Scott Hutchinson | 19 May 2021
Our recent research has highlighted that the debt burden of the UK’s 20 largest universities by student population has increased 50% from £6.3bn to £9.5bn over the last five years* .
What's causing this increase?
Whilst this rise has been exacerbated by the pandemic, it has largely been fueled by major infrastructure projects by the universities including the buying and building of properties to be used for student accommodation. This, coupled with increasing student numbers that saw a 3.2% rise to 2.46 million in the UK in 2019/2020, has led greater demand for accommodation and student services. Universities are investing heavily in these areas and having to increase their borrowing to do so.
With growing debt burdens, it's easy to see why the pandemic could not have come at a worse time for many. It's led to cost-cutting by a number of universities as they prepare for an expected rise in drop-out numbers and a fall in the number of overseas students.
Hiring interim finance directors is crucial for the higher education sector to manage debts in the short and medium term. Talent from the private sector with experience in managing highly leveraged businesses could help secure the long-term financial security of universities. Bringing on board senior talent with expertise in cost management for large organisations could also benefit universities.
The consumer lens
In the education practice at NSCG, we're increasingly hearing about the pressure from growing student populations to build more retail and leisure spaces on campus and enhance the overall student experience of university. It's a trend that's leading university to look at their students through a consumer lens.
This lens requires an entirely different approach and a very different skill set than most university management teams will have. Bringing in senior talent from the retail, leisure and real estate sectors should be part of the plan for more universities. The outside-sector skills can help ensure universities maximise the return on their substantial investment in these facilities. Running these operations as a profit-generating business is particularly challenging in a post-Covid landscape, making experience in challenging economies particularly valuable.
Major universities have become very large, complex and leveraged organisations over the last 20 years. They now need to ensure that their senior leaders have the right mix of skills and experience to run a business of that kind effectively. Looking outside the higher education sector for talent is now a step all universities should be taking.
Scott Hutchinson is the principal consultant at Interim Partner at NSCG's education practice. At NSCG, we advise our clients on how to create the capability to re-build, re-align and adapt in readiness of the new opportunities and risks through change and crisis management. To learn more, please get in touch.
* Source: Top 20 universities by student population; sum of amounts owed to creditors due within less than one year and after more than one year. Amounts due within less than one year have risen from £3.3bn in 2015 to £4.2bn in 2020. These figures comprise a range of costs including trade payables, grants not yet paid to researchers and bank overdrafts. Amounts due after more than one year have risen from £3bn in 2015 to £5.2bn in 2020 and primarily comprise secured and unsecured loans and other long-term finance.
** House of Commons Briefing Paper: Higher Education Student Numbers, Feb 2021