The Financial Crisis

The current economic outlook for UK universities is grim. In May 2025, the Office of Students reported that more than four in ten universities in England are expected to be in a deficit by the end of the year.¹One month later, Dundee University became the first higher educational institution to receive emergency funding from its regulator, in order to help plug a £35m blackhole.²Already, 49% of UK universities have closed down courses, 46% have removed module options, and 18% have closed departments.³

When Blair’s government sought to introduce university fees for the first time, he did so with good intentions. His goal was “fifty percent of young adults going into higher education in the next century”.⁴ To expand institutions’ student enrolment, the old local authority-covered funding model was axed and new student fees were introduced. They were capped at £1000 when first implemented in 1998, then £3000 in 2006, before a protest-inducing £9000 under David Cameron in 2012.⁵

This fixed-fee system put universities at risk of inflation. When the £9000 cap was implemented, higher education institutions would initially make a small profit from domestic students, which would be recycled back into their education. Due to inflation however, the real-terms figure that domestic students bring in has fallen significantly, meaning that universities now face a £1.4bn loss on teaching domestic students.⁶

To make up for this loss, higher education institutions have turned to international students, where there is no such cap. The UK university system for international students operates as a market; the universities take advantage of this to charge prospective international students exorbitant fees. Fees vary in price, but tend to cost in the mid £20,000s a year. Some are quoted in excess of £50,000 a year, some medical courses costing even more.⁷

Over time, the enrolment of international students has become less of a means to plug the domestic-fee shortfall, and more of an imperative. Higher educational institutions are operating on a business model that is reliant on international students; they account for 23% of total university income, up from the 5% back when Blair was elected.⁸

Some universities are more dependent than others. The telegraph reported that international student fees make up 88% of the Royal College of Art’s total income, 84% of London Business Schools’, and 75% of London School of Economics’, among others.⁹Had international fees not been an option for these universities, it is likely they would have gone under — or at the least have had to drastically reduce spending on infrastructure, staffing, education and research. International fees prop the university system up, effectively subsidising domestic students’ education. London Economics estimated that for the 2021/2022 year the net economic benefit of international students for the UK economy was £37.4 billion.¹⁰

This reliance, whilst providing a lifeline, has put higher education institutions in a perpetual state of precarity. As outlined earlier, the Office for Students signalled four in ten universities are facing a deficit by the end of the 2024/2025 year. The report detailed that the primary reason for this was “lower than anticipated levels of recruitment of international students”.¹¹International student visa applications fell by 16% — a drop seen after a rule-change to Graduate visas in January 2024 preventing postgraduate students from bringing relatives to the UK with them.¹²

The reliance on international students also means universities are at risk to economic events in countries where students are from. Nigeria, the country with the third highest number of international students studying in the UK in 2023/2024,¹⁴ suffered major financial problems which impacted UK universities. After the naira reached an inflation rate of almost 34%, student numbers from Nigeria fell 71%, according to The Times.¹⁴For some Nigerian students, they were thrown out of their university courses and told to exit the UK after not being able to pay fees.¹⁵

This suggests that universities are overly exposed to politics, at home and abroad. If immigration policy and overseas politics have such a knock-on effect on our universities, we should consider changing the funding model — especially in the current volatile political climate.

The Labour government has recognised this and promised “major reform” to higher education.¹⁶So far, they have failed to make any real changes other than a shy 3.1% increase to domestic tuition fees in line with inflation. In his bid for Labour leadership, Keir Starmer pledged to abolish tuition fees altogether before U-turning in 2023 in favour of NHS reform.^{17 18} Since his premiership, domestic tuition fees have risen by £285 a year.¹⁹

The Government are exploring alternative avenues, including introducing a levy of 6% on higher education providers on income from international students, to be reinvested into the higher education and skills system as proposed in the ‘Restoring control over the immigration system’ white paper.²⁰Any ‘major reform’ to higher education will be laid out in the upcoming Post 16 skills white paper.²¹

Of course, any legislation passed will be at the mercy of (and likely influenced) by Farage’s anti-immigration agenda.

