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Lifting student numbers cap will mean revenue boost for HE, Moody’s forecasts

The government’s plan to remove student number controls is “credit positive” for UK higher education, but will mean greater challenges for universities with weak market positions, the ratings agency Moody’s has said.

Proposals to allow universities to recruit an estimated 60,000 more students per year from 2015-16, unveiled in the Chancellor’s Autumn Statement earlier this month, will add up to a significant revenue boost for the sector, according to a new Moody’s analysis.

The move will also lead to greater differentiation and specialisation among UK universities, it predicts.
Institutions with moderate to strong reputations are expected to develop effective market strategies to attract more students and make financial gains.

The most aggressive bid to increase student numbers is likely to come from “reputable second tier” universities, Moody’s suggests. But institutions with weak market positions and ineffective strategies will face greater credit challenges and competition, and are expected to seek to specialise in niche areas to attract more students.

As a result of the policy change, tuition fees may form an even larger share of university income than the 39 per cent forecast by the Higher Education Funding Council for England for 2015-16, the analysis says.

The rise in student intakes will also be matched by an increase in government grants, further boosting revenues by an estimated £720 million by 2018-19.

However, beyond 2018-19 the financial picture is less certain. Moody’s warns that should enrolments exceed projections, this will mean a higher cost to the UK government which “retains the right to re-impose numbers caps on institutions”.

Moody’s also says that in the short term, universities’ capacity constraints may hinder their ability to soak up the demand for places. They will need to increase their capital spending and hire more staff in order to take in many more students, it argues.