THE future of Scotland’s universities is at risk as a drastic drop in international students threatens to make institutions insolvent, experts have warned.

Analysis for the National Institute of Economic and Social Research by former government adviser Professor Peter Dolton, suggests the worst-case scenario would be that “all universities except Oxford and Cambridge could be insolvent – including Edinburgh” if fears of a cut of up to 75 per cent in overseas students, their key source of income, are well founded.

While three months ago, Nicola Sturgeon said that a financial support package was being prepared for Scotland’s universities amid fears over the disastrous fallout of the coronavirus pandemic there has still been no final decision on any support.

Richard Lochhead, the minister for further education, higher education and science pledged yesterday: "We will take further steps to support the sector."

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A study by London Economics for the University and College Union (UCU) has found that around 9,500 fewer international students were expected to study in Scotland this autumn, compared to previous years - a fall of nearly 50%.

It comes as the Scottish Government insisted they remained committed to free higher education for Scots - amidst growing concerns the imposition of tuition fees will be brought in to fill a potential £500m black hole in universities' budgets.

While the Scottish Funding Council is reviewing the future provision and sustainability of higher and further education in the light of Covid-19, experts have warned that free university tuition may have to be scrapped to plug that black hole.

Carlo Morelli, president of UCU Scotland said: “Scotland is rightly proud to attract students from across the world, bringing a wealth of diversity, talent and cultures to enrich our universities. The current funding model has encouraged universities to become ever more reliant on the tuition fee income from international students, which, given the Covid-19 restrictions on travel is now creating considerable uncertainty.

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"The Scottish and UK governments need to step in urgently to support universities from this huge loss of funding, and universities themselves need to ensure that they continue to be safe, welcoming places for students and staff, supporting economic recovery in these challenging times.”

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It has emerged that the UK government and the three devolved administrations have all signed a letter directed at international students, urging them to take up studies at our universities during the coronavirus pandemic adding that even if there are travel limits there are "fantastic and innovative examples of high-quality online learning" that can be delivered.

The document distributed by Study UK, the global campaign that promotes the UK as the first-choice study destination to international students, says: "Recruitment for 2020/21 is happening now and our universities are very much looking forward to welcoming you.

"We have worked closely with our universities and are pleased to inform you that they have made, and will continue to make, every effort to enable you to study in the UK next academic year and beyond.

"UK higher education has a well-established reputation for high quality – our universities are among the best in the world.

"We would like to reassure you that all governments across the UK are adhering closely to the most up to date scientific advice and guidance, which is available publicly online."

A policy paper by Professor Dolton, head of economics at Sussex University prepared in May paints a doomsday scenario where only the universities of Oxford and Cambridge only survive.

It says that calculations of risk liability based on the financial position suggested that between 30 to 50 out of around 130 UK universities were in immediate danger of insolvency.

He said potential non-arrival of overseas postgraduates is the biggest risk to universities and that they should possibly contemplate the postponement or suspension of courses where it was likely there will not be enough students to make them viable.

But he also said it was important that universities do not overreact as most students who would have come to the UK in September in 2020 may be very likely to simply postpone their plans for a year, and come in in 2021 – provided the course still exists - meaning a postponement "should be the favoured option"

There was speculation any potential financial handout to any institutions in financial trouble by HM Treasury could be possible in exchange for restructuring reforms.

That could mean 30 or more universities losing their research capabilities and there being forced mergers of many institutions.

Another major strain on UK university finances were problems with the Universities Superannuation Scheme (USS) pension scheme - the largest private sector pension scheme in the UK, with assets of over £68bn. It has been variously calculated that the scheme has a valuation shortfall of between £6.6bn and £17.5.

The financial position of higher education establishments could become even worse as a result of UK government plans to limit the number of fee-paying English students allowed to study in Scotland.

Last year, 26,700 students from England enrolled at Scottish higher education institutions, accounting for 10% of total enrolments. But just 9,205 Scottish students enrolled at English universities.

Prof Dolton says the cause of the problem arises from an "unsatisfactory transition" from a defined benefit (DB) final salary scheme along with the effects of the 2008 financial meltdown and some "injudicious investments" over ensuing years.

“Arguably, it is expensive to merge and restructure a university with a neighbour and there is relatively little evidence in favour of potential economies of scale,” says Prof Dolton who describes the crisis as "the biggest challenge" to face the higher education sector in the last century.

“But this should not prevent universities from seriously considering this option in an attempt to rationalise their provision and economise on costs. Another pertinent point to consider is whether neighbouring universities should be forced to merge by the government.”

Prof Dolton remained optimistic, believing that there was a "long term" financial viability of UK's HE system.

In response to the potential loss of overseas student fee income, Universities UK, the collective voice of higher education asked the government for a £2.2bn boost for short run research funding. The appeal was rejected and the government decided increase research funding by only £100m and allow an advance on undergraduate fee income from the Student Loans company to the tune of £2.6bn.

In Scotland, Mr Lochhead announced a £75m increase in research funding.

He said: "We are working closely with Universities Scotland on how the sector can remain at the forefront of global education when we emerge from this crisis.

“In addition to an increase in research funding, we will take further steps to support the sector.

“I have also commissioned the Scottish Funding Council to carry out a review on the future provision and sustainability of colleges and universities in light of the pandemic.

“I continue to press the UK Government to recognise the scale of the impact of COVID-19 on the higher education sector, and for HM Treasury to ensure appropriate fiscal support is made available.”

A separate report published on Monday by the Institute for Fiscal Studies warned that while the higher education sector said there was a real prospect of around 12 universities becoming insolvent without a government bailout.

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It said that while the higher education sector as a whole is well placed to shoulder losses, they could cause serious financial problems for individual institutions, including – in the extreme – insolvency.

It estimates that long-run losses across the UK could be between £3bn and £19bn - wiping out up to half it is total annual income.

Universities Scotland has been critical of the UK Government's move to impose limits on the number of English students who can be recruited by Scottish universities for 2020.

It said the move could only be interpreted as a message to applicants not to study in Scotland.

"It’s our strong belief that there is no justifiable reason for number controls to be applied to universities in Scotland. We would like to see Scotland removed from these temporary controls," it said.

"The student number controls introduced for English institutions was part of a wider package of measures, including financial support, to stabilise university finances in England.

"No aspect of that package has offered any financial stability to universities in Scotland.

"It is unacceptable that Scotland’s universities would be hit with the regulatory part of an English-only package and not the benefits."

The body went on: "At the very least, there needs to be a pause and a period of consultation with institutions in Scotland, Scottish Government and the Scottish Funding Council as there was in England prior to the May 4 announcement and a devolved impact assessment."

University tuition has been free for Scottish students studying in Scotland since 2008 when the SNP government abolished the graduate endowment — a £2,000 fee paid by students after graduation once their earnings hit a certain level.

European human rights legislation meant the Scottish government could not at the same time charge EU students while discrimination within the UK member state was allowed.