But for the moment, the economic situation remains dire. Over the last couple of years, the number of posts in universities has been cut by about 5,000. Universities are having to look at alternatives to stay afloat, such as with the recent merger between the University of Greenwich and Kent to create the UK’s first ‘super university’.²²The Higher Education Policy Institute identified several “major challenges” to UK University finances, stating that they are “set to continue”.²³

A Class Divide

The most compelling evidence for retaining the current tuition fee-based funding model is how accessible universities have become.

Since the mid-1990s, numbers of applicants and acceptances have increased at an average of 2.1% and 2.5% a year respectively.²⁴Universities frequently record all-time highs year-on-year in students enrolled and they are far more accessible and diverse institutions than before.²⁵The percentage of domiciled ethnic minorities entering higher education has steadily increased to 35.2% (in 2023/2024) up from the 13.1% in 1998 a year after Blair was elected.^{26 27} Naturally, this has moved up alongside overall immigration figures, but the point stands for diversity in universities. These figures exclude the vast amounts of international students, which likely pushes up the 35.2% ethnic minority rate up to more than half.

Yet despite this progress, it remains that in the academic and professional spheres those from lower socioeconomic backgrounds continue to be underrepresented. Class remains the missing aspect of diversity measures.²⁸

Those fortunate enough to be raised in a comfortable environment with a high-ranking state school (and maybe even with a tutor or two) have a better education and a much higher chance of going to a university than those from a poorer background. Of state school educated students in the 2021/2022 school year, 49.4% of those not eligible for free school meals progressed on to higher education, compared with just 29.2% of those who were eligible. The rate of progression to higher education for those from private schools taking A-levels was 88.7%.²⁹

Moreover, those who have grown up in disadvantaged backgrounds are more likely to go to lower ranking universities. Of those eligible for free school meals, just 5.3% went on to a high tariff institution (a more prestigious university) compared with the 14.6% of those ineligible.³⁰For students who have lived through food poverty, degrees at the end are less likely to hold the same face value as those of others due to unconscious (and conscious) biases.

Students from low-income households also obtain lower grades on average. In the 2022–2023 school year, 65.5% from the most deprived quintile attained a 2:1 or a first. Of all students, it was 76.3% and from those in the least deprived quintile it was 83.9%.³¹This leaves an almost 20 percentage point gap in top grade attainment between students from the most and least deprived areas.

There are several reasons for these worse outcomes for students from poorer backgrounds. These range from not having the finances to access extra studying resources such as books, tutors and laptops, to cultural differences unconsciously frowned upon in academic classes such as colloquial accents, slang and differing dress codes. Less financial support also means less time for study due to the need to take up part-time work, and the possibility of having to face psychologically damaging and rampant classism in universities. In Durham University, this amounts to “posh lads competing on fucking the poorest girl”.³²

Even after completing university, the degrees awarded to disadvantaged students do not equate to high earnings in the way they do for those from private schools; only a fifth of graduates who were eligible for free school meals went on to be in the top 20% of earners, compared with almost half of graduates who attended private schools.³³On average, a degree does not translate to top jobs without the wider network of elite friends that wealthier families can pay for.

The class divide is deeper than just academic prospects and outcomes. The current loan-based funding model for students in universities unfairly punishes poorer students by not providing enough to cover expenses during university and indebting them for life after.

Students get two loans: a tuition fee loan sent directly to the university to cover the £9,535-a-year tuition fees and a maintenance loan to cover rent and living expenses, both paid at high levels of interest. The average debt from these loans among university leavers in 2024 was £53,000.³⁴ Students from lower-income families saddle even more debt than this, due to having to take out a larger loan and not having money sent from parents.

This debt accumulated from maintenance loans does not suffice for a decent standard of living, being described as “woefully inadequate” by the director of the Higher Education Policy Institute (HEPI).³⁵HEPI estimate that a student studying in England outside London would need £61,000 over the course of their degree to “reach a minimum socially acceptable standard of living”, around £90,000 with tuition fees included. For first year students, the maximum maintenance loan covers roughly only 50% of true costs.³⁶

Again, this negatively impacts students from a poorer background more. With the maximum maintenance loan and no support from parents, students must work 20 hours per week to meet the basic standard of living.³⁷This harms student mental wellbeing and leaves less time for revision and recreation. A 2023 survey found that 49% of undergraduates reported missing classes in order to do paid work. From the most deprived areas, 16% missed deadlines more than once due to paid work compared with 8% from the least deprived.³⁸

The university business model is effectively pricing the poorer students out. In 2023, just 48% of young people whose parents had accessed food banks in the past year were considering university, 21 percentage points lower than their peers.³⁹

Not going to university does seem to be sensible as most students are forecast to never pay off their debt.

