Before I go further, I should start with a well-deserved acknowledgement. The sector as a whole has moved at great pace, often dusting off and revamping digital strategies, supporting students and staff alike to ensure they are well positioned to continue their essential services and deliver learning outcomes for students. Many have also looked to support the national effort, with medical supplies, halls of residences and equipment turned over to the NHS. It is truly impressive to see and is included in my thoughts along with the NHS workers when clapping in support from the end of my driveway (at a suitable social distance from others).
Now as the attention turns to policy and quite often cash, I consider what is it universities are planning for, how has the outlook developed over the weeks, days and even hours recently and ultimately who is going to be at an increased risk when it comes to financial sustainability?
What are universities planning for?
There is already the acknowledgement that final semester residence income and summer conference income is a write off, with other items factored in there too, some partially offset with cost savings and the furlough scheme where possible (academics out of scope). This can be modelled quite simply. The results may not be nice, but it can be modelled none the less.
The greatest sensitivity and uncertainty remains student numbers for the academic year 20/21, followed soon after by potential start dates. Starting with international students, it remains to be seen how many international students will be willing and able (depending on ongoing travel restrictions) to travel to the UK to study. Much will depend on the UK government’s success in controlling the spread of Covid-19, the speed with which English language testing centres are reopened in key markets and the broader geopolitical environment.
From a domestic perspective, uncertainty remains over the number of applications (anecdotally they seem to be holding up well) and the ability to turn up on campus (social distancing). Then it is the course start dates. There are various murmurs discussing the potential student number cap (including the criteria which determines the cap) and exactly how the use of teachers’ predicted grades, instead of external exams, will affect attainment and clearing. Both international and domestic students may well choose to defer joining university for a year, for fear of Covid-19 disruptions remaining in September. Albeit in my opinion, after a summer cooped up at home with their family, many potential students may be itching to get away!
Unfortunately, clarity on these various different drivers will only likely be achievable nearer to the planned term start dates. That said, the historically counter-cyclical nature of the sector may result in a domestic student number increase, potentially benefiting those institutions which ordinarily would be ‘over exposed’ to the domestic market.
What has changed?
Universities have mostly now completed the first phase (short term actions – see previous article) of reacting to Covid-19 with impressive speed: closing campuses, moving provision online and making appropriate assessment provisions. Phase two (medium term considerations – again, see previous article) has seen universities turning their attentions to revising forecasts, understanding the government and bank support packages available to them and reacting to the changing regulatory environment.
Phase 3 (longer term) still requires prudent modelling, considering the aforementioned sensitives as a pre-requisite to accessing government and bank support. Such modelling is also incredibly useful for identifying potential pinch points in the months ahead. The Office for Students has attempted to ease the regulatory burden on universities, and aid institutions’ abilities to react to Covid-19, through suspending routine reporting requirements. The government is also thought to be planning the reintroduction of a student number cap. The cap hopes to spread the expected pain of reduced student numbers for academic year 20/21 across the entire sector through preventing the ‘more desirable’ universities recruiting domestic students en-masse, leaving other institutions with severe recruitment challenges.
Thought does need to be given to those universities that need to increase numbers to remain viable and were doing well in applications to date. It remains to be seen how any cap will be balanced and fair. Someone will always be negatively impacted, so it may inadvertently impact universities at both ends of the sector, not just those who were hoping to offset the income hole left by the international market.
Who is at risk?
The challenges of Covid-19 are near universal. ‘Top-tier’, internationally renowned institutions often have an increased reliance on international students, and are therefore likely to suffer from the expected sharp drop in international student enrolments. They do however, often have a more diverse income profile and stronger balance sheet (not universal) mitigating the severity of the impact. ‘Lower-ranked’ institutions, in turn, often have less diversified income streams and often place more reliance on domestic tuition fee income. This makes such institutions more vulnerable to a fall in student numbers and further campus closures which will push future income down the line or drive increased deferrals. An increase in domestic numbers may however benefit these institutions, depending on the potential imposition of a cap (and its potential limitations).
I should state that I fully acknowledge these are broad generalisations to make as some teaching intensive universities are very well regarded and are extremely desirable institutions, even if they are reliant on tuition income.
The balance sheet strength and cash position of an institution may prove to be vitally important, impacting the university’s ability to absorb Covid-19 related disruptions as well as the ability of that institution to take on more debt; be it bank debt, public/private investors or through the various government schemes that may be available. Notably the Bank of England’s Coronavirus Corporate Finance Facility, which requires an investment grade rating, will be a significant help to those that can access it, and may cause worry for those that cannot.
All universities are united in their main challenge however. Uncertainty. No one actually knows the true cash impacts just yet. So much hangs on the government’s social distancing restrictions and student numbers arriving (whenever that is going to be) and ultimately paying their fees. It would be remiss of me to pass up on the opportunity to say, “cash is king”. There will be a lot more to come over the next few weeks!
As I mentioned in my last article, please feel free to reach out, get in touch and stay safe.
Ian – Sector Head, Public Sector and Education
+44 7920 417 565