If this were University Challenge, here’s your starter for 10: With soaring demand for university places and each student paying in excess of £9,000 a year, just why are higher education institutions struggling financially?

It’s a question which has left many scratching their heads.

It’s also hard to understand when so many campuses have seen such extravagant expansion over the last 20 years.

The University of Kent, for example, has invested heavily. In fact, to the outsider, it looked very much like the institution was riding a wave of financial prosperity.

Up went big glass-fronted new buildings, new and improved accommodation blocks and plenty more besides.

Yet, today, the university is facing financial pressures the like of which it has not seen for decades. Its vice-chancellor describes what it now faces as being “a perfect storm”. And it is far from alone.

Across the university sector, difficult decisions are being taken – jobs cut, courses reduced. Everyone is in the same boat.

But why?

Professor Jenny Higham is funding policy lead at Universities UK, the collective voice for the nation’s higher education establishments. She puts the root issue front and centre: “Overall university funding is forecast to drop to its lowest level in real terms since the 1900s, while graduates are paying more than ever.”

Currently, every student who enrols at a university will pay up to £9,250 in tuition fees each year. They carry that debt once graduated and start to pay it back once they are being paid a salary of at least £27,288.

Universities do receive some teaching and research grants from funding bodies. But this has been on the decline. All of which now makes the tuition fee the biggest single income stream.

First introduced in 1998 – under the Labour administration of Tony Blair – the costs then were a mere £1,000 a year.

Designed to ease the pressure on the public purse, they have risen over time to the current level and become, in the process, something of a political hot potato. The Liberal Democrats were never forgiven for reversing their pledge to scrap it when they found themselves in coalition with the Conservatives after the 2010 election. Just last month Labour had to admit plans to abolish them in England (should it be elected) had been scrapped due to the economic concerns.

Any political party suggesting a hike in the fee, therefore, is likely to disillusion a huge swathe of potential voters.

Which presents universities with a key problem. The fee was raised to £9,000 in 2012 and topped up to the current level five years later. Earlier this year, Whitehall confirmed it would be frozen for a further two years. All the while, roaring inflation has devalued it.

According to Universities UK, that £9,000 11 years ago is now worth a mere £6,900 a year – and it continues to shrink.

In addition, there’s been a decline in funding grants, rising salaries (universities’ biggest expense), and maintaining those big sprawling campuses in the light of inflation forcing prices up dramatically. The result? Margins have significantly shrunk and cloth is having to be cut accordingly.

And in case you’re wondering why so much building work has been undertaken? Well, the demand for university places has sky-rocketed over the last 30 years. According to UCAS (the Universities and Colleges Admissions Service), in 1994, nationwide, applicants accepted on to the first year of a course stood at 271,000. By 2022, that number had more than doubled to 563,000. All of which means more facilities are needed, old buildings upgraded, more accommodation to house them and all the necessary infrastructure which comes with it. Not to mention updating and upgrading facilities to ensure industry standards are met for those emerging from education into the bright lights of modern industry.

All that in a competitive marketplace where each university in the UK is fighting to attract students with its offering.

The big question now is if no-one wants to increase tuition fees and the government coffers are threadbare, just how do they make the sums add up?

Professor Karen Cox has been vice-chancellor of the University of Kent – which has campuses in both Canterbury and Medway – since August 2017.

She is currently overseeing a shake-up at the university as it looks to balance the books. It’s led to offering voluntary redundancies and a general tightening of belts.

She explains: “Fundamentally, the current funding model for universities is just not sustainable.

“The fee for home students [as opposed to international where the fees are considerably higher] has remained static pretty much for over 10 years now. And if you combine that with rising costs, the challenge is how do you keep all of that in balance when the fee isn't keeping pace with inflation?”

Where once going to university was seen as rather an elitist option, times have changed dramatically. Now it is seen very much as the natural next step, for many, after leaving secondary schools.

Those with long memories will recall an era where universities were free to attend – and you even received a grant (which did not have to be repaid) to help with living expenses.

Now the student pays for everything. The result being each degree also comes with a sizeable debt. In fact, the average for a student starting a course in 2021-22 will be an eye-watering £45,800. Part of that will also be paid to institutions for accommodation.

Yet despite the future financial debts carried by students, the increasing need for a degree and the life experiences university offers ensures it remains a hugely attractive option.

The nation’s university education is respected globally and the government constantly trumpets its ability to deliver the skilled workforce British industry needs. In addition, local economies benefit hugely from their presence. From student spending to employment, figures in 2019 revealed they contributed in excess of £1 billion to the Kent economy alone.

But what of the complaint of students and parents alike that £9,250 a year frequently delivers a mere handful of face-to-face lectures a year?

Adds Professor Cox: “Those tuition fees pay for a huge amount of services. The primary part of that is delivering the education. So that pays for our staff to deliver great programmes and courses. But it also pays for all of the facilities, whether that's libraries, laboratories or the buildings that the teaching takes place in. Or all of the support services that are needed to make sure that the university is run well and is run safely.

“That £9,000 fee is being stretched further and further and further. And that's what's causing the financial challenges.

“Teaching grants have decreased significantly. And it's just creating a perfect storm, when you're also in a really high inflationary environment. Universities have to adapt and respond.

“But that means that we have to be really clear about what we can deliver and how we deliver it. And sometimes that also means making some difficult choices about how we have to manage and organise ourselves as well.

“One of the things we have to be really clear about is that universities also want to make changes that reflect the changing needs of students. As a society we have to acknowledge we have more people going to university and that changes the nature of how that education is delivered. But we need to make sure we're meeting students needs – [as well as] meeting the future skills and research needs of the country and of employers.

“I sit on the board of Universities UK and we've called for a national conversation on funding models that properly reflect the ambitions that society and government has for universities and that we're able to, of course, deliver that in a cost-effective way.

“But we have to be clear about the fact that if you've got funding, that hasn't changed for 10 years, the erosion of the value of that funding has to be taken into account.”

Which brings us back to the topic of just how do we solve the issue?

Karen Cox believes an honest and open discussion needs to be held across universities, Whitehall and, perhaps most importantly, the businesses which benefit from degree-educated workers.

She explains: “Individuals benefit through going to university; society benefits from having people go - it trains our engineers, it trains our doctors. Employers benefit because they get qualified graduates coming through into the workplace.

“At the moment, we're saying individuals should pay and the taxpayers should pay through the teaching and research grants that we do get. Also, of course, we all know that the way that things are set up at the moment, some people will not pay back all of the student loans. So again, taxpayers pick that up.

“Is there a different funding model? Is there something, for example, that we could look at that shares the cost between the individual, the taxpayer and employers?

“For example, degree apprenticeships are a potential way of doing that. And I think that is an interesting model we might want to look at further. Of course, the other side of the equation is that universities themselves have to make sure they're running as efficiently and effectively as possible, really driving value for money from the money they do receive in the form of fees. I'm not saying that it's all a one-sided equation at all.”

All of which means the answer to that original question on how they’re struggling is clear. What possible steps to resolve the issue – and swiftly to ensure universities are not forced into more stringent cuts – remains an issue for debate.

Just don’t expect to see a solution until after the next General Election.