The Government estimates that around 56% of full-time undergraduates starting in 2024/25 will repay their maintenance loans in full. The forecast for the 2022/23 cohort is at just 32% (the discrepancy being due to recent reforms).⁴⁰This means that for the majority of past students, until they are 65, they will be in high-interest debt for a degree which hasn’t managed to pay for itself.

Universities UK, the representative body for all UK higher education institutions provide an alternative view citing that by age 31, graduates earn on average a third more than non-graduates who could have gone to university.⁴¹This doesn’t account for the fact that university tends to be the given route for the brightest (and wealthiest), who skew the statistic given that if they had decided instead to not go to university could well have achieved similar outcomes, if not better and without the debt.

Debt from student loans has reached such a point that UK universities are now international outliers in this aspect. Students loans are: (of all OECD countries) the highest on average annually, taken out by the most students annually and have interest rates that are “somewhat higher than typical rates”.⁴²

In fairness to Blair, the numbers floating around university accessibility and representation are considerably higher than when he became Prime Minister in 1997.⁴³ But despite the increasing student population, the class divide in universities does remain stark and unaddressed with ballooning tuition fees, student debt and a worsening cost of living crisis.

A far better alternative would be to invest in primary and secondary education in poorer areas and break apart private schools, for a truly meritocratic education system. Interestingly, GCSE grades could explain almost all of the difference in higher education participation rates. A 2016 study by the Institute of Fiscal research found that of those with the same GCSE attainment, there was almost no difference in university participation rates between the richest and poorest 20% of state school students.⁴⁴This implies that with a focus on investment in the poorest areas of key stages 2, 3 and 4 education to make a more equitable system, the class divide in universities (and prospects after graduation) would become a self-solving problem and shrink drastically.

As things stand, given academic outcomes correlate with economic backgrounds, and the current educational funding model being rife with inequality, on average higher education could be classed a debt trap for the poor.

Declining Standards

Another consequence of this business model is the declining standards in universities, which is reflected in the degree. The financial imperative for more students means that universities widen the grade tariffs needed to get accepted, and that more degrees are printed.

Grade inflation is the most obvious sign of this. The proportion of first and 2:1 honours awarded by higher education institutions was at roughly 48% when Blair was elected. That number has steadily risen to just shy of 80% since.⁴⁵ The proportion of first class honours alone awarded has more than quadrupled.⁴⁶ Between 2010–2023, the number of first class degrees awarded to students entering higher education with DDD in A-Levels rose by 270%.⁴⁷ This should imply that Britain is more intelligent than ever, with top degrees awarded going through the roof.

But instead of being celebrated it has been a major cause for concern among educational authorities. In a press release describing half of the first class honours achieved as ‘unexplained’, the Chief Executive of the Office for Students said that “Inflation of grades that does not reflect actual student achievement is bad for students, graduates and employers, and risks undermining the reputation of English higher education in the UK and beyond.”⁴⁸

One possible explanation for this ‘unexplained’ upward trend in numbers of top grades being awarded, is that graduates are simply far more intelligent than before. This does seem unlikely, given universities are having to lower requirements needed to get onto courses.⁴⁹In order to keep up with struggling finances, universities have had to take on more students which they may not have otherwise selected. For the 2025 intake, the most selective universities took over 7% more students,⁵⁰ with 82% of domestic students accepted into their first choice of university.⁵¹This is brilliant for student diversity and enfranchisement; but it means that the universities themselves have opened their doors to a broad cohort of students from across the academic spectrum that they perhaps wouldn’t have had finances been in better order.

An ongoing research project into grade inflation from the University of Bath focuses on the role of lecturers. It hypothesises that “grade inflation may lie in the expansion of HE [higher education], which brought in more students from the lower end of the ability spectrum… Lecturers may have made their teaching and, accordingly, grading standards more accessible for more numerous weaker students”. This would suggest that academic rigour and student engagement have been exchanged for effective box-ticking.

