AoC Conference, 18 November 2014
Making loans work in advanced level and h
higher education
Julian Gravatt, Assistant Chief Executive, AoC
Julian_Gravatt@aoc.co.uk
@JulianGravatt
http://www.aoc.co.uk/term/funding-finance
Making loans work in FE and HE
Two areas of activity
Higher education “professional and technical education”
Further education for adults
Two themes in this presentation
What might change?
How colleges should approach things?
What might change - university fee regulation
The politics surrounding fees
Labour government (re) introduced full-time fees in 1998
Coalition government allowed fees to rise to £9,000 in 2012
Big MP rebellions in the 2004 and 2010 votes
Labour party would like to reduce fees – to £6,000
Scotland has no university fees (and no maintenance grants)
Non-resident EU students can access tuition but not maintenance
The timeline
General election in May 2015
Long lead-times for fees (OFFA) and admissions (UCAS)
Parliamentary must decide 2017-18 rules by spring 2016
Existing fee rules apply in 2015-16 and in 2016-17
How the HE budget has changed
2011-12
Teaching
Student
Support
Research
Total
RAB
charge
Grants
4.6
1.3
4.6
10.5
2.1
Loans
2.6
4.4
-
7.0
Total
7.2
5.7
4.6
17.7
Teaching
Student
Support
Research
Total
RAB
charge
Grants
1.7
1.6
4.6
7.9
6.4
Loans
8.2
6.2
-
14.4
Total
9.9
7.8
4.6
22.3
2015-16
Source: AoC summary of HEFCE grant letters for 2010 & 2014, BIS annual accounts
How the HE budget has changed
Total HE spending in England in 2011-12 and 2015-16
25
25
20
20
15
15
10
10
5
5
0
0
Teaching
Student
Support
Grants
Research
Loans
Total
Total
Teaching
Student
Support
Grants
Research
Loans
Total
Total
Between 2011 and 2015, the overall HE budget has increased but
there has been a cut in HEFCE grants, a freeze in research spending
and an increase in tuition and maintenance loans.
The HE student loan outlays
2013-14
£ billions
Outlays
2014-15
2015-16
2016-17
2017-18
2018-19
10.3
12.7
14.4
15.6
16.7
17.4
Repayments
1.8
2.1
2.3
2.5
2.5
2.6
RAB charge@ 45%
4.6
5.7
6.5
7.0
7.5
7.8
20
18
16
14
12
10
8
6
4
2
0
2013-14
2014-15
Outlays
2015-16
Repayments
2016-17
2017-18
2018-19
RAB charge@ 45%
HE loans – understanding the RAB charge
Understanding the RAB charge
An impairment charge on loans in government accounts
Equivalent to 30 year’s of depreciation in 1 year
Charged up front because loan terms are “soft”
ie. Repayment at 9% of income over £21k plus 30 year write off
RAB for highest earning graduates is zero
Graduate salary forecasts reduced -> more write-offs in 2040s
Interest rate assumptions make a big different in NPV calculations
£ billions
What graduates pay
Cost of capital in RAB
UK 30 year gilt rate
Interest rate
RPI
2.3%
RPI + 2.2%
4.5%
2.90%
HE loans – cutting government loan costs
Some options to reduce net loan outlays or RAB charge
Tuition fee loans to cover less than 100% of tuition fees
Tighter conditions or lower rates for maintenance loans
Graduates to repay loans faster, earlier or for longer (ie a tax)
Limit loan access to prime borrowers (via entry qualifications)
Replace loans with graduate equity contracts
… or wait and see
HE loans - student number controls
2012-13
Full-time entrants
Average fee
2013-14
2014-15
2015-16
2016-
312,000
345,000
360,000
390,000*
?
£7,700
£7,800
£7,900
£8,100*
?
* Official forecasts reported in a PQ
Student number controls
Student number entry controls (Year 2 SNC = Year 1 SNC)
High grades exemption (AAB+ in 2012, ABB+ in 2013, nothing in 2015)
Core/Margin policies (20,000 in 2012, 5,000 in 2013)
Flexibility range (3% in 2013, 6% in 2014)
Private HEIs and Colleges new to HE (controls started in 2014)
Removal of SNCs for most HE providers in 2015
Expansion before the election, contraction afterwards?
