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Stalling enrollment of domestic students coupled with a sharp decline in international student recruitment could plunge more than 80 percent of English colleges and universities into deficit in less than three years, according to the Office for Students (OFS).

The main higher education regulator in England said that it was overly optimistic to hope that universities can grow their way out of the current financial crisis. Institutional providers “will need to take additional, or more significant, action to fully respond to the financial risks that the sector is facing.”

A “reasonable worst-case scenario” modeled by the agency in its latest financial sustainability report could see no growth in student enrollments from the United Kingdom between 2023–24 and 2026–27 and a “significant reduction” in international students.

Without cost-cutting measures this would result in the sector facing a net reduction in annual income of £9.7 billion (roughly $12.3 billion) compared with forecasts, with 226 providers (84 percent) reporting deficits and three-quarters experiencing low levels of liquidity by 2026–27.

Philippa Pickford, the director of regulation at the Office for Students, said this scenario was looking increasingly realistic in light of the most recent data that indicates a drop in international student enrollments in January of between 40 and 50 percent.

Up to 176 institutions would be in deficit if there was no growth in either domestic or international students, according to the modelling, while it would be 202 if there were “minor reductions” in both markets and 239 if both fell significantly.

Pickford said it was very difficult to know which scenario would bear out as it was currently unclear if the very recent shifts in recruitment—coming at the end of a long period of growth—marked a new trend or a short-term blip.

Either way, the government report calls sector forecasts that assume 35 percent growth in international student entrants and 24 percent growth in U.K. students by 2026–27 “significantly optimistic” and says they “contrast starkly” with the latest data.

This projected growth in student recruitment has been fueling hopes that the sector can improve its financial outlook in the years ahead, but the Office for Students warns that “the actual outturn position for the sector in the short and medium term is likely to be even more challenging than providers have forecast and the longer-term recovery they forecast is significantly uncertain.”

On the U.K. side, universities were predicting growth in undergraduate entrants that outstrips even the projected demographic rises in the number of 18-year-olds this decade which, thus far, have not translated into more enrollments, with the latest Universities and Colleges Admissions Service (UCAS) data showing another drop in applications from this group after a decline in the entry rate last year.

More than 50 universities have already begun redundancy rounds to reduce their expenditure in light of the financial challenges, but the OFS says measures adopted so far may have to go further, which “could affect the size, shape and reputation—both national and international—of the English higher education sector.”

The “consolidation” and “rationalization” of courses—along with providers potentially exiting the market—could “reduce the range and diversity of providers and limit student choice,” the report says, with institutions’ research and contribution to local and national economies also at risk.

“We also expect that we might see some changes to the size and shape of the sector, for example, through mergers and acquisitions or increased specialization,” the report adds.

Pickford said the regulator was not “expecting a sudden increase in the number of providers exiting the market imminently” but “action needs to be taken to ensure this remains the case in the longer to medium term.”

Responding to the report, Tim Bradshaw, chief executive of the Russell Group, an alliance of the U.K.’s 24 research-intensive universities, said it was “no surprise” to see the data and urged the government to provide clarity on the future of the graduate visa to stop the negative impact of policy changes on international student numbers.

Jane Harrington, vice-chancellor of the University of Greenwich and chair of University Alliance, which represents professional and technical institutions, echoed this call.

She said the Office for Students report “presents a stark picture of university finances, and comes at a critical time for the higher education sector.”

“It underlines how impossible it is for universities to manage and plan their financial risks in the face of continuous changes to immigration policy. This is why the government urgently needs to provide stability for universities and commit to keeping the graduate visa route,” she said.

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