By Adam Habib, Vice-Chancellor at SOAS University of London, and Lord Dr. Michael Hastings of Scarisbrick CBE, Chair of the Board of Trustees at SOAS.
The business model of English higher education is broken. We are not sure that this simple fact is sufficiently understood by all stakeholders in higher education. Do not mistake us: we all recognise the serious financial crises that most English universities are confronting. But this is not the same as understanding its causal features and what to do about it. The latest financial report from the Office for Students (OfS), released in mid-November, suggests 72% of English universities will be in deficit by the end of the academic year if they continue as is. It does not suggest much about how to address it. In fact, it does not even ask why the other 28% of universities are not in deficit. Is this because of their historical endowments or their specific student profile, or are they doing something the others are not?
But the OfS is not the only stakeholder reluctant to ask the hard questions: how we got here and what to do about it. This malady afflicts almost all other stakeholders. Let’s begin with the basics. Almost three decades ago, the British government committed to massifying education and ensuring that at least 50% of their school-leaving population had the privilege of going to university. The challenge was how to pay for it. They introduced fees, first as a small proportion of the actual cost in 2006, and then to cover the entire cost in 2012 (at least for Business degrees, Humanities and the Social Sciences). The popular backlash this generated, especially since almost all universities rushed to implement the maximum permitted fee, led the politicians to subsequently avoid increasing fees in line with inflation. The net effect was that within a few years, the actual cost of university education outstripped the fees.
The solution followed by most universities was to increase international fees and their intakes of foreign students. To attract more of these students, universities borrowed heavily, built shiny new facilities, expanded their pastoral services and grew their student numbers. This was assisted in part by the removal of student number caps on home students. Costs increased, and to cover these, more income was required, which led to even higher international fees and more foreign students.
All higher education stakeholders were complicit in this. The Government initially supported this solution because it obviated the need for more government subsidies and enabled foreign currency earnings. Vice-chancellors and higher education executives deluded themselves in thinking that the international postgraduate masters students came to the UK universities because of their institutions’ research reputations, even though survey after survey demonstrated that these students were increasingly attracted by the prospect of employment prospects and the post-study visa. Unions, both academic and professional service ones, acquiesced given that these international fees enabled higher salaries and subsidised greater research time for academics. There was even broader public support as it contained the fees for domestic students.
Until of course, a new breed of ethnically oriented right-wing politicians mobilised on the chauvinistic instinct of there being too many foreigners in Britain. This first manifested in Brexit, then China and subsequently all foreigner-bashing, and finally visa restrictions on dependents. The net effect was a dramatic fall in applications and enrolment of international students, with the ensuing financial crisis of universities in the UK. A positive spin-off of this state of affairs is that almost all stakeholders now recognise the flimsy fiscal foundation of universities. The negative feature is that it still has not generated an honest reflection and behaviour on the part of all stakeholders or a sufficiently deep deliberation on the business model of higher education in the UK and what to do about it.
Take, for instance, the stance of government. The Secretary of State for Education announced in the House of Commons on 4 November 2024 the first university fee increase for undergraduate students in eight years. Yet the Chancellor had increased the Employer National insurance a few days before from 13.8 to 15 percent. The net effect is a further loss of £59 million for universities in the UK from the 2025/26 academic year.
Neither is the debate in universities more imaginative on what to do about the financial crisis and the business model of higher education. University vice-chancellors and Universities UK have recognised the need to revert to greater public funding for higher education, although there is a broad recognition that this is an unlikely solution in the near future given the fiscal crisis of the state. They have suggested through individual vice-chancellor advocacies that universities would require the financial equivalence of £12,000 fees, but again, almost all recognise the political challenge of achieving this during a cost-of-living crisis. The reluctant fallback back? A retreat to international student fees by retracting or reforming the visa restrictions, thereby allowing for further increases in income from foreign students.
But this is just not a feasible solution for the long term. Higher education in the UK has priced itself out for ordinary international students looking solely for a higher education qualification. The only rationales for postgraduate master’s students accessing UK universities, given their high-cost structure, are either post-study employment or the learning of a specific qualification not available in alternative higher education settings. The former is increasingly becoming politically unfeasible, and the latter is not a sufficiently large market to financially sustain British universities.