A more cynical but perhaps more plausible approach to these figures is that universities are printing more first class and 2:1 degrees in order to push themselves up league tables and make themselves more attractive to paying students, a conflict of interest stemming from a business model that forces universities to compete for student fees. This is the most widely cited explanation for grade inflation. The New Statesman points this out, saying that League tables “now determine not only the decisions of students, but the fate of every university”.⁵²

In 2018, the business school of Queen Mary University, a Russell group institution, issued a memo to its lecturers demanding at least 60% of students were given a 2:1 or better in every assessment. This was not to be “an aspirational target for marks”, but rather a “minimum threshold”.⁵³

Whichever way you look at it, the result is the same: standards have been dropped for money.

The current economic model has made expanding student intake an imperative for all universities. To make themselves more attractive to prospectives (and to keep the illusion that they are still prestigious institutions) they print out more — and higher — grades.⁵⁴Just as printing money devalues a currency, printing grades devalues the institutions awarding them.

The Financial Times reported that 61% of UK universities dropped places in the QS University World Ranking, the second consecutive year with the majority of UK universities falling in rank.⁵⁵ The Times published an article on the matter, largely focusing on the poor financing model of UK Universities as the reason for the decline.⁵⁶The QS chief executive echoed this, also citing the strength of increasing competition from countries whose policy-makers emphasise investment in education, such as China and India.

Previously, UK universities have punched well above their weight in global rankings, consistently placing second to the US in a variety of scoring systems.⁵⁷For centuries the UK has held a reputation for academic excellence. This has been a great source of soft power, helping consolidate the UK’s influence overseas.

Alumni of UK institutions include world leaders such as PM Najib Razak of Malaysia (Nottingham), Emperor of Japan Naruhito (Oxford), Queen Margrethe II of Denmark (Cambridge), PM Haider al-Abadi of Iraq (Manchester), President Hassan Rouhani of Iran (Glasgow Caledonian) and US President Bill Clinton (Oxford) to name a handful. Today, It is estimated that 39% countries in the world have had at least one very senior leader educated at a higher level in the UK.⁵⁸ It would seem counterproductive to lose this influence to somewhere like China given the deep ideological differences, but it is looking increasingly likely as the UK universities slide down global rankings and pile up debt.

In the 2017–2018 school year, Blair’s goal of fifty percent of young adults going into higher education was achieved, but not without a price.⁵⁹

It does seem fair to conclude that right now there is a bubble in UK universities. On paper, everything is outstanding. World-renowned institutions educate record numbers of students, giving them record numbers of degrees of record-high quality.

But these numbers are inflated, as a result of a Blairite economic model that treats educational institutions as a business. The university system will not all of a sudden implode, but the rapidly increasing enrolment, grade inflation and debt are warning signals that could indicate that something is seriously wrong.

If legislators make the same mistake creditors did in 2008 and don’t see this for what it is — a bubble — many universities are at risk of collapsing under their debt, and the rest of the world will realise that many degrees printed by UK universities aren’t worth the paper they are written on.

The Overseas Scandal

The current economic model of universities incentivises greater proportions of international students. Numbers approaching — or above 50% — are not uncommon for big universities. 49.9% of the University of Hertfordshire’s student population is international, Coventry University’s is at 46% and University of Greenwich’s at 40.1%. This trend extends into the more selective institutions — St. Andrews has a 47.2% international student population, Imperial College London has 51.7% and London School of Economics has 65.1%⁶⁰, Overall, international students account for 23% of the higher education student population.⁶¹. 51% of these students are in Russell Group Universities.⁶²

It does raise questions about for whom the current system is serving. The current winners are private equity-owned businesses, contracted by dependant universities to find and bring in international students en masse. Prospective students are typically signed up for expensive one-year foundation ‘pathway’ courses supposedly designed to give the skills and knowledge required for a degree.

There are major concerns over the integrity of these courses. The main critique has been that many of the international students are only brought over to UK universities because of the vast sums of money behind them, and not because of their high academic standards.

These pathways are notoriously easy to get on, provided money can be paid up front. In 2024, the Sunday Times reported that to study economics at Durham, for a domestic student would require three A-Levels at A*AA, whereas for an international student it would require CCD. The same course at Newcastle would demand AAA from a domestic student — a singular D would be sufficient for a high fee-paying international student.⁶³ It is a similar story for most other universities.

