The Effect of International Student Levies on University Funding and Access

The Effect of International Student Levies on University Funding and Access is a defining debate for UK higher education in 2025.

Policy shifts are turning international students, long seen as financial saviours, into political pawns.

The recent proposals for a levy on international student tuition fees, often alongside existing costs like the Immigration Health Surcharge (IHS), are creating deep anxiety within the sector.

For years, ballooning international student fee income has been crucial. It cross-subsidises domestic student teaching and vital research projects, plugging holes left by capped domestic fees and static government grants.

Now, new levies and tighter immigration rules threaten this financial model, potentially jeopardising institutional stability and, ironically, widening access for domestic students is the stated goal.

How Are International Student Fees Currently Funding UK Universities?

International student fees are no longer a supplementary income stream; they are a fundamental pillar of modern UK university finance.

The funding landscape for domestic students is constrained by fixed tuition fee caps, which have not kept pace with inflation or rising costs.

This financial reality means that fee income from overseas students is not simply profit. It is essential capital that funds the entire educational ecosystem, from library services to staffing and, most critically, the nation’s research base.

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Why is International Fee Income so Critical to the UK’s Research Base?

Research is the engine of a top-tier university, but it is expensive and often runs at a financial loss.

In 2023/24, tuition fees paid by international students accounted for approximately 23% of the total income of British universities, according to the Migration Observatory at the University of Oxford.

This significant income stream is frequently used to fill the deficit between the true cost of research and the funding received from government grants and research councils.

The Russell Group of research-intensive universities, in particular, relies heavily on this cross-subsidisation model to maintain its global standing.

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What are the Existing Levies and Charges?

The proposed tuition fee levy follows existing, significant financial burdens placed on international students. The most notable is the Immigration Health Surcharge (IHS).

The IHS, which increased significantly in recent years (reaching approximately £776 per year for students by 2025), requires students to pay thousands of pounds upfront to access the NHS.

This cost, alongside visa fees and now potentially a tuition levy, makes the UK an increasingly expensive and therefore less competitive study destination.

This compounds the challenge for universities in managing the Effect of International Student Levies on University Funding and Access.

What are the Proposed Levies and How Will They Impact University Budgets?

The UK government has recently confirmed its intention to introduce a levy on international student tuition revenues in England, a move designed to fund new maintenance grants for disadvantaged domestic students.

The proposal, modelled as a 6% flat levy on international fee income, has sent shockwaves through the sector.

The estimated cost of this 6% levy is colossal, totalling around £621 million a year for English institutions, according to analysis by the Higher Education Policy Institute (Hepi).

Such a substantial removal of cash will severely restrict universities’ operational freedom and investment capacity.

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Which Universities Stand to Lose the Most from the New Levy?

The financial impact of the proposed levy is highly concentrated and disproportionately affects research-intensive, metropolitan universities.

Institutions that successfully attract a large volume of international students will see the largest cash loss.

University College London (UCL), a large, globally-focused institution, was projected to face a levy cost of approximately £42 million, with the University of Manchester and King’s College London also facing massive figures, potentially exceeding £20 million each.

This financial hit directly undermines their ability to fund world-leading research and infrastructure.

The crucial question is: Can these universities absorb the levy, or will they have to pass the full cost on to the students via increased tuition fees?

How Will Universities Respond to the Levy?

Universities face an invidious choice. They can absorb the 6% levy themselves, resulting in massive cuts to services, or they can raise international student tuition fees by the same amount, making the UK uncompetitive.

The university sector is currently walking a tightrope. International fees provide the balance, but the government is cutting a slice from the middle.

If the universities try to compensate by raising fees, they risk falling off the rope entirely, losing students to competitors like Australia or Canada.

This difficult decision highlights the acute Effect of International Student Levies on University Funding and Access.

How Will Increased Costs Affect International Student Access and Demand?

The primary concern among university leaders and sector analysts is the negative impact on international student enrolment.

Increasing costs, whether through direct levies or resulting higher tuition fees, directly challenges the UK’s global competitive edge.

The market for international education is highly sensitive to price and perceived value.

As costs mount, prospective students from key markets particularly in Asia and Africa will look elsewhere, eroding the UK’s soft power and future talent pipeline.

Why is Price Sensitivity a Major Concern for UK Universities?

While high fees might signal quality to some, excessive or increasing costs deter students, especially from less affluent backgrounds.

The recent tightening of immigration rules regarding dependants and the increase in maintenance fund requirements, coupled with the new levy, create an environment of financial uncertainty.