This is in addition to the moral and commercial challenges of this business model. As we have suggested elsewhere, there should be serious objections to this model, which is effectively directed towards sucking out resources from countries far more impoverished than the UK, to essentially cross-subsidise domestic citizens. Moreover, it accelerates the brain drain, weakening institutional capacities and human capabilities in the majoritarian world at precisely the moment when such societies require an enhancement of capabilities to address the local manifestations of transnational challenges like climate change, pandemics, food insecurity and war.
Where to go from here, then? First, there is an urgent need for an honest conversation led by government without any smoke and mirrors on the fiscal latitude available to it and the consequences thereof for the financing of higher education. Second, there is a need for a thorough reflection on what has fiscally worked, and what has not in the recent past on the management and executive stewardship of universities in the UK. Third, there is a need for an honest discussion in universities on the fiscal viability of excessively small classes and unduly low staff-student ratios, 40% research time for all teaching and research contracts, and the importance of institutional differentiation in mandates and how these should speak to the former two elements. Finally, we need to think through the limits of cross-subsidising from international student fees and what new opportunities are opening up globally for fulfilling our institutional mandates.
One opportunity, that has not been sufficiently explored by British universities, is how to assist in the education and training of hundreds of millions of young people in the majoritarian world. This is an urgent necessity not only for the economic development of these societies but also for enabling societies across the world to manage the transnational challenges of our time, without which we may not survive as a human species. Obviously, this will not be possible on the existing cost structures or business models of higher education. But partnering with universities in the Global South, involving the joint development of curricula, co-teaching and co-assessment, could bring down cost structures of higher education. This could then feed into more reasonable fees being charged, thereby opening up new higher education markets for British universities. Cost structures could also be reconsidered in relation to scale. The more students there are within a program, limited to pedagogical requirements, the more cost per student is reduced, and the more competitive fees can become. New technologies involving online teaching and global classrooms, many of which were pioneered for our own students during the Covid-19 Pandemic, can make this equitable transnational teaching even more feasible.
Some forms of transnational teaching are already underway in UK universities. But these often take the form of online learning, overseas campuses and franchise models of higher education, all of which are only directed at obviating the financial challenges of British universities. While we would be reluctant to take rigid positions against these models – they may indeed be relevant in certain contextual circumstances – we do hold that the equitable partnership model identified above holds the pedagogical benefit of enabling learning that is both globally grounded and locally relevant. It also does not pit the financial security of British universities against that of universities of the majoritarian world. Essentially, these equitable teaching partnerships can pioneer one element of a new business model that enhances collaboration and mutual benefit for universities in the UK and the majoritarian world.
Such a model of higher education could also become part of the soft power arsenal of the UK. Increasingly, government has broached the idea of a global Britain. This would be a Britain recognised as a collaborative partner of other nations, enabling them to achieve their national objectives, while enabling itself to be economically competitive and socially responsive to both its own citizens and its international obligations. An equitable orientation to its higher education system would assist this strategic national agenda.
We are by no means suggesting that equitable transnational learning should replace all other forms of teaching in UK higher education. This would be unrealistic and, frankly, would violate the responsibility of British universities to be nationally responsive. Instead, we recommend that in the pursuit of a financially sustainable higher education system, a diverse set of income strategies – subsidy, domestic fees, international fees, ODL, executive education and equitable transnational educational partnerships – is required. This final strategy not only opens up a new higher education student market at a different price point but also enables us to square our imperative to be financially sustainable with our commitment to be socially and globally responsive.
The strategic challenge of managing higher education institutions in the contemporary era is the management of tensions between competing imperatives. It also requires thinking outside the box, innovating and finding new markets, and servicing these at new price points, while continuing to meet the social obligations implicit in the mandate of universities. This is what we believe is sometimes missing from the deliberations on making British universities financially sustainable. The debate can only be enriched and the recommendations made more robust if we are prepared to think beyond what we are comfortable with.
