Universities could be left cash-strapped and struggling to make ends meet after the rise in tuition fees meant many failed to recruit enough students.

Institutions may find their budgets under pressure as a review of the financial health of England's higher education sector revealed demand for places in 2012-13 has been lower than originally predicted.

This means England's universities are facing problems reaching their recruitment targets, increasing the risk their finances will be worse than expected.

The report, by the Higher Education Funding Council for England (HEFCE), examines the financial health of England's universities from 2011-12 to the forecasts for 2014-15.

It concludes the projected performance of the HE sector up to 2014-15 is sound but only if universities achieve their student recruitment targets.

For this academic year, the first year where students are paying fees of up to £9,000 per year, Ucas figures suggest demand is lower than expected.

The publication identifies "key risks" in the higher education sector's financial sustainability, including:

  • Fall in student retention in an increasingly competitive market
  • Failure to effectively manage major capital investment programmes and their financial impacts
  • Failure to achieve growth in overseas fee income
  • Failure to comply with UKBA requirements resulting in removal of ability to sponsor non-EU students.

HEFCE's discussions with universities also shows that some institutions are facing problems attracting students and that their enrolments will be down by more than planned.

This could "necessitate these institutions to revisit their financial forecasts," the report says.

HEFCE chief executive Sir Alan Langlands said: "Universities and colleges are projecting sound financial results to 2014-15.

However, these forecasts were made in June 2012, prior to the latest student recruitment cycle. Some institutions have experienced difficulties in achieving their recruitment targets, and may face budgetary pressures as a result.

"Despite this, the overall financial position is satisfactory, although reductions in public funding, especially for capital investment, mean that institutions will need to deploy more of their own resources to maintain their estates. This will ensure the long term sustainability of educational and research programmes and a high quality student experience."

The report also warns the UK Border Agency's (UKBA) decision to revoke London Metropolitan University's licence to sponsor international students could damage the UK's reputation for higher education overseas.

This could lead to a fall in applications from international students, whose fees are a "significant" source of income for many institutions, it says.

In September, London Met was granted permission to apply for judicial review at the High Court over UKBA's decision.