Universities likely to borrow to offset funding cuts, Fitch finds

4 Mar 16

English universities are set to increase borrowing levels in order to mitigate government funding reductions and to upgrade facilities, an analysis of the financial health of the sector by credit ratings agency Fitch has found.

A review of the sector concluded the institutions were under increasing pressure to look for alternative funding due to lower government grants for teaching and research and increasing competition for more lucrative overseas students.

As a result, English and Welsh universities issued £1.25bn of bonds last year, with capital investment now set to increase in the next few years, according to Fitch. Universities will increasingly borrow to invest in their campuses and student accommodation to widen their appeal following the rise in tuition fees to £9,000 a year and the selectivity of students in choosing a university. The higher fees would then be able to help compensate for rising debt levels, the agency stated.

This borrowing is likely to be long-term and could be funded through capital markets.

Fitch’s report was published as the Higher Education Funding Council for England set out the funding levels for the higher education sector in the 2016/17 academic year.

Total government funding will be £3.7bn, including capital funding of £478m.

This is down from the £4bn budget in 2015/16, which was later reduced by £150m as part of chancellor George Osborne’s £3bn in post-election savings.

Responding to the annual grant letter, Dame Julia Goodfellow, president of Universities UK and vice-chancellor of the University of Kent, said the protection of science funding in real terms was welcome.

“The announcement means that 2016/17 will be a year of relative stability in teaching funding, and high cost subject funding (including science, technology, engineering, and mathematics) will be protected in real terms.

“Universities UK will work with HEFCE to input into its review of allocating teaching funding. It will be important to ensure that the impact of changes to the health professions and student opportunity funding do not adversely impact on the sustainability of institutions.”

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