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The education secretary has said reports of a financial crisis among universities are “scaremongering”, as speculation mounted of a cut in tuition fees.

Damian Hinds said “hyperbolic warnings” were misrepresenting the situation facing institutions, most of which have healthy balance sheets.

“The financial sustainability of our universities is clearly important to the staff and students of those institutions, as well as the local economies and communities they serve,” he said.

“But with the vast majority of universities in a good financial position, hyperbolic warnings from some on universities’ finances are distorting the overall picture.”

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Hinds said student numbers at UK universities and tuition fee income had increased since the financial crash, while most sectors had been forced to reduce their expenditure.

“I do understand universities are facing some challenges, but reports of financial hardship across the entire sector is scaremongering,” he said.

His intervention follows reports that a review of tuition fees launched by Theresa May last year could recommend a reduction from a maximum of £9,250 to £7,500 a year, with many students racking up debts of more than £65,000 plus interest for a four-year course.

The Department for Education would not comment on whether any lowering of fees would be accompanied by a rise in the amount of central government subsidy, and there have been warnings that a failure to provide this would harm students and even push several universities into bankruptcy.

Alistair Jarvis, the chief executive of Universities UK, told FE News that any reduction to fees must be made up in full by the government if research was to be safeguarded, warning it would otherwise lead to “bigger class sizes, poorer facilities, labs and libraries, a worsening student experience, job cuts and less money to support access and retention”.

He added: “It could damage research, reduce the number of highly-skilled employees that business needs and harm our international competitiveness.

“If Theresa May’s review of post-18 education recommends a cut in tuition fees, the funding gap must be made up in full by a government teaching grant. A funding cut for universities would be a political choice which harms students, the economy and communities that benefit from universities.”

The BBC has said the review is expected to report back next week, and any potential loss of university fee income could be replaced by direct funding from government.

In response to “substantial rumours that the review will recommend a fee cut to £7,500 across all subjects”, the National Union of Students said the potential changes – if forced through without a replacement subsidy – would push universities to the point of collapse.

“The government has been lobbying to introduce differential fees for an undergraduate degree based on the subject that you take,” said Amatey Doku, the NUS vice-president for higher education.

“This isn’t about attempts to rebalance funding between higher and further education, reflecting predicted graduate salaries, or reflecting the real costs of courses to teach. This is purely about damaging our sector by wrenching open a market, taking money out of education and pushing universities to the point of collapse.”

Paul Cottrell, the acting general secretary of the University and College Union, said: “It is not scaremongering to point out the huge sums of money universities would lose if the government backs a cut in fees and does not plug the gap. The prime minister called the funding review because the current system was so politically toxic.

“However, we have seen nothing that suggests the review is looking at the sort of radical alternatives that would make life easier for students and guarantee funding for our colleges and universities.”

Last year, Sir Michael Barber, the chair of the Office for Students, warned universities that were not financially sustainable would not be bailed out.