A recent estimate by the sector's regulator suggests that by the following academic year, nearly three-quarters of higher education institutions may be in deficit.

According to the Office for Students (OfS), current trends indicate that up to 72% of providers may drop below the line by 2025–2026, with a decline in student enrolment being a major contributing factor.

The sector's net yearly income is also expected to drop by £3.4 billion.

The prediction is an update to the OfS's annual financial sustainability report, which was released in May and stated that by 2026–2027, "nearly two-thirds" of the institutions may be in deficit.

Less than two weeks have passed since the Education Secretary declared that in order to "secure the future of higher education," tuition fees in England will increase to £9,535 next year.

In its new report published on Friday, the OfS looked at the latest available data trends for the recruitment of UK and international students for entry in autumn 2024.

It estimated that UK undergraduate entrants and non-UK entrants were 10% and 23% lower than sector forecasts for this academic year respectively.

While acceptances of UK undergraduate students through Ucas increased by 1.3% (4,445) in 2024 compared with the same point last year, the figure is significantly below the forecast of a 5.8% increase.

Analysis of the data suggests there were 16% fewer visa applications made by international students in 2024 than in 2023.

Around 100 providers failed to achieve their UK undergraduate recruitment forecasts for 2024-25, while 150 providers may have failed to achieve forecast levels of international recruitment, the report said.

Certain countries which previously sent significant numbers to study in the UK, such as Nigeria and Bangladesh, saw their student enrolment here decrease by more than 40%.

The modelling includes changes to the tuition fee levels and the increase in national insurance contributions for employers announced in the Budget, but assumes no growth in UK postgraduate students.

A report by the Higher Education Policy Institute think tank published last month warned many universities faced a “very bleak” future as student demand for higher education could fall after 2030 due to a shrinking 18-year-old population.

OfS chief executive Susan Lapworth said: “Our annual report in May cautioned about recruitment forecasts that were too optimistic.

“Today’s report demonstrates just how challenging recruitment is for many institutions, with modelling suggesting that many more institutions will report a deficit and low liquidity than had been forecast.”

Ms Lapworth said larger research-intensive and teaching-intensive universities were in better financial shape than other types of institutions, and that medium- and smaller-sized institutions, along with specialist providers, were more likely to be affected by financial challenges going forward.

She continued: “Our modelling estimates the financial challenge ahead for providers and it does not conclude that significant numbers of universities will close in the short term.

“But that does not mean that institutions can rely on student recruitment rebounding in the coming years.

“Many universities have already taken steps to secure their long-term sustainability.

“For those that have not, the time to do so is now.

“That is increasingly likely to involve bold and transformative action to reshape institutions for the future – while continuing to deliver for the students of today and tomorrow.”

Vivienne Stern MBE, chief executive of Universities UK, said the OfS’s new analysis was “a source of serious concern”.

She said: “This country needs its universities to be firing on cylinders if we are going to get the economy growing and improve public services.

“But this new analysis from the OfS shows the scale of the challenge.

“It is a source of serious concern. Universities in all four nations of the UK are in an extremely difficult position.

“A decade-long near-freeze in England saw inflation erode the real value of student fees by around a third.

“The recent Government announcement to address this was an extremely welcome step towards fixing the underlying problem.

“However, we need to work on a longer-term solution.

“This will take action by universities themselves, and by governments in all nations of the UK.”