HEP BLOG

MOST VIEWED

ARTICLE

July 27, 2022

Diversification: the key to unlocking new higher education revenue streams

The recent global crisis has highlighted a long-standing need for revenue diversification in the higher education sector.

 

Today, as increasing numbers of universities find themselves facing existential challenges – the result of a perfect storm of growing financial constraints coupled with the changes prompted by Covid-19 – HE leaders must adapt their existing strategies and adopt new ones if they are to survive, and thrive, in a rapidly evolving landscape.

 

Tackling the deficit

In 2020, specialist policy and economics consultancy group London Economics predicted that universities would experience a £2.6bn shortfall in that academic year alone, due to a pandemic-driven drop in student enrolment numbers – an economic bombshell that would undermine even the most buoyant bottom line.

 

However, these lockdown-related losses have fallen on HE institutions whose finances were already bruised from funding reforms that have left them particularly sensitive to fluctuations in international student enrolments (which now include EU students). Policy changes – including controls on student numbers – have also made it more difficult for universities to adapt and grow.

 

Most organisations find themselves facing a tough choice: to grow income through traditional channels (in the face of increasing global competition), at the same time driving large-scale operational efficiencies, or to reimagine and diversify their revenue streams to ensure long-term sustainability.

 

Financial instability is driving change

Events of the last two years have made it difficult to grow income by simply increasing on-campus enrolments.

 

In the early months of the pandemic, the Institute for Fiscal Studies (IFS) predicted that UK universities would suffer significant (between £3bn and £19bn) long-run losses, as a result of a reduction in international enrolments, coupled with mounting pension deficits.

 

But, even as most universities’ on-campus programmes have recommenced, financial pressures are escalating rather than diminishing; spiralling inflation is rocking the world’s economies, causing additional challenges for every sector – including HE.

 

According to the UK’s Office for National Statistics (ONS), the Consumer Prices Index (CPI) rose by just over 9 percent in the 12 months to May 2022 – the highest level for 40 years. The general consensus is that inflation won’t subside in the immediate term and may be subject to additional shocks from the emergence of new Covid strains or from the conflict in Ukraine and increasingly volatile energy prices.

 

Renewed focus on international recruitment

For the HE sector, the implications are serious: the impact of high inflation will erode the real value of funding from fixed undergraduate tuition fees, making income from international and postgraduate students more important than ever.

 

There is some good news. The latest data from the Universities and Colleges Admissions Service (UCAS) demonstrates reassuring growth in international student numbers, with significant rises in applications from Nigeria, India and China. Applications from Nigeria increased by 58 percent.

 

However, this has to be set against a fall in undergraduate applicants from some eastern European countries in the wake of new Brexit rules that requires EU students to secure a visa, as well as accepting higher fees with no access to government-backed loans.

 

The number of EU students enrolled on undergraduate courses at UK universities dropped by 56 per cent in 2021-22 alone. This trend is supported by recent Home Office figures: over 8,500 undergraduate and postgraduate entrants from Poland and Romania were accepted on UK university courses in 2019-20, while fewer than 700 visas were issued to Polish and Romanian students at the start of the 2021 academic year.

 

Universities’ international strategies will not only have to be given greater focus but will also need to be recalibrated to take account of these emerging patterns.

 

An expansion of non-traditional options

Non-traditional revenue streams – those falling outside on-campus degrees and research – currently account for less than a fifth of HE organisations’ income, making diversification a real opportunity for growth.

 

There’s rising demand for remote courses, as well as for programmes that target the requirement for upskilling and reskilling as working adults navigate careers that no longer depend on ‘one-and-done’ graduate qualifications. Strategic partnerships with other education providers – FE colleges, for instance – are also enabling the delivery of foundation degrees and professional qualifications for lifelong learning at local level.

 

The broader acceptance of online, blended and hybrid learning options is gaining ground, including with international students who are considering how best to tailor a university experience to their own requirements rather than opting into the established – and often inflexible – norms.

 

It’s a shift that’s sparking fresh demand for transnational education (TNE) opportunities – where degrees are delivered across national borders through either branch campuses or via online, distance and mixed models, sometimes with a so-called ‘fly-in’ faculty.

 

Data from Universities UK International (UUKi) shows that more UK higher education providers than ever before (156) have students studying overseas through TNE programmes; over 450,000 students were studying on UK TNE programmes in the 2019-20 academic year.

 

Extending and scaling learning options through online study

Online learning is also having its moment. The mass transition to remote learning in 2020 gave universities a taste of the potential for diversification, both for delivering existing on-campus course materials to wider audiences and for developing new programmes exclusively for online provision.

 

It’s an approach that not only widens the reach of every HE organisation but also tackles the individual needs of more diverse learners. Programmes that were previously delivered to hundreds of campus-based students in university lecture theatres and tutorials can now be made available to thousands (or even tens of thousands) of learners, regardless of geography – although its success is heavily dependent on creating the right delivery and support infrastructure.

 

This kind of technology-enabled revenue diversification is the key to unlocking growth. Even students who opt for campus-based enrolment favour combining face-to-face experiences with online interactions, according to a 2021 study from The Student Futures Commission.

 

Online education has already become a core revenue driver for many universities. With even greater potential for these institutions to address mature and working students, thanks in no small part to the flexible study pathways that allow them to learn at their own pace and schedule their studies around existing commitments, the online undergraduate degree is simply more viable.

 

Market intelligence platform Holon IQ predicts that the online degree market will rise to $74bn in 2025, more than double that of its 2019 value but still accounting for just 3 percent of the total projected HE spend at that point.

 

Finding the right strategy

Although these diversification strategies all present significant opportunities for growth, the ability of individual universities to realise their potential will vary.

 

For instance, the most high-profile universities already enjoy the kind of brand recognition that will enable them to effectively market online degrees based on their faculty’s reputation – an advantage other, less visible institutions might find hard to replicate. The same ranking factors may also come into play when contemplating higher-risk investments like establishing branch campuses, where access to significant financial reserves will be crucial.

 

Universities will need to match their strategies to their strengths. HE institutions located in populous cities where there’s a strong employer demand for specific skills, for example, may well find it profitable to deliver online courses and professional programmes closely aligned to the demands of the local economy. Others will need to be more versatile, deploying a range of strategies, including expanding the number of campuses and partnering with OPMs to more effectively manage online recruitment, course delivery and assessment.

 

Facing the future

The most agile universities will see the best results. Revenue diversification requires not only a strong impulse for innovation but also an appetite for change.

 

With global HE enrolment expected to reach almost 600m by 2040, accelerated by growing demand in emerging economies, as well as the predicted upskill/ reskill cycle among working adults, universities are facing unprecedented opportunities to diversify and expand their reach to different kinds of learners.

 

To set the stage for real transformation, HE leaders must overhaul their revenue models to suit a new era of learning. Imagining new possibilities is already a core principle of our universities. Exploring how we can meet fresh challenges, develop new capabilities and forge collaborations with partners who can help advance teaching and learning experiences will be crucial to creating a higher education experience that’s fit for the future.

COMMENTS

No comments found.

WRITE COMMENT

*Your email address will not be published.

Comment

Name

Contact us

Please fill the form and we will contact you as soon as possible.

Send

Contact us

Please fill the form and we will contact you as soon as possible.

Send