HE loans – HE spending options
BIS revenue budget £13.2 billion in 2015-16 (£8 billion HE)
Spending plans imply 30-40% cuts in BIS after 2016
IFS scenarios for UUK to cut RDEL (back in October 2013)
1. Breach the science/research ringfence (£4.6 bil budget)
2. Cut Medicine & STEM funding (involves raising fee cap)
3. Switch from HE maintenance grants to HE loans
4. Reduce number of FT HE students
5. Cut 19+ FE/Skills budget further (on top of 35% cuts 2009-15)
A Scottish style HE maintenance grant cut means more debt
HE loans – my predictions
A starter for five
£6,000 fee only if Labour use this promise to get into power
Some cuts to HE maintenance grants for 2016-17
Reintroduction of some controls on HE numbers for 2016-17
No big HE student loan changes but changes at margin
Actions on postgraduates, EU & Muslim students
Implications for colleges
Business as usual for a couple of years to come
Opportunity to expand in 2015-16 could be for one year only
Changes in the long-term as data becomes available
College HE provision
Characteristics of English College higher education
100,000 students in 280 colleges (range 100 to 3,500)
Local, employer-led, technical, some niche
50% full-time, 50% part-time
c50% apply for one course/one institution (UCAS)
70% live within 25 miles of campus
Student cohort more disadvantaged than HE average
Partnerships with Universities long-standing & important
The core/margin policy caused a shift to direct control
English College HE trends
2008-9
Full Time
2012-3
Direct
31,000
44,000
Indirect
28,000
24,000
Full Time
Sub-total
59,000
68,000
Part Time
Direct
24,000
20,000
Indirect
33,000
18,000
Sub-total
56,000
38,000
117,000
106,000
47%
60%
Part Time
% Direct
Overall College HE numbers have remained stable but there has
been an increase in directly controlled full-time numbers
College HE strategies
Some tips
A longer-term HE plan , owned by Governors and SMT.
Understand your market & the rules
Progression up from Level 3 courses and access courses.
Progression out to work or degree level study.
Courses & fees influenced by marketing analysis.
Look at FT, PT together.
Avoid generic courses.
A clear plan on validation (university relationship, DAPs etc)
“Breaking the mould”
Analysis
English post-secondary higher-level skills
system weak and small
Policy & history biased towards full-time
residential three-year degree model
Proposals
Re-balance the system
Technical Education Accreditation Council
Accredited colleges award Levels 3, 4 & 5
Colleges/universities to work on progression
24+ Advanced Learner Loans
Where we are now
Successful implementation of systems in autumn 2013
£220 mil allocated by SFA. Perhaps £150 mil used.
Apprenticeships bombed. Access maintained.
Some vocational Level 3s strong. Low use for Level 4s
A few colleges have expanded but picture is mixed.
Colleges offered 27% growth in 2014-15 (doubling activity)
SFA officials considering ways to grow activity
FE loans – why they’re a good thing
The positives for students and colleges
“Loans help students change careers or make progress”
“There are no upfront payments or credit checking”
“Repayments are income-contingent and handled by govt”
“Access students get a write-off on degree completion”
“The systems and rules are fairly well-established”
“Individuals not government is the customer”
“There are currently no caps on expansion”
The obvious negatives
“We only have loans because fees have replaced funding”
“Some people won’t borrow - fullstop”
“Higher fees has meant fewer students and fewer courses”
The consultation about FE loan extension
The proposals set out in
Option for BIS to extend FE loans in 2016-17
Proposal in June, consultation response by December 2014
- 19+ for all courses
- Entitlements (100% funding) stay basic skills, first L2 & L3
- Transfer of higher nationals from HE to FE system
- Include FE loans in any sharia-compliant scheme
Will this happen?
Political interest in developing higher vocational education
60% RAB charge (reflects low pay) and the election are obstacles
Likely that Ministers will be seeking quick savings after May 2015
Increasing loan activity now and in 2015-16
Some tips
A longer-term Level 3 & 4 plan , owned by Governors and SMT.
Understand your market & the rules
Different thinking & internal development funds
Necessary to analyse data on 2013-14 and 2014-15 take-up
SFA encouraging new providers (eg HEIs, existing providers)
Could colleges identify new partners?
Employers shouldn’t be ruled out
January starts as well as September starts?
Pricing for loans can differ from 19-24 fees
Needs a cross-college approach
Increasing loan activity now and in 2015-16
Cross-college activities
Curriculum re-design
Pricing
Communications
Advice
Learner offer
Processing
Bursary
Attendance, withdrawals and complaints
Some final thoughts
Rethink adult learning
Changes to public spending permanent
HE, FE, AE – different routes & funding but same ages
Loans are a way to make fees more palatable
Fees were a bigger part of the mix in the 1980s
.. but we’re now in an Aldi / Amazon world with big income gaps
Demand exists but it is changing
People are working longer/need to retrain
Employers still think about workforce development
Universities need roots in the community
Colleges can make loan-funded courses work but it won’t be easy