Kaplan is one international educational organisation that partners with many UK universities and offers these pathway courses. It has a degree finder tool to show prospective international students where they can study, with which grades, and for how much. You can see what international students are offered for yourself here.

Universities UK (the collective voice of the UK’s universities) responded to these accusations by commissioning an enquiry into their own international pathway programmes, based on voluntary information submitted by the universities themselves. They didn’t find out anything to suggest that international students were being accepted onto pathway courses with easier grades to reach than domestic students, but one conclusion was that international students had more “opportunities under more varied conditions to achieve successful progression [than domestic students]”.⁶⁴

Aside from generous requirements, anecdotal evidence suggests these pathway courses are relatively unchallenging. Sam Lam, an education officer interviewed by the Times, said of the pathway courses “For most coursework you get 50 per cent just for handing it in. You turn up, you do the bare minimum. That’s the pass mark.”[65]

This was swiftly denied by both Russell Group universities⁶⁶ and Universities UK⁶⁷ in a rebuttal to the Times’ piece exposing ‘back route’ access to UK higher education institutions.

It has been widely reported that many of these international students accepted on to take degrees do not hold a good enough standard of the English language to partake in classes, let alone complete a university degree.

One anonymous Russell Group lecturer speaking to File on 4 stated of Master’s students “In my experience the clear majority of seminar groups that I have taught over the last four to five years do not have the requisite English language to be able to manage in a way that one would have typically expected for university level classes”.⁶⁸An article on the issue, written by two anonymous Russell Group professors, claimed that they both “regularly encountered students who are unable to understand simple questions like ‘What have you read on this topic?’ ”.⁶⁹

To make up for the lack of understanding, AI tools such as ChatGPT and ‘essay mills’ (businesses commissioned to write high quality essays) are used. By nature, finding statistics on students admitting to cheating is very difficult — but education-oriented outlet The Pie documents that essay mills frequently target international students, which confirms my own experience with university WhatsApp and Instagram group chats being inundated with adverts directed at overseas students.⁷⁰As for AI, 18% of students (importantly, domestic students included) have admitted to including AI generated text in their work.⁷¹Naturally, the real number is likely much higher. Talking to them, there does seem to be an understanding that using AI tools such as Chat-GPT is simply the done thing. Many students, international and domestic, appeal to AI and essay mills to make up for their own lack of intelligence and drive — two things which should be guaranteed in a degree.

It creates a depressing environment for the professors; they know they are marking content not created by students, yet it happens on such a large scale that they cannot reasonably fail everybody without risk of harming their university’s reputation, and their own. Academic staff are also aware that the international fee income covers much of their wages, and that the hostile right-wing press are looking for anti-immigration stories.⁷² Further, failing a student triggers a whole process of resits, more AI marking, flagging up content as AI generated/plagiarised, and coordinating with higher-ups to determine whether a student (who may feign innocence) is cheating. All with the clear conflict of interest in retaining the student’s fee. One lecturer appealing to an internet forum, rants about the use of words such as ‘nuanced’, ‘intricate’, ‘delineate’, ‘multifaceted’, and ‘delve’ from students who “cannot answer a simple yes/no question in class”⁷³

The real loser of this is the hard worker who refuses to use AI and gets the same degree in the end. The degree becomes a mark of having showed up, rather than a mark of diligence and intellect. It is incredibly demoralising to pour days and weeks of physical and mental effort into research and writing, and have it be trumped by a simple prompt.

The current university system fails everybody. Many international students have poor experiences, for which they pay extortionate prices. The professors are left frustrated and disillusioned. The two anonymous Russell Group professors described it as “life-sapping, demoralising and deeply exploitative”. Universities are left financially crippled and increasingly dependant on declining numbers of international students. Even the UK’s soft power is harmed, as the devalued degrees pose serious threats to the UK’s reputation as a home of top educational establishments.

A Way Out

Various solutions have been proposed, the most called-for being taxpayer funded degrees.

The current system is already heavily tax-payer reliant. The amount of publicly owned debt from UK and EU students is £266.6 billion, of which according to current government forecasts the majority will not be paid back.⁷⁴This is going towards inflated degrees which do not translate to sufficient economic value to justify the public debt.

