An examination of the use of debt funding by universities in the UK 2014

Student, A. (2015) An examination of the use of debt funding by universities in the UK 2014. Undergraduate thesis, University of Chichester.

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Abstract

Higher education sector has become a highly competitive marketplace and universities
in the UK have to raise money to fund research, buildings and services to increase their
competitive edge. However, due to the budget reduction in higher education sector,
universities have to seek other sources of funding. Among all the possible funding
sources, debt funding is widely used in higher education sector.
There are many researches that analyze the financial management in higher education
institutions, but did not analyze debt funding in depth. Therefore, the aim of this
research is to find the current situation and problems of debt funding in universities in
the UK and put forward some suggestions about debt funding.
The researcher interviewed a financial director and collected secondary data to analyze
current debt funding in universities in the UK. Universities in the UK have similar income
sources and they rely heavily on tuition fees. The researcher also finds that external
borrowing in higher education sector has an increasing trend during the past few years
and universities’ external borrowing’s proportion of total income are different. Some
universities use no debt funding, while others raise a huge amount of debt for working
capital.
Although debt funding has many advantages, financial directors have to notice its
problems. The uncertainty of long term debt to universities makes banks unwilling to
borrow to universities. The difficulty of external borrowings and high costs also require
universities to find other sources of funding. The researcher presents some possible
method for universities to raise money.
The researcher recommended that universities could use debt funding in the short run,
but should generate surplus and reserves to reduce vulnerability to risks and become
financially self-sufficient. The high reliance on tuition fees as income might have a
negative impact on cash flow when some political issues reduce the number of enrolled
students. In terms of debt management, universities can cooperate with debt
management companies to create a plan about how to manage debt.
The researcher reviewed and summarized the current financial condition about debt
funding in higher education sector in the UK. Financial directors of universities can
compare their use of debt funding with peers and measure the financial performance
using the conclusions from this research. The recommendations might be helpful
financial directors when making decisions.
Key words: debt funding, external borrowings, United Kingdom universities

Item Type: Thesis (Undergraduate)
Uncontrolled Keywords: Accounting Finance
Subjects: H Social Sciences > HC Economic History and Conditions
H Social Sciences > HG Finance
Divisions: Departments > Business School
Undergraduate Dissertations
Depositing User: Steve Bowman
Date Deposited: 29 Jul 2015 11:11
Last Modified: 13 Aug 2015 13:40
URI: http://eprints.chi.ac.uk/id/eprint/1443

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