Tuition fees will need to rise in England or teaching grants increased to deliver a ¡°drastic overhaul¡± to university funding, as one in five universities report a budget deficit, a??by the Institute for Fiscal Studies (IFS) has warned.?

The current cap on domestic tuition fees ¨C frozen at ?9,250 a year since 2017 ¨C is ¡°destabilising higher education finances¡±, and should rise in line with inflation when the freeze is lifted for the 2025-26 academic year, the influential thinktank suggests.

According to latest official inflation forecasts, this would see the 2025-26 fee cap rise to ?9,450, reaching ?10,500 by 2029-30. The IFS says this would avoid a further real-terms cut in funding of around ?270 million in 2025-26, and an expected ?1.8 billion by the end of the decade.

Raising tuition fees would be ¡°fairly cheap¡± for the taxpayer, it argues, while the impact on students would only be felt ¡°many years¡± after graduating. It says that less than a third of students starting three-year courses in 2025 would be expected to see any difference in their loan repayments before they reached the age of 40.?

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Kate Ogden, senior research economist at IFS, said?universities ¡°have had a string of good luck¡± in recent years due to?¡°ballooning¡± numbers of international students, but said ¡°this luck may be running out¡±.?

¡°The reality of frozen fees for domestic undergraduates is now starting to bite, just as tighter restrictions on dependent visas for international students and uncertainty about the direction of immigration policy are hampering international student recruitment,¡± she said.

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The IFS also suggests that the next government should increase teaching grants as an ¡°alternative or a complement¡± to raising tuition fees.?

However, ¡°increasing grants would be four times as expensive for the taxpayer as delivering the same increase in teaching resources through higher loans, as the whole cost would be borne by the taxpayer¡±, it says.

This would require the incoming government to oversee a reduction in undergraduate numbers to meet the fiscal mandate committed to by both the Labour and Conservative parties, which requires forecasted debt to fall as a share of national income, it cautions.

The increasing reliance on international students to make up for shortfalls created by the freeze on domestic student fees ¡°now appears to be coming up against the limits of political acceptability¡±, the report says. The IFS says that if no action on fees and teaching grants is taken, resources per domestic student will be a quarter lower by 2029 than in 2012, and at their lowest level since 2005.

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Josh Hillman, director of education at the Nuffield Foundation, suggested that Labour and the Conservatives?have avoided university funding in their manifestos?for the forthcoming general election due to concerns over political fallout.?

¡°The incoming government faces an unpalatable legacy that parties have not confronted in their manifestos. Higher education funding needs a drastic overhaul, it is just a question of who pays for it ¨C graduates or taxpayers. It seems this unpopular message is one that no one wants to deliver ahead of a general election,¡± Mr Hillman said.

juliette.rowsell@timeshighereducation.com