On Wednesday, the Student Finance England quietly published the supplementary tables to November’s ‘2013/14 statistical first release’. Despite sounding rather dull, these tables give a breakdown by institution of payments made by the Student Loan Company for maintenance grants, maintenance loans and tuition fee loans. They also differentiate between ‘alternative’ and ‘public’ providers.
The new figures confirm that public funding to students at private providers has now touched £600m per year, despite the suspension of funded student recruitment at some of the fastest growing colleges in November 2013.
In academic year 2013/14, £160.25m of maintenance grants were issued, as were £192m of tuition fee loans and £246m of maintenance loans. Roughly 45 000 private students benefited from a total of £598m. When the coalition came to power, the equivalent figures were 4000 students accessing £30m.
The main growth has occurred since 2011 with 2012/13, when the total outlay leapt from £100m to over £400m in one year. Growth was so rapid that the first figures for 2012/13 – released this time last year – initially thought only £270m paid out. That discrepancy of over £100m was due to the manner in which private providers enrolment late in the year, some with monthly start points. These first release figures therefore come with a caveat – they may go higher when all the data is in.
I have not had an opportunity to examine the new figures in detail, but London School of Business & Finance and its sister college, St Patrick’s International jump out.
In 2011/12, St Patrick’s had roughly 50 funded students, LSBF none. By 2013/14, St Patrick’s had over 6600 and LSBF over 4000, both are using Pearson’s HND/HNC qualification. In the last two years, students at the two colleges have received over £250m with £75m of that going straight to the institutions as tuition fees backed by the Student Finance England. That’s a big public subsidy for a new market entrant, particularly when you consider that £50m went to for-profit St Patrick’s, which is now owned by a Dutch holding company.
Even more staggering is that Martin Donnelly, the accounting officer for the department of Business, Innovation & Skills, told a Public Accounts Committee hearing in December that BIS had considered removing St Patrick’s ‘designation’ for student support in the Autumn. The reason? ‘Financial sustainability’. Despite all that public funding? Indeed. And one further point that’s relevant here – when it was first designated St Patrick’s had never submitted audited accounts to Companies House and BIS did not request any. It was only last year when designation was tightened up that colleges were required to do so. But we now know that over £1.1bn of grants and loans went to private students in the 3 years prior to that omission being rectified. Chapeau!
Until recently, Matthew Hilton was the civil servant heading Higher Education in the Department of Business, Innovation and Skills. He has just written a blog for wonkhe.
Let’s look at where we are now. Fundamentally, I don’t think there is (necessarily) a great deal wrong with the way the rules for HE in England are currently set up. The evidence seems to suggest a healthy enough sector, managing its way pretty successfully through some turbulent economic times. Arguments should and will continue about the specifics of policy. But as for some of the noises we hear about long term lack of viability and holes in financial modelling stretching out generations into the future? Come off it. There’s a mixing up of apples and pears here, of stocks and flows, of facts and politics.
For example, as a matter of fact, the government could reduce the RAB charge to whatever it wanted at a stroke, and within the existing overall policy framework, just by adopting a different approach to the financial management of the student loan book. If interest rates, repayment levels etc. were able to flex in line with the macro-economic context, the RAB issue would go away. But the politics doesn’t allow for that. The requirements that matter are not those of rational economic behaviour, but of the need to manage all the angles in a way that keeps the politics on track.
It’s true the estimated loss on student loans could be managed ‘at a stroke’ by using the government’s powers to alter their terms (repayment thresholds, repayment rate over that threshold, interest rates and write off period). These terms are ‘administrative matters’ that the government is able to change using secondary legislation: they are not fixed in the loan agreements that are signed. But the ‘rational economic behaviour’ invoked here is the power of this particular lender to generate more repayments from the borrower.
The lending agreement for traditional commercial loans fixes the nominal repayments and the period of repayment in advance at the point of agreement (you know what your outgoings are in cash terms even if you don’t know the real value of that cash payment in the future). Income contingent repayment loans are different. You do not know what your nominal payments will be for the thirty years after you graduate, because they are determined by income and the four factors listed in the previous paragraph.
Hilton’s is the latest in a series of gripes from former BIS denizens about the RAB charge and the debates it engenders about sustainability. But these debates are the quid pro quo for excluding loans from calculations of the deficit (annual loan issues are not ‘spending'; repayments are not ‘revenues’). Loans are categorised as ‘financial transactions': you no longer have your £10bn+ outlay categorised as spending but estimates of related loss – the difference between discounted repayments and loans issued – therefore come to the fore. (With a graduate tax – which would possibly ‘flex’ in line with the broader fiscal position – that categorisation would change and outlay and repayments would be spending and tax receipts).
