The Financial Times reported yesterday on the tough refinancing conditions faced by some British universities, in the face of the significant challenges facing the sector. A combination of falling international student numbers, rising costs and the failure of tuition fees to keep up with inflation, has left many institutions under significant pressure. 

According to the Office for Students (OfS), 45 per cent of higher education providers in England were expecting to report a deficit in 2024-25. While cost-cutting measures such as course closures, redundancies, and asset sales are being implemented in some cases, these steps may not be sufficient to address the broader structural issues. 

The FT reports that universities under financial pressure are being asked by lenders to present clear plans for performance improvements and cost reductions as part of refinancing discussions. Where problems are more severe, lenders are increasingly requesting security over campus sites and buildings. That said, lenders remain broadly supportive. Most are reluctant to take a hard line, mindful of the reputational risks. As a result, several institutions have recently been able to extend maturities and renegotiate financial covenants.

Given the scale and complexity of pressures faced by the sector, there seems to be a powerful case for the introduction of some form of special administration regime for universities. Further education colleges already benefit from a special administration regime under the Technical and Further Education Act 2017. In contrast, universities fall within the general corporate insolvency framework, which offers no protection for students or guarantee of continuity of education. Furthermore, as most universities are not incorporated as limited companies, the insolvency procedures available to them are limited and not fit for purpose.

While lenders remain willing to support universities, the question of how a significant insolvency in the sector would be handled needs to be addressed at policy level. As financial pressures deepen, the absence of a clear insolvency framework leaves a gap in the system, and the resulting uncertainty impacts all stakeholders - from institutions and lenders, to staff and students.