Research by the Institute for Fiscal Studies (IFS), United Kingdom has revealed that up to 13 British universities could face financial disaster from the after-effects of the coronavirus outbreak.
The IFS study believes that this might affect one in 20 students in the UK with wide job cuts as the UK higher education sector suffers endure losses ranging between £3bn to £19bn in 2020-21, with the exact size of the losses dependent on how many students decide not to enroll.
The IFS also believes that pension obligations and investment losses caused by the economic downturn will also have a major impact on university balance sheets over the next four years with the universities unable to recoup their losses through cost-cutting unless they also make “significant” numbers of staff redundant, the research found.
While the IFS did not name the 13 institutions most at risk, it hinted that those with the lowest reserves and smallest investments will need a government bailout or debt restructuring to survive.
“It is not the institutions with the largest Covid-related losses that are at the greatest risk of insolvency. Rather it is those, generally less prestigious, institutions that entered the crisis in a weak financial position and with little in the way of net assets, which are at greatest risk,” the IFS stated.
Universities with the largest predicted losses under the IFS’s analysis were “highly profitable” before the crisis and have substantial financial reserves, allowing them to sustain significant drops in income.
“If the government wanted to avoid university insolvencies, by far the cheapest option would be a targeted bailout, which may cost just £140m,” said the IFS’s Elaine Drayton, one of the report’s authors.
“Rescuing failing institutions may weaken incentives for others to manage their finances prudently in the future. General increases in research funding avoid this problem but are unlikely to help the institutions that are most at risk, as few of them are research-active.”
The IFS’s central projection calculates an £11bn loss in income for the sector, with a 50% fall in new international students. It also assumes that enrolments from the EU will halve in 2020-21 “due to travel restrictions and disruption to administrative services … as well as health concerns,” despite it being the final year that students within the EU are treated the same as UK applicants.
The institute expects enrolments from the UK to be 10% lower as “some students may choose not to attend what is likely to be a significantly different university experience or may stay away for health concerns”.
The downturn in financial markets will also likely hurt finances. The IFS estimates that universities will need to increase their pension provisions by 25%, while investment income is expected to fall by 10%.
The IFS also offers two more scenarios, including a “pessimistic” scenario with £19bn in lost income, thanks to much larger falls in student enrolments and a more severe market downturn widening pension fund deficits and reduced investment income. The “optimistic” scenario of a £3bn loss includes a 25% fall in international and EU enrolments and no additional pension provisions required.