In the first instance, ‘sustainability’ for loans is determined by whether the budget allocated to BIS to cover that loss on loans (for example, at spending reviews) matches the latest estimates and how the accounting conventions in place treat mismatches; those conventions changed in April 2014 removing some immediate ‘fiscal challenges’ but public debate has yet to catch up.
In the longer term, concerns about the graduate labour market mean that commentators are suggesting that the commitment to uprate the repayment threshold on ‘coalition loans’ (£21 000 in 2016) in line with average earnings from 2017 be abandoned. The ‘politics’ here is that those who have signed up for loans since starting undergraduate study in 2012 would likely baulk at changes to their promised terms.
Martin Lewis (who previously fronted an information campaign about the changes to undergraduate funding in 2012) has made his position clear. His ‘threat to the government’: he will mass campaigns against changes that affect existing borrowers detrimentally.
Former civil servants may need reminding about how much public goodwill towards HE was lost in 2010/11. Lewis’s blog should be read by them if only to alert them to that.
To reiterate the main point, ICR loans have many virtues. We do not, for example, face the immediate repayment burdens seen by US graduates. But they do involve individuals signing up to a thirty-year-plus commitment they are unable to gauge in a normal way. Borrowers do not have fixed terms and do not have the protection of consumer credit legislation. It really is not helpful to have former insiders increasing that uncertainty with their chatter. Better would be if the current status of borrowers were improved.
On Monday 15 December, the Public Accounts Committee held an evidence session into financial controls over student funding going to students at private colleges.
You can watch the video here – all two hours of it. I wasn’t in the room, but one who was provided this post’s title.
Present as witnesses were:
Martin Donnelly, Permanent Secretary, Department for Business, Innovation and Skills,
Mick Laverty, Chief Executive, Student Loans Company,
Madeleine Atkins, Chief Executive, Higher Education Funding Council for England,
Rod Bristow, President, UK and Core Markets, Pearson.
It was really all about Donnelly as the ‘accounting officer’ responsible for the cash involved, but Pearson’s representative, Bristow manages to unite the cross-party panel in incredulity when he outlines the language ‘recommendations’ his examination board specifies for entry to an undergraduate level qualification (from 4.48pm on the video clock).
It is probably hard to get a grasp on proceedings without having some knowledge of what’s been uncovered by journalists over the last year. Much of the evidence discussed in the session was unearthed by me and an overview of the general problems can be found in this piece for Times Higher Education.
The Chair of the Committee describes the whole affair as one of the worst scandals she’s seen at PAC but we still don’t have the full picture of the amount of money being spent per HND qualification achieved.
So, I wasn’t planning on writing anything about the REF as it feels opaque to outsiders and the real stories of gameplaying and awry internal managerialism are better told by insiders. [I was once an insider but was given the initial choice of looking after the RAE or doctoral students (I choose the latter but sat across from the person who did the former).]
How though does it appear to the Treasury? This line from Mark Leach’s blog hits the spot:
However, it is clear that there has been substantial grade inflation in the results – everyone knows it, but it’s not in many people’s interests to say so. But some of the inexplicably large jumps in proportion of 4* and 3* research speak for themselves and vice chancellors of every stripe will freely admit this is the case (anonymously, of course). On the face of it, this helps feed the desired narrative that we are “doing more, better” – but ultimately it undermines the sector’s credibility and bargaining power with an austerity Treasury that simply will not buy it.
We should not forget that the sector has already had its cards marked with the decision to set undergraduate tuition fees at or around the maximum. Friday’s report from KPMG for Hefce indicates that on average £8000 should be sufficient with classroom subjects perhaps needing only £6000. As I have written before on here, we should expect tuition fees to be frozen over the next parliament and for cuts to have to come from elsewhere in BIS’s budget. The switch from direct institutional grants to higher tuition fees spared the HE sector from austerity felt in other publicly funded services; that trick can only be done once. (£800million emergency cuts planned for 2015/16 were only averted because the Treasury allowed the accounting conventions for student loans to be changed this April).
In the research budget, the obvious candidate is the ‘Quality related’ funding (the distribution of which is determined by REF results). Today’s Observer reports that this budget and the ‘dual support’ system of research funding is under threat. I am not sure this is quite accurate. Yes, QR funding has always been a likely target, but the new Science, Innovation and Growth strategy (a new joint HMT/BIS document released last Wednesday) states: ‘We will maintain stability and commitment to the core principles as advocated by stakeholders this includes the dual support system.’ (p.39)
Given how hard it is to find any reference to non-STEM subjects in that new strategy, I would guess that the scrutiny is on the QR budget for those subjects. We should also chuck into the mix the announcement that Paul Nurse is to lead a review into the other side of the dual track – the research councils. His terms of reference are here. I list the first four questions:
• Is the balance between investigator-led and strategically-focused funding appropriate, and do the right mechanisms exist for making strategic choices?