An analysis by the consultancy Public First suggested that the government is underestimating the potential drop in demand, projecting significantly more student loss than official forecasts.

This is because they assume that the price elasticity of demand for non-EU students is higher than that previously modelled for EU students.

The cumulative financial burden on students, including application fees, the IHS, and the potential tuition levy, will inevitably act as a barrier to entry, limiting access for many talented individuals globally.

What is the Broader Economic and Reputational Impact?

The financial contribution of international students extends far beyond university coffers. Their spending in local economies supports thousands of jobs and contributes significantly to the UK’s GDP.

A report by London First warned that the introduction of a levy would be “an act of immense economic self-harm.”

The total net benefit of international students to the UK economy has been estimated at over £37 billion across the duration of their studies.

Undermining this sector through excessive taxation seems counterproductive to the UK’s economic interests.

The levy also sends a negative signal about the UK’s welcoming stance towards international talent.

Spectators Are Becoming Players in a zero-sum game, where short-term political goals risk long-term economic and academic damage.

Will the Levy Achieve its Goal of Widening Access for Domestic Students?

The stated policy objective of the new tuition fee levy is to fund maintenance grants for disadvantaged domestic students, a laudable goal aimed at improving access and retention.

However, the mechanism used to fund this initiative is proving highly controversial.

The strategy attempts to solve one access problem (domestic student poverty) by potentially creating another (reduced international student diversity and university financial instability).

What are the Risks of the Proposed Funding Mechanism?

The long-term viability of the maintenance grants depends entirely on the stability of international student enrolment. What happens if, due to the increased costs, international student numbers drop significantly?

The funding stream for the maintenance grants would shrink or disappear. As one sector body questioned: How would the government sustain such grants if international student numbers decline?

The entire policy rests on the shaky premise that the benefits of the levy (widening domestic access) will outweigh the financial and reputational damage to the universities.

The Effect of International Student Levies on University Funding and Access is, therefore, a risk calculation.

How Does the Policy Compare Across the UK?

The political landscape further complicates the issue. The proposed 6% levy only applies to universities in England, as education policy is devolved.

The Welsh government, for instance, has explicitly rejected mirroring Westminster’s proposal.

The Welsh Education Minister stated that they want their international students to continue to feel welcomed for the positive social, cultural, and economic contributions they make.

This creates a two-tiered system, potentially making Welsh institutions more attractive to international applicants than their English counterparts.

Conclusion: Balancing the Books with Global Ambition

The Effect of International Student Levies on University Funding and Access is rapidly changing the financial fabric of UK higher education.

While the intent to support disadvantaged domestic students is understandable, the chosen funding mechanism taxing a key revenue source threatens the very institutions that drive the UK’s global academic standing.

Universities face a period of deep uncertainty, having to manage the dual pressure of reduced income and the need to remain globally competitive.

The decisions made now regarding the pricing and welcoming of international talent will determine the health and diversity of the UK’s campuses for the next decade.

Should the financial reliance on international students be addressed by better government funding for domestic students and research, not by a tax that punishes success?

We invite you to share your thoughts on this complex policy challenge. What long-term consequences do you foresee for the UK’s universities? Share your experience or insights in the comments below.

Frequently Asked Questions

What is the International Student Levy?

The International Student Levy is a proposed 6% tax on the tuition fee revenue that English universities earn from their international students.

The funds raised are intended to be reinvested into the higher education system to support domestic students through maintenance grants.

How is this levy different from the Immigration Health Surcharge (IHS)?

The IHS is a mandatory fee paid directly by the international student as part of their visa application to access the NHS.

The new levy, conversely, is a tax on the university’s income from the student’s tuition, which the university is likely to pass on to the student, effectively taxing the fee itself.

Will the levy cause tuition fees to rise further for international students?

In most cases, yes. Universities are already struggling financially. They are expected to increase international tuition fees by at least the 6% levy amount to avoid making severe cuts to research and teaching budgets.

What is “cross-subsidisation” in the context of university funding?

Cross-subsidisation means using the surplus income generated from one area in this case, the higher fees paid by international students to cover the financial shortfall in another area, such as the teaching of domestic students or the high costs of research.

Why do universities fear a drop in international student numbers?

International students often make up the difference between the actual cost of a degree and the capped domestic fee.

If the total cost of studying in the UK (including fees, IHS, and the levy) becomes too high, students will choose more cost-effective options in rival countries, leading to a significant loss of university revenue.

The Effect of International Student Levies on University Funding and Access is critically tied to this market sensitivity.

Juscilene Alves 3 de November de 2025