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It’s hard times for UK universities

According to a recent article published by International Financing Review (IFRE), UK universities are heavily indebted: since the beginning of the financial crisis they have reportedly borrowed 12 billion pounds from banks, from private investors (mostly from the US) and from the international bond market. 

But with banks now pulling back because of new capital rules and with the European Investment Bank stopping its loans because of Brexit, demand for private funding is getting higher and universities are risking to plunge into a debt spiral from which it will be hard to get out. For example, Cardiff University borrowed 300 million pounds at an interest rate of 3% over 40 years, but in 2017 it ran a surplus of roughly 145,000 poundsonly. According to the IFRE, this means that it would take over 2,000 years for the university to pay the debt. 

A very recent related, but separate development is that the proportion of student loans that will not be recovered because graduates will never pay the full amount back (currently estimated to be almost half) now has to be counted as current State expenditure - an increase of £12 billion. Previously it was ‘off balance sheet’ although all the money comes from the State. 

As a result the Government has a real incentive to cut the maximum fees they allow universities to charge and also to cap the total number of students because they are entitled to State funded loans (currently there is no limit - which supporters of an HE ‘market’ have made a lot of). The threat to universities is that their total income will be cut because the Government is unlikely to make up any reduction in fee income by increasing direct State funding (also because the health service, schools etc. will be first in the queue anyway). 

This is just one of the issues that the new Education minister, Chris Skidmore, has to deal with. Skidmore is the third minister of higher education since Conservative Government took the lead in 2015. The previous two, Jo Johnson and Sam Gyimah, resigned due to Brexit and were both in support of a second referendum. 

More information here and here