• Within each Research Council is the balance of funding well-judged between support of individual investigators, support of teams and support of equipment and infrastructure?
• How should the Research Councils take account of wider national interests including regional balance and the local and national economic impact of applied research?
• Is the balance of funding between different Research Councils optimal?
My own sense, again as an outsider, is that these questions indicate a preference for the big science, great technologies and tech transfer ‘third mission’ of the Autumn Statement and other recent Treasury announcements about ‘northern powerhouses'; they might prove more troublesome for the AHRC and the ESRC.
The Observer reports that Universities UK ‘should now be “prepared to make a robust case in support of quality-related (QR) funding”’. I would add ‘as it stands’. The robust case is going to need to come from arts, humanities, creative disciplines and social sciences. And come as a defence of public funding of research in determined institutional settings, not – as has too often been the case recent years – as the value of reading books, general intellectual inquiry and going to plays. The philistine defence is a poor one.
I have an opinion piece in today’s Times Higher Education. It recommends that Monday’s evidence session at the Public Accounts Committee should call for a full ‘value for money’ inquiry into the funding of students at alternative providers.
Beyond the confusion about measuring student progression, the clear test ought to be how many funded students achieve an HE qualification. The fundamentals do not appear to be in place for BIS to check that at present.
Vince Cable admitted that a ‘lot of dross’ has come into funded provision since 2012 but appears to lack the appetite or legal powers to deal with matters. In particular, BIS appear to have no desire to ask basic questions about recruitment practices. Lots of private colleges used Opportunity Network or similar outfits, for instance.
There also appears to be a widespread redefinition of widening participation coming from the private sector which forgets that HE is offered on the basis that the applicant can benefit from that level of study. The coalition’s reforms skewed the incentive towards recruitment to HE, when many new students might benefit from lower levels of education first. But other post-compulsory education does not attract the maintenance support or tuition fee loans to the same level.
This letter from the head of London School of Business and Finance to the Guardian manages to conflate three separate measures of student progression.
This week’s report by the National Audit Office highlights dropout rates (Report, 2 December), which it suggests are higher in the private sector. However, when private colleges give mature students from disadvantaged backgrounds the opportunity to return to education, a completion rate of over 80% is surely a positive outcome. This stands comparison with other publicly funded London institutions where the non-continuation rate on similar courses can be up to 24.5%, according to government figures.
This school is working to establish statistical comparisons between private and public colleges on a like-for-like basis and benchmarks similar to those developed for public colleges by the Higher Education Funding Council. Without that information, comparisons such as the NAO’s of the performance of students on private HND courses with those on public undergraduate degree courses are like comparing apples to oranges.
‘… treats as “dropouts” students whom the SLC initially mistakenly assessed as “eligible” for loan support and then, when correcting the mistake, treated as withdrawing from the institution named in the, sometimes fraudulent, application – even though the institution had not encouraged or endorsed the application and had never enrolled or even heard of the applicant.’
The lastest report from the HE Commission focused on the financial sustainability of the HE system in England. It was officially launched at an event in the House of Commons on Monday.
Here, I will just pull out a couple of quotes:
The current funding system represents the worst of both worlds. The government is funding HE by writing off student debt, as opposed to directly investing in teaching grants. This has created a system where the government is investing, but not getting any credit for it, damaging the perception of the public value associated with higher education. Students feel like they are paying substantially more for their higher education, but are set to have a large proportion of their debt written off by the government. Universities are perceived to be ‘rolling in money’ in the eyes of students, as their income from tuition fees has tripled, yet the cuts to the teaching grant are not well understood by students and a fixed fee cap means an annual erosion of real terms income. We have created a system where everybody feels like they are getting a bad deal. This is not sustainable. (page 10)
Respondents to the report at the event suggested that sustainability could be addressed by having graduates pay back more, but that seems to miss the philosophical point here that if a funding scheme is generally poorly understood and lacking in transparency, then it will struggle to be sustain public support and that may be more important than the level of repayment generated. It was also concerning that many present did not seem to see the promise to uprate the loan repayment threshold in line with earnings as something that needed to be honoured for current borrowers in 2017. Again, misjudging how much goodwill towards HE was squandered in 2010. In 2013, when we covered the idea that interest rates might be changed retrospectively for borrowers, hundreds of thousