Most Scottish colleges not sustainable, report finds; universities face foreign-student dependence risk

Most of Scotland's further education colleges are not sustainable, according to a Scottish Funding Council study that reviewed accounts and forecasts. The report shows 22 of Scotland's 24 FE colleges are expected to spend more than their income this year, with only two balancing. It also shows a sharp squeeze on cash, with total cash in college accounts forecast to fall from about £130 million to £35 million by year end and to turn negative by 2028, including four colleges with negative cash balances next April and 12 by April 2027. The SFC warns this signals an imminent risk of insolvency for several colleges.

Colleges remain heavily dependent on the SFC grant, which accounts for about 77% of income, in contrast with the university sector, which used to rely on SFC funding for about a quarter of income last year and is seeing that share shrink. The SFC notes the grant has remained flat while other costs have increased, including annual staff pay awards and rising employer National Insurance contributions and pension costs. Staff costs are the largest expense, at just under 70% of total costs. The council says that 17 of Scotland's 24 FE colleges were in deficit last year, and the forecast for this year projects deficits rising to 22, with 20 still expected to be in deficit in three years.

Colleges Scotland chief executive Gavin Donoghue said the findings are grim and highlight a problem that has persisted for years. He noted that investment in colleges has fallen in real terms since 2021-22 and that colleges have had to cut staff headcount and reduce the number of students taught, with some already eyeing campus or course closures. There is no single silver bullet; the issue requires sustainable Scottish government funding. The SFC says colleges are pursuing restructurings that include shorter teaching times, larger class sizes and the closure of low-demand courses, funded partly by voluntary redundancies drawn from limited resources. Forecasts indicate about 667 full-time jobs, or the equivalent, could be cut over four years from 2024.

On universities, a separate SFC report finds 11 of Scotland's 18 universities are expected to spend more than they earn this year, with a total predicted deficit of about £12.9 million. The sector is expected to return to a surplus by 2026, driven by a small number of universities and improved tuition fee and research income forecasts, offset by higher staff costs. The report notes that international tuition is now essential for financial sustainability and cross-subsidizing other activities, but foreign income is volatile and sensitive to visa policy and geopolitical changes. The report also notes that foreign students remain a major factor; China remains the largest source of international students in Scotland, followed by India, the United States, Nigeria and Pakistan, with Nigeria having surged post-Covid but recently cooled. Dundee University faced a well-known strain after a large drop in foreign student income and required a government bailout of about £40m, though it is excluded from the current university tally because its accounts were not finalised. Claire McPherson, director of Universities Scotland, described the figures as the starkest set of financial data seen for Scotland's universities and said the report does not mention job losses or a decade-long decline in public funding as a driver, underscoring the need for long-term sustainable funding.

The analysis comes amid broader concerns about funding for higher education in Scotland. Government support for both the college and university sectors has been squeezed in real terms by inflation over the past several years, prompting calls from leaders for a radical re-wiring of the funding model to put Scotland's higher education institutions on a stable footing for the long term.