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Financial pressures

Five Scottish universities on Covid ‘at risk’ list

On the list: Heriot-Watt at Edinburgh

Five universities in Scotland – three in Edinburgh – are listed as among the most financially at risk as a result of the impact of coronavirus.

Heriot-Watt in Edinburgh is one of three across the UK which is heavily dependent on overseas fees and “even more likely to struggle”, according to new research.

However, the majority of the at-risk universities have a disproportionately high number of undergraduate students who previously studied at state schools or colleges.

The universities most financially at risk from Covid-19, therefore, are institutions that are actively promoting social mobility and contributing to government higher education objectives, according to Frontier Economics, one of the largest economic consultancies in Europe.

“A potential failure of these universities would be damaging to the government’s ‘levelling up’ agenda – especially given the chancellor’s recent budget commitment to increase R&D spending outside the ‘golden triangle’ of London, Oxford and Cambridge,” it says.

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The four other ‘at-risk’ Scottish universities are Dundee, Edinburgh Napier, Queen Margaret University and the University of the West of Scotland.

Student fees as a whole have become an increasingly large source of money for higher education institutions over the last decade. In the last academic year, tuition fees and education contracts accounted for almost half of all university income (£20 billion).

At £6.5 billion, fees from overseas students make up more than one-third of all tuition fees. Such students therefore represent a large portion – 17% – of overall income. Many institutions rely on international fees to ‘underpin vital work that otherwise goes under-funded,’ as Tim Bradshaw, Chief Executive of the Russell Group, has explained.

While plans were announced last month for UK government grant extensions and low-interest loans “these would lead to higher costs in the future – and some institutions already struggling may not be able to bear the additional financial burden, if they are even able to access it.”

The Institute for Fiscal Studies found recently that the likelihood of insolvency due to Covid-19 for higher education institutions depends more on their financial situation before the crisis, rather than on predicted losses from Covid-19. 

The Frontier Economics analysis says universities contribute substantially to their local communities – not only through education but also through employment. Universities have been shown to increase GDP per capita in “close neighbouring regions” through direct spending (employment) and spillover effects.

Some of the at-risk institutions are located in areas ranking among the most deprived in England – such as Bradford and Sunderland – according to the Index of Multiple Deprivation. The loss of a significant local institution would be particularly damaging for these communities.

The UK government has so far refused to offer a bail-out to the higher education sector.

Instead, it plans to offer grant extensions and low-interest loans – chiefly being rolled out in September – to cover a significant portion of the research funding gap left by the loss of overseas student fees. This is capped, and only applies to non-publicly funded research activity – meaning it won’t cover teaching costs.

There will also be emergency loans available to universities on the brink of collapse, following a report by the IFS suggesting that 13 universities in the UK are in serious danger of insolvency. These loans would give the government greater control over the management of the universities in question, from the subjects they teach to how much they pay their staff.

“These are less than perfect solutions for universities. But without a bail-out, many may have no other option than to take out the loans on offer as emergency measures until they can once again attract international students,” says Frontier Economics.

They may be forced to combine loans with other drastic measures suggested by the government, such as closing university campuses or merging with other institutions

– Frontier Economics

“For the at-risk universities we’ve identified, taking these government loans may be an additional financial burden that they simply cannot afford in the long term.

“As a result, they may be forced to combine loans with other drastic measures suggested by the government, such as closing university campuses or merging with other institutions.

“This is if these universities are even able to access these emergency loans, as the decision is based on the restructuring plans which the institutions submit to the Higher Education Restructuring Regime Board, and the government has said that “not all providers will be prevented from exiting the market”.

“Should it come to pass, all of this will change the shape of the university landscape as we know it.

“And, perhaps most crucially of all, universities that are important sources of mobility, access and local employment may be the hardest hit of all.”

In an earlier report, Frontier Economics said the worse affected HEIs are likely to seek to replace lost international students with domestic ones.

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Whilst this could be fruitful for some institutions, the limited pool of potential domestic students from which to draw means it cannot work for all, it said.

“The effect of the fall in international students will likely ripple out from those institutions directly affected to their competitors who recruit more heavily from the domestic pool.

“Ultimately, the institutions that suffer the loss most severely may not be those who relied most heavily on international recruitment in the first instance.”

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