S&P warns of 'poisoned chalice' of university tuition fees

UK government reforms on tuition fees for universities could turn out to be a "poisoned chalice", with some institutions unable to weather the volatility caused by the shake-up, according Standard & Poor's (S&P), the ratings agency.

The removal of student number controls, a potential rise in private sector provision, and tightened requirements for overseas students in obtaining Visas will result in some vulnerable universities suffering, said an S&P report titled, "Government Reforms Bring Testing Times to UK Universities".

Standard & Poor's credit analyst Hugo Foxwood said, "The effects of recent reforms will lead to mixed fortunes across the board. We believe that those universities we publicly rate are well-placed to adapt to these changes and maintain their high-investment-grade credit profiles."

S&P said certain universities and private colleges may expand their student offering, becoming larger and stronger as a result of the reforms, but this will in turn reduce demand for other universities.

The report states that despite the fact that universities are now able to charge up to three times more for schooling than before, they are being restricted by cuts to grants and new spending requirements.

"Indeed, the tuition fee reform is now beginning to resemble a poisoned chalice, as the government considers how to fund the higher-than-expected cost of the associated loans," said Foxwood.

A more volatile outlook could be fueled by surplus capacity, reduced public sector funding, and the need for overseas students amid enrolment shortfalls, he said.