UK universities face funding crunch as foreign enrolments fall: Explained

According to the UK's Office for Students, nearly three-quarters of UK universities could be running deficits in 2025

British universities are grappling with a funding crunch as overseas student enrolments drop, particularly from India, the UK’s second-largest source of international students. Data from the UK Home Office show that the number of Indian students fell by 20.4% in one year — from 139,914 in 2022-23 to 111,329 in 2023-24.

 

According to the UK's Office for Students, the sector’s watchdog, nearly three-quarters of UK universities could be running deficits in 2025. One in four leading institutions has already started cutting staff and scaling back budgets.

 

In 2022-23, universities earned £11.8 billion from international student fees — making up 23% of their total income, compared with just 5% in the mid-1990s.

 

 

Visa rules, rising costs, and fewer students

 

Part of the drop is being linked to changes in visa policies. Under Rishi Sunak’s government, restrictions were introduced preventing most international students from bringing dependents. A review of the Graduate Route visa, which allows students to work for two years after completing their studies, also created uncertainty.

 

Home Office data show that sponsored student visa applications dropped by 14% in 2023. The decline followed the Conservative government’s decision to restrict international students from bringing dependents and signalled growing uncertainty around post-study work rights.

 

At the same time, universities are struggling with debts that have built up during years of rapid expansion. A Bloomberg News analysis estimated that institutions owed at least £9.5 billion in the 2023 academic year, largely from loans taken to fund new buildings and facilities.

 

While international fees have become a key source of income, funding from domestic students has stayed largely flat. With tuition fees capped and not rising in line with inflation, many universities are finding it difficult to cover increasing operational costs.

 

According to the Office for Students, more than 70% of universities in the UK could be running deficits by 2026 if current trends continue.

 

A Bloomberg News analysis reported that universities were finding it harder to meet debt repayments after borrowing heavily to expand campuses and facilities. Talks are now underway between universities, regulators and lenders to avoid defaults.

 

“Universities have to make sure that they have their own house in order. And I think that's what all of us are doing: we're trying to retrench, we’re trying to reconfigure budgets, we’re trying to do things differently,” said David Bell, vice-chancellor at the University of Sunderland and former permanent secretary at the Department for Education, speaking to Bloomberg.

 

System too dependent on international fees

 

The Office for Students has raised concerns about overreliance on international tuition. In a recent report, the watchdog warned that recruitment forecasts may be overly optimistic.

 

Key risks it listed include:

 

Reduced income from UK undergraduates, while operating costs have surged  

A drop in international applications after years of growth  

Financial pressure from building upgrades and decarbonisation targets  

Rising pension contributions and inflation-linked costs  

Affordability pressures for both students and staff  

 

The regulator noted that 40% of universities expected to post a deficit in 2023-24. Although some recovery is projected from 2024-25, total cash reserves are forecast to shrink — from £16.5 billion in 2022-23 to £13.8 billion in 2026-27.

 

Indian students look elsewhere

 

It’s not just the UK. The Indian government recently reported that the number of students going abroad dropped nearly 15% in 2024 compared to the previous year.

 

Canada saw a 41% drop  

The UK was down 27.7%  

The US fell 13%  

Interest in Germany, France and Italy is rising  

 

“Indian student migration patterns are changing, and this isn't just a blip. It reflects deep-rooted global shifts in visa policies, affordability, and post-study work opportunities,” said Varun Singh, managing director at XIPHIAS Immigration, speaking to Business Standard.

 

“This inclination towards cost-effective and career-oriented study abroad destinations has been due to various reasons. Apart from strict immigration policies and visa rejections, diplomatic disagreements among countries have also been a major reason for this transformation,” Mamta Shekhawat, founder of study abroad platform Gradding.com told Business Standard.

 

Singh added that rising tuition fees, inflation, and expensive housing in cities like London, Sydney and New York have made traditional study destinations less attractive. “The UK’s review of the Graduate Route visa has created uncertainty about job opportunities,” he said.