The inflationary nature of the value of degrees and the student population would indicate that a correction is needed before the debt burden becomes too heavy for universities to bear. There are too many universities competing for prospectives, and too many prospectives looking for universities. Having degrees completely taxpayer funded with current numbers is simply unsustainable and would likely get more expensive due to the increased appeal of a free degree, making student numbers even higher.

On top of this, there are less jobs available for graduates to compete over. We are now below pre-covid levels in positions available, with the 33rd consecutive quarterly decline, after the spike in 2022 when the loosening of COVID restrictions opened up the job market.⁷⁵

It does seem apparent that any solution needs to reduce the amount of students in university.

It is hard to propose a well-researched and validated solution to a problem of such scale without the resources of a think tank or governing body, but theorising ways out of the current university crisis is a fun and much-needed thought experiment; hopefully part of a broader marketplace of ideas to be considered and adjusted by the relevant authorities.

Any changes to the higher education system first needs to consider what the purpose of university should be. To the student; a bridge to independence, a ticket to higher earning jobs, a place to learn to think critically and a scene to meet other young adults. To the university; a hub for research, education and innovation. To the government; an economic asset, a source of soft power, perhaps even childcare for young adults.

There does seem to be a simple solution to the current crisis, that meets this criteria.

There should be fewer universities, they should be made more exclusive and be covered by tax. For the majority of the population, there should be public/private cooperation to introduce apprenticeships for a wide variety of industries, with a similar accommodation system to the current one. Further education should be prioritised over higher education.

Instead of choosing a university and a course to attend, prospectives could apply directly to companies in the industries they are interested in and go on apprenticeships that would result in a job with the company at the end. The makeup of a course could be decided by the employer to ensure that any ‘graduate’ has the relevant skills for the profession. The courses would be accessible for the prospective to scrutinise before making a choice on where to go, the same way as modules are for universities. Accommodation could stay largely the same, perhaps subsidised by employers. This would mean students still flee the nest, gain independence, and have the typical ‘uni-experience’ of meeting new like-minded young adults.

An education system like this emphasises the employer and their role in providing the relevant education to apprentices. This gives businesses the opportunity to train and hire young talent with skill sets specifically honed for that company and the wider industry. This is far better than the current university system: you do not need to have a degree to go into HR, Sales, Marketing, Journalism, Business, Management etc. A degree helps — the knowledge, the network — but it is not a necessity. Experience is more important.

For the student it would provide a stable pathway into the world of work whilst satisfying the want to move out, meet others and have fun. Given that students would not be economically inactive as many are in university, this leaves the door open for free accommodation and a wage or allowance. At the minimum, it would ensure students don’t finish education in crippling debt.

The reduction in the number of students in universities would also protect them as prestigious institutions and drive down grade inflation, without the financial incentive for universities to print more first class and 2:1 degrees. A recent article from two university professors recommended caps on the numbers of students to “provide short-term financial relief” and help to alleviate the immediate pressure.”⁷⁶

To keep the limited number of places available truly meritocratic, the government could abolish private schools and spend some of the almost £21 billion-a-year in student loans on education in poorer areas. As outlined earlier, of those with the same GCSE attainment, there was almost no difference in university participation rates between the richest and poorest 20% of state school students.⁷⁷Putting money in under-invested areas democratises higher education. An alternative funding model that focuses on academic ability would also mean universities could focus on high quality research and education without getting caught up in the perils of managing an under-funded business.

Lastly, empowering students with the direct skills needed for jobs could be transformative for the economy. If such a scheme were to take off and be successful, companies would flock to the UK to invest, train and hire.

Any change of this scale would demand a cultural shift that should a) understand apprenticeships as more economically beneficial pathways to all, and b) value universities as hubs for research and innovation, not stamp-printers for jobs. Indeed, such a cultural shift may be easier than at surface. Opinion polling shows that there would be considerable support for a change like this putting more emphasis on further education. Policy research agency Public First identified “massive untapped support for more investment in FE”.⁷⁸

Of course, this is far from a perfect system and very much ‘back-of-the-envelope’ but it could be a framework for policymakers to expand on. Something has to give.

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