IFS) research suggests.

The institutions at greatest risk may need a targeted bailout of £140 million, the analysis warns.

Other options include debt restructuring in order to keep them afloat.

The IFS report adds that the 13 institutions “may not be viable in the long run” if they are left without financial support.

It predicts that universities already in a weak financial position before the crisis hit – which tend to be less prestigious institutions – are more likely to face insolvency.

Long-run losses across the higher education sector could come in anywhere between £3 billion and £19 billion – or between 7.5 per cent and nearly half of the sector’s overall income in one year, it estimates.

The largest losses are likely to stem from falls in international student enrolments this year and increases in the deficits of university-sponsored pension schemes, the report says.

Universities are also expected to face lockdown-related losses of income from student accommodation and conference and catering operations, as well as financial losses on long-term investments.

The IFS research, funded by the Nuffield Foundation, concludes: “For around a dozen universities, insolvency is likely to become a very real prospect without a government bailout.”

It adds that the Government's response “will be critical in determining the future of these institutions”.

“Insolvency of a university could cause significant disruption to students’ education, potentially leaving them unable to complete their degrees,” the paper warns.

The briefing explores a series of options that the Government could take – including letting institutions become insolvent to “set a precedent” and show that it will not reward universities with the least resilient finances.

It adds that a “very tightly targeted bailout” of £140 million would help to avoid insolvencies at the worst-affected universities.

The researchers also warn that a more widespread bailout package could cost billions of pounds without providing much support to the struggling institutions most at risk of going under.

Ben Waltmann, a research economist at IFS, said: “With around £45 billion in reserves and an annual surplus of around £2 billion before the crisis, the university sector as a whole should be able to cope with substantial Covid-related losses.

“However, some universities were already in a weak financial position before the crisis hit. For around a dozen of these institutions, insolvency is likely to become a very real prospect without a government bailout.”

A National Union of Students spokesperson said: “The coronavirus crisis has exposed many of the flaws inherent in running our education like a market. When funding is so unstable, it’s no wonder that our universities and the jobs of thousands of academic and support staff are now at risk.

“We are of course especially concerned about the risk to students that this instability poses. You can’t assess the risk to universities without thinking of the risks to students – both to their education and their wellbeing.”

Jo Grady, general secretary of the University and College Union, said: “We need a comprehensive support package that protects jobs, preserves our academic capacity and guarantees all universities’ survival.”

Alistair Jarvis, chief executive of Universities UK, has called on the Government to introduce a transformation fund for universities that require support to achieve longer-term sustainability and financial support to help students who wish to study shorter higher education courses.

He added: “Any student or their parents should be reassured that the failure of a university is rare, but course closures and occasionally campus closures are something many universities will have experience in managing and all registered universities have student protection plans in place for this scenario.”

A Department for Education spokesman said: “We understand this is a very challenging time for universities and higher education staff, which is why we have introduced a package of measures to stabilise the sector, help universities manage their finances to avoid cash flow problems and safeguard students.

“We have confirmed universities’ eligibility to apply for Government-backed packages worth at least £700 million according to Office for Students estimates, along with bringing forward £2.6 billion worth of tuition fee payments.

“To stabilise the university research base, the Government is also investing £280 million into grant extensions for research impacted by coronavirus and covering up to 80 per cent of a university’s income losses from international students for the academic year 20/21 for research-active universities.

“We will continue to work closely with the sector to understand the financial difficulties they are experiencing at this time.”

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