The Open University is contemplating staff cuts, and moves to drop less profitable courses in favour of courses that are cheaper to run, in response to funding cuts.
A 4 per cent fall in student numbers over two years is predicted as a result of the Government's decision to stop funding students taking ELQs - qualifications at an equivalent, or lower, level than those they already hold. Almost 30,000 of the university's students fall into this category, worth a total of £40 million in funding.
An internal document seen by Times Higher Education says that the OU is forecasting a deficit of £24.7 million in 2011-2012, contrasting with a net surplus of £6.9 million this year. A draft plan for the social sciences faculty says "painful choices" may have to be made about continuing some courses. The plan adds: "The OU classic model where a team of 4 to 12 academics have worked together to produce a bespoke course will not remain the default option."
A draft plan for the arts faculty has similarly warned that it must consider staff cuts and a move to "a more flexible workforce" as well as a move to deliver more "low-cost course models", despite concerns over quality.
A separate report on reducing student dropouts at the OU has also raised the need for greater flexibility in staff contracts.
The university will receive a below-inflation total public funding increase of 2.4 per cent for 2008-09 - the first year of the three-year phased-in removal of ELQ funding.
The OU hopes to claw back some of the lost income by recruiting more students to courses co-funded by employers and by delivering more foundation degrees, but pro vice-chancellor David Vincent said he was concerned about how much the Higher Education Funding Council for England would be willing to help mitigate the effects of the cuts.
"A gap is opening up between the assurances ministers have given the public ... and the likely interpretation of them by the funding council," he said.
A funding premium offered for recruiting part-time students, for example, will be offset against the "safety net" funding available to the OU, reducing the financial incentive to recruit more students.
Hefce has said that all institutions will receive equal treatment in the implementation of ELQ policy. But OU vice-chancellor Brenda Gourley said: "Nobody else has had 29,500 students knocked off their funding stream. The idea of not treating us differently is outrageous."
In a faculty of arts discussion paper on the cuts, David Rowland, dean of arts, said that moves including staff cuts, "de-commitment" from some less profitable courses, and the introduction of more low-cost courses had to be considered.
But the paper warned: "As part of our discussion of low-cost course models we should also be aware that the first presentations of our new second-level courses in Islam and archaeology have not been trouble-free. We will need to learn from the experience of producing these courses so quickly and cheaply, in order to ensure that quality does not suffer."
Staff cuts would be needed as a result of the "slowly diminishing budget", Professor Rowland said, but he was hopeful that these could be achieved by natural wastage.
"The effects of ELQ policy means that it will be to our advantage to develop a more flexible workforce," he said, with changes to working practices representing a possible "challenge to levels of staff motivation".
The ELQ effect is also expected to feed into the university's long-running student support review.
A January 2008 report said that students needed more assistance in decision-making.
"It is clear that many students make very inappropriate course choices," the report says, "not only at first entry but also throughout their study with the university; something for which the OU has been criticised by students and external reviewers."
Improvements in student support would require a shift in the balance of activities of academics, with staff on more flexible contracts.
The health and social care department said that a move towards more fractional posts ran a risk of "huge losses" from the ranks of associate lecturers, as many of these were part-time practitioners. Others warned that "large intermittent marking loads" would be off-putting to possible recruits.
Professor Gourley said that any conclusions reached by the review team would be piloted and phased in over several years, rather than introduced in a "big bang" approach.
Roger Walters, president of the University and College Union's OU branch, said: "Obviously, the OU will need to think seriously about how to accommodate the reduced level of funding ... though I would trust that the university will want to achieve any staffing reductions through natural wastage."