Seven universities would fall into the red if there is even a modest decline in their overseas student income, according to a report that highlights the UK's vulnerability during current "volatile global market conditions".

The analysis for Times Higher Education by financial services firm Grant Thornton warns that many universities rely heavily on income from overseas students. But exchange-rate fluctuations could encourage students from the key markets of India and China to stay at home or turn to the UK's rivals, such as the US and Australia.

Based on 2006-07 data, Grant Thornton identified 11 institutions that depend on overseas students for more than 25 per cent of their teaching income, and more than 15 per cent of their total income - which makes them "particularly vulnerable in a downturn" (see table).

Of these, seven would fall into the red if their overseas student income fell by a "relatively modest" 10 per cent. They are: Aston, City, Exeter, East London and Middlesex universities, the Royal Academy of Music and the School of Oriental and African Studies.

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In 2006-07, UK institutions collected a total of ?1.6 billion from international students, who pay an average of ?9,000 a year for an undergraduate degree. The biggest markets were China, India, the US, Singapore, Malaysia and Hong Kong. "However, there must now be some concern that these markets will be adversely affected by the present volatile global market conditions," the report says.

The report says that currency exchange rates are a "tangible force" in the international market.

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It shows that, between January and October this year, the Indian rupee depreciated against the pound by 7.5 per cent but rose against the Australian dollar by 2 per cent. So studying in the UK has become more expensive for Indian students, while Australia has become cheaper.

"This could lead to a decline in the number of applications for places from students from India - one of the UK's biggest markets," the report says.

In the same period, China's yuan has appreciated against the currencies of the US, the UK and Australia, but, while all three countries have become cheaper for Chinese students, the cost of studying in Australia has fallen most.

Grant Thornton warned that, as student fees are often paid directly by governments, India or China could seek to pay tuition fees as a block up front to lock in exchange-rate benefits. This may lead to students being officially directed not to study in the UK.

The UK's bottom line could also be hit if students chose shorter courses or to stay at home.

Despite the warning, a number of the institutions listed told Times Higher Education that they remained in a strong position and did not expect to move into deficit.

However, in a speech last week, Malcolm Gillies, vice-chancellor of City University, acknowledged the difficulties his institution might face.

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He said: "This year we expect the income from students coming from outside the European Union alone to equal our funding council grant. In the current climate of acute global uncertainty, that is not an altogether comforting circumstance."

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john.gill@tsleducation.com

Britain rattled as US forges ahead with surge in international student enrolment

International student enrolment in US higher education increased by 7 per cent last year - the biggest percentage increase in more than two decades - to a record 623,805.

The surprising figures led the British Council to warn UK universities to get "smarter" or risk losing their share of the lucrative overseas market.

The number of overseas students in the US stagnated after tighter visa restrictions following the September 2001 terrorist attacks and competition from countries such as the UK and Australia increased. Last year, however, the number of students from China grew by 19.8 per cent, from India by 12.8 per cent, and from Saudi Arabia by 25 per cent.

The increase was attributed to better marketing. Allan Goodman, president of the Institute of International Education, said it reflected actions taken by the Government and by many universities to ensure that international students knew they were welcome.

US higher education officials predicted that the upward trend would continue because inquiries from overseas students have increased sharply since Barack Obama's victory in the presidential election. Mr Obama's Kenyan father was the first African student to enrol at the University of Hawaii.

Pat Killingley, the British Council's higher education director, said: "The US is already reaping the rewards of a more proactive marketing effort. British universities must respond with a smarter marketing effort that involves adopting a wider internationalisation agenda."

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