University financial resilience: supporting the sector in challenging times

With undergraduate tuition fees essentially unchanged in over a decade but with inflation rocketing, university finances are increasingly strained. The financial headwinds facing the sector have been well-documented. Much focus has been placed on the significant loss made by many providers when teaching home undergraduate students, leading to increasing reliance on the uncapped fees of international students – an approach which is vulnerable to the geopolitical shifts, an increasingly competitive international environment and changes in UK immigration policy.

In addition to the reliance on international students, the Office for Students has identified a number of other medium to long-term risks to university financial sustainability, including: optimistic projections of prospects for home student recruitment; rising cost of living for staff and students; sustainability of pension schemes; and the need for investment in facilities and environmental policies.

While the House of Lords Industry and Regulators Committee (“HLIRC”) has called on the Government to put in place “a stable, long-term funding model for the sector” what can institutions do to increase financial resilience under the current model?

In this series of blog posts, a cross-disciplinary team of Mills & Reeve lawyers will be looking at the practical steps which universities can take in the face of financial headwinds. To start as we mean to go on, here are five themes which we will be expanding on in the coming articles:

1. Stakeholder management

Universities have to manage an increasing number of competing external stakeholders. Whether dealing with the Office for Students itself, pension scheme trustees, bond holders and bank lenders, unions or contractual counterparties who are facing their own challenges in the current economic environment, careful engagement with stakeholders is crucial. In the coming articles, we will help you to manage them all.

2. Governance

When it comes to guiding an institution through challenging times, the role of a university’s charity trustees is crucial. As a matter of law, they are the persons having the general control and management of the administration of a charity and have fiduciary duties to ensure that charitable assets are protected. Typically, they also bring with them a wealth of expertise and experience which can be crucial to steering the course of the institution and providing an appropriate level of scrutiny. However, the role of a charity trustee is not without its risks, particularly as most universities, unlike commercial companies, do not benefit from limited liability. So, as well as exploring trustees’ duties generally, we will also be looking at how trustees may protect their position.

3. You are not alone

Each university is unique but, at the same time, the problems faced by a provider are almost certainly going to be shared by peer institutions. As well as trying to encourage informal collaboration and dialogue between institutions about their problems and potential solutions, we will also be looking at what more formal mergers and collaborations might look like from a legal perspective.

4. Make your assets work harder

The maintenance and improvement of university estates is an ongoing challenge – pressures on funding; challenging carbon neutral, net-zero targets; a post-Covid environment and uncertainty over student numbers are all set in the context of needing to continue to invest in the campus and facilities to attract the best staff, students and stakeholders.  We’ll look at some of the things to think about when seeking finance to meet these challenges.

5. Student accommodation is key to financial resilience

Based on ONS population projections, the Financial Times (18 July 2023) has estimated that the UK will need to find an additional 45,000 university places in 2030 if current rates of higher education participation are to be maintained. As well as being an essential element of satisfying this demographic demand, purpose-built student accommodation is going to be essential to attract overseas and postgraduate fees. We will explore the different options in the market which are available to universities who wish to free up their balance sheets by getting student accommodation off the books but in a way which does not expose the university to unreasonable risk, while ensuring that there are sufficient controls over quality, nominations and rents.

The HLIRC has said that the higher education sector faces a “looming crisis”. While many of the solutions require structural changes in the funding model which are outside of the control of any single institution, this series of articles will explore the steps a university can take to manage the current headwinds and examine the practical steps it can take to improve its position under the current model.

Our content explained

Every piece of content we create is correct on the date it’s published but please don’t rely on it as legal advice. If you’d like to speak to us about your own legal requirements, please contact one of our expert lawyers.

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