Is the higher education financing model unsustainable?

In this Business Post article, Mazars consulting partner and former CEO of the Higher Education Authority (HEA), Graham Love, asks if recent university controversies indicate deeper problems caused by an unsustainable financing model.

A new term has been circulating recently in Irish Higher Education circles: Section 64. The term refers to a piece of legislation within the Higher Education Authority Act (HEA) 2022, granting the Higher Education Authority (HEA) the authority to instigate a review process for universities should there be ‘significant concerns regarding the governance of a designated institution of higher education or the performance by such an institution of its functions or compliance by it with its obligations’. This marks a new regulatory power vested in the HEA, deployed for the first time recently with Technological University Dublin (TU Dublin) and the University of Limerick (UL). Recent media reports have shed light on TU Dublin's financial deficit, partly attributed to declining student numbers, and UL's absorption of a financial impairment due to property asset overvaluation. Concurrently, University College Cork (UCC) reported a financial deficit stemming from costs surpassing income, prompting a cost-cutting initiative to rectify the imbalance. As scrutiny on Higher Education intensifies, expect further attention from Oireachtas committees and the media in the upcoming months.

However, are these events indicative of serious governance problems in our universities, or are they reflective of a new regulatory system bedding in? With most university governing bodies recently restructured under the new Act, complete with new roles and responsibilities, some turbulence in adapting to the new regulatory landscape is anticipated. Governance and finance are inextricably linked. Poor governance can lead to financial mismanagement, resulting in wasted resources. Conversely, financial pressures can exacerbate governance issues by fostering a short-term focus rather than long-term strategic planning.

Addressing these challenges requires action on multiple fronts. Firstly, governance structures must embrace transparency and inclusivity to ensure accountability in decision-making processes, reflecting the broader university community’s needs. Secondly, financial management practices must be improved, with a focus on enhanced financial planning and oversight. Additionally, government also plays a pivotal role in providing adequate funding that supports sustainable university financing.

With over 250,000 students, more than 25,000 staff and public funding exceeding €2 billion, the Irish Higher Education system is a nationally significant ‘industry’. It not only employs and engages a substantial proportion of our population but also enriches our human and knowledge capital, supporting the development of the Irish economy and society at large. There have been significant policy developments in recent years, including the formation of the Technological Universities, expanding third-level access to underrepresented groups and the enablement of Lifelong Learning. While strides have been made in reforming the regulatory oversight system, as exemplified by the Section 64 instances, senior Higher Education stakeholders contend that the government's efforts to overhaul policy and regulation haven't been matched in funding provisions to ensure sustainable university financing. They argue that systemic and chronic underfunding of HE itself exacerbates governance issues’ leading to an overreliance on international student fee income, excessively risky capital investments and overly optimistic projections of student demand.

Nearly a decade ago, the Cassells review group identified a core funding gap of over €500 million in Higher Education annually. Although a subsequent assessment adjusted the figure to a gap closer to €300 million annually, the underlying core funding deficit remains largely unaddressed. While there have been increases to accommodate demographic growth, access issues, and rising living costs, they have failed to rectify the fundamental core funding shortfall. Meanwhile, the population continues to expand, and infrastructure ages.  While commendable progress has been made in policy development and regulatory oversight by the State, the crucial third and balancing leg of the stool, core funding, remains to be fully addressed. Only time will tell if the recent governance and finance issues observed in some institutions are short-lived manifestations of a policy and regulatory system that continues to bed in or are early indicators of a more fundamental challenge caused by unsustainable financing.

This article appeared in the Business Post on Sunday 7 April, 2024.