University funding: International fees crucial but unreliable income

Universities Scotland, the umbrella group that represents these institutions, has been arguing in recent months that many universities have become overdependent on this source of income, which—although lucrative—is not reliable.

An analysis of the university finances in 2022/2023, the most recent data from the Higher Education Statistics Agency (HESA), helps to explain why.

First, a quick look at the range of percentages that make up the sector-wide 22% average illustrates why this source of income can't be the saving grace for every institution.

The University of St Andrews reported the highest rate of international tuition as a percentage of total income at 34%. At Scotland's Rural College (SRUC) and the University of the Highlands and Islands (UHI), the percentages were 0.15% and 0.99%, respectively. 

This means that, for example, when universities are looking to make up for shortfalls in certain spending categories, they can't all rely on cross-subsidising using international tuition. 

However, according to official reports from the Scottish Funding Council (SFC), which distributes Scottish Government funding to institutions, universities must cross-subsidise regularly. 

In the SFC's most recent report on the sustainability of universities in Scotland, an analysis of the sector showed that Scottish universities are not recovering the Full Economic Cost (FEC) of publicly funded teaching or research.

An SFC spokesperson explained that FEC is more than a measure of total spending, and university planners have emphasised an important distinction between spending and cost.

FEC calculations also take into account a Margin for Sustainability and Investment (MSI), which calculates the level of surplus needed for internal reinvestment to continue operations into the future.

The most recent calculation of the recovery of universities' FEC is from 2021/2022.

That year, the SFC reported that universities' publicly funded teaching income totalled £1,445,965,000, compared to a FEC of £1,595,703,000.

This left the sector with a deficit of £149,739,000 or 10.4% of the FEC for publicly funded teaching.

As a result of the shortfall, the SFC reported that "privately funded teaching and other income generating activities subsidise publicly funded teaching and research."

In other words, the report shows that public funding is insufficient to cover the expenses of teaching Scottish students across the sector. Fee-paying students are helping to cover the leftover cost.

Mary Senior, Scotland representative for the University and College Union (UCU), said that this is a state of affairs that needs to change.

"We absolutely welcome the fact that our universities and higher education institutions are places where people from overseas want to come and study.

"The value students bring from overseas is just immense. The different cultural and educational perspectives they bring really add value to our system.

"But when they're just being used as cash cows to cross-subsidise tuition to Scottish students, that's deeply problematic."

And university leaders also argue that fee-paying students have proven to be a volatile source of income in recent years.

Although the total number of international students enrolled at Scottish universities has increased substantially since 2020–rising from 68,180 to 83,970 in 2022/2023–university representatives have warned that trends can change quickly.

Universities Scotland has been making this case in recent budget papers and evidence sessions before the Scottish Parliament's Education, Children and Young People's Committee.

During a June hearing, Universities Scotland convener Professor Iain Gillespie told MSPs that universities were "far away, far away" from covering the costs of Scottish students using government funding.

He added that even if the Scottish Government increased the amount it paid for each Scottish student, it wouldn't be enough to end universities' reliance on international fees.

For comparison, international student fees for some undergraduate courses can exceed £30,000 per year at the top of the price scale. At the University of Edinburgh, international fees for Chemistry were £34,800 this year. The Scottish Funding Council provides tuition for Scottish students according to six price groups, which offer higher funding for certain subjects.

Chemistry falls under price group three, which in 2024/2025 meant £8,931.

Complicating matters further is the fact that although the record number of international students enrolled in Scotland is a reflection of the most recent data, it's a snapshot from almost two years ago. 

In the time since the 2022/2023 academic year, universities have faced a number of challenges in international recruitment. Changes to immigration policy put in place by the previous UK Government and geopolitical crises in areas of intense recruitment restricted the number of internationals able to study in the UK.

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Ms Senior said that the sector is "reeling" from the impact of the previous government's policies, and Scotland's universities are not immune.

"The damage that the previous UK Government did has just been immense. Their whole narrative has been incredibly damaging to the university sector.

"We are very clear that knowledge doesn't have boundaries, and I just think the rhetoric from the previous UK Government was detrimental to our sector."

Some university experts have predicted that international enrolments fell by 20% across the sector in Scotland and as much as 75% at some institutions in the 2023/2024 academic year.

Therefore, the question isn't whether international tuition is being used to cover gaps in university budgets. The question is how long it can continue to do so.

In the same way that international enrolment and tuition income changes year-to-year, the amount of money that the sector receives from the Scottish Government is subject to annual change. 

Studies by the Institute for Fiscal Studies and data from the SFC reveal that government funding for universities has reduced by 19% in real terms since 2014. This means that as costs increase for the same expenses, institutions aren't guaranteed enough funding to cover the difference.

For a sector that commits to educate students over multiple years, having a budget subject to change every year creates difficulties for planning.

According to Claire McPherson, director of Universities Scotland, this is one of the reasons that the current degree of reliance on international tuition is unsustainable.

"You have to have a huge risk appetite as an institution because of the uncertainty of that annual funding basis. So there's big opportunity costs in not having a longer term horizon for funding stability and certainty. 

"There's a real desire for certainty and clarity. Where short-term annual decisions are made, they can cause quite significant shocks in this system.

"Predictability provides a stronger foundation for planning and decision-making."

This is a view supported by the SFC.

In its report on university financial health, the SFC identified implementing "multi-year funding settlements and realistic future funding assumptions" as a key action that could lead to better sustainability in the sector.

So, how can universities break their reliance on international fees? Both Universities Scotland and the UCU believe it will take serious conversations between the government and stakeholders about changing funding levels.

Both Ms Senior and Ms McPherson also made it clear that neither of their groups see free tuition for Scottish students as the problem.

Ms McPherson said that conversations about funding shouldn't automatically call free tuition into question: the solution has to be more nuanced.

"The sector really thinks that it's very unhelpful to be in a binary 'free vs fee' conversation. That isn't what the sector is discussing. When we talk about levels of funding, we talk very specifically about the trajectory of public funding being unsustainable. 

"That's not saying free tuition is unsustainable. In fact, free tuition is very much sustainable if the trajectory of public funding changes.

"It is absolutely not a criticism of the model; it is about the level of funding."

She added that government representatives, including Minister for Further and Higher Education Graeme Dey, have shown sympathy for this stance and she is hopeful that a shared understanding can lay the groundwork for progress.

Ms Senior noted that most political parties committed to free tuition in their most recent manifestos. But she said they must make a similar commitment to funding it, beginning with the party currently in power.

"We've seen a decade of underinvestment in the sector. It's clearly not enough. Every time we meet with the Further and Higher Education Minister, we say that we support the principle of free tuition but you've got to fund it. 

"And you're not funding it adequately at the moment."

When asked if the government has considered any changes to the funding model that would still allow for Scottish students to benefit from free tuition, a Scottish Government spokesperson said: “Scotland’s universities play a pivotal role in the economy and society. And despite facing the most challenging budget since devolution, the Scottish Government continues to invest over £1 billion in teaching and research, including an increase in research and innovation funding.

“This funding ensures that free tuition is maintained - which has seen the number of Scottish students entering university increase by 27% since its implementation. Additionally there are record numbers of students from the poorest communities now being accepted into universities.

“In Scottish Funding Council’s allocations for this academic year, the funding level for the 6 subject price groups has been maintained on previous years, with Scottish universities receiving up to £17,760 for students studying the most expensive subjects.”