and what the student loan crisis means for institutional governance
Last week, I reflected on what the accumulation of provider-level financial data might mean for the relationship between the regulator and the institutions it oversees. This week, the conversation has moved somewhere altogether more unsettling. The question is no longer simply whether individual providers can weather current pressures. It is whether the revenue model upon which the entire English higher education system depends is structurally sound.
Jim Dickinson’s meticulous analysis of the Treasury’s Supplementary Estimates for 2025–26, published on Wonkhe this week, reveals an in-year adjustment of roughly £9.7 billion in how the Department for Education accounts for the student loan book. A separate adjustment of £19.2 billion to the RAB charge, the government’s estimate of what proportion of each pound lent will never be repaid, has been revised sharply upwards. These are not small technical corrections. They represent a substantial reassessment of what the system costs the public purse.
For those unfamiliar with the mechanics, when government lends to a student it does not record the full amount as expenditure. It records the cash outlay as a loan, estimates how much will never be repaid (the cost) and treats the remainder as an asset on the balance sheet. The difficulty is that the “how much comes back” calculation depends on forecasting models that stretch decades into the future. When those models are revised downwards, the cost rises and the asset shrinks, sometimes dramatically. That is what appears to have happened here.
Dickinson identifies two possible explanations and the distinction matters considerably. One is a change to the Treasury’s discount rate; that’s the technical parameter used to convert future repayments into present-day value. A 0.30 percentage point increase may sound negligible, but applied across a loan book with a face value of £265 billion over repayment periods stretching 30 to 40 years, the compounding effect is enormous. The other explanation is more troubling: that graduates are simply not repaying at the rates the model assumed. Audit Wales has already qualified the Welsh Government’s accounts on precisely this basis, noting that actual repayments are running at roughly half the level forecast.
Separately, John Blake, the newly appointed Director of Wonkhe’s Post-18 Project, has argued that a review of higher education funding is now unavoidable. His case rests not primarily on the fiscal arithmetic, though that is damning enough, but on something more fundamental: that a system which feels oppressive to almost six million graduates is, in his words, “fundamentally broken, no matter how many graphs about average graduate salaries we make.” Backbench Labour MPs are reported to be pressing the Chancellor on the freeze on repayment thresholds; polling suggests widespread hostility towards above-inflation interest rates; and Rachel Reeves has clashed publicly with Martin Lewis over the terms of Plan 2 loans.
The sector commentariat will rightly focus on what all of this means for the prospects of a funding review, for the political sustainability of the current settlement and for the possibility of alternative models, whether a graduate tax, a lifetime interest cap, or something yet to be articulated. Those are important conversations. But there is another question that receives rather less attention and it is the one I want to raise here: what does this mean for the people sitting around governing body tables?
University boards are accustomed to managing financial risk at an institutional level. They scrutinise budgets, monitor student number forecasts, stress-test scenarios involving recruitment shortfalls or cost pressures and review reserve policies. Good governance requires all of this. Yet the conversation at board level typically takes the funding model itself as a given; a fixed parameter within which institutional strategy operates. Fee income is treated as the bedrock upon which everything else is built: staffing plans, capital investment, research cross-subsidy and widening participation commitments. The Supplementary Estimates suggest that this bedrock may be less stable than most strategic plans assume.
This is not the same challenge as managing provider-level financial sustainability, which was the territory of last week’s piece. That discussion concerned whether individual institutions could adapt their operating models to current conditions. The question now is what happens to strategic planning when the revenue architecture upon which those operating models depend appears increasingly fragile at a system level. A governing body can oversee a perfectly well-managed institution and still find its strategic assumptions undermined by shifts in the funding mechanism that no amount of internal efficiency or portfolio rationalisation can address.
In my experience, governing bodies are generally well served by their finance directors in understanding current financial performance. The challenge lies in connecting that operational financial awareness to the broader policy environment within which the institution’s revenue model operates. The Supplementary Estimates are, admittedly, dense and technical documents. But their implications for the sector are neither dense nor technical: the system costs more than expected, repayments may be falling short and political pressure for change is intensifying. Any one of those developments warrants careful board-level attention. The simultaneous occurrence of all three suggests something more significant.
There is a particular challenge here for institutions most dependent on domestic undergraduate fee income, which is to say, many of those already identified as financially vulnerable in the OfS’s sustainability assessments. If the system were to move towards a graduate tax model, or if repayment terms were significantly altered to reduce the long-term cost to the exchequer, the consequences for fee levels and institutional income could be substantial. Equally, if the current model simply persists under growing strain, the political toxicity of the graduate contribution may itself begin to affect demand – particularly among the communities institutions most wish to serve through their Access and Participation Plans.
I am not suggesting that governing bodies should be making strategic decisions on the basis of speculative scenarios. That would be neither prudent nor helpful. But there is a difference between speculation and horizon-scanning and boards that are not at least discussing the implications of the current trajectory may find themselves poorly prepared when change arrives. The post-16 education and skills white paper promised a consultation on the Strategic Priorities Grant in 2026. The Lifelong Learning Entitlement soft-launches in September. The Post-18 Project is actively proposing alternative funding models. These are not distant possibilities; they are live policy conversations.
What strikes me is how rarely the funding model itself is treated as a strategic variable rather than a fixed constraint. Institutions plan around fee income as though it were permanent infrastructure. And for a long time, the stability of the £9,250 headline figure may have justified that assumption, even as its real-terms value eroded. However, the Supplementary Estimates, growing political pressure and emerging calls for a fundamental review suggest that the period of assumed stability may be drawing to a close.
Perhaps the question for governing bodies is not whether a funding review will happen, many now regard it as increasingly likely, though the timing and terms remain entirely uncertain, but whether their institutions have the strategic agility to respond to a range of possible outcomes. That requires something more than good financial management. It requires boards to engage seriously with the policy environment, consider how different funding configurations would affect their particular institutional model and ensure that their strategic plans are not built on assumptions that may prove temporary.
None of this is easy and I offer these reflections with the humility of someone who has sat in rooms where these conversations are difficult to have, not because board members lack the capacity for them, but because the operational demands of running a university in the current climate leave precious little space for the kind of horizon-scanning that moments like this require. But if the foundations of the funding model are indeed shifting, then governing bodies may need to find that space before events make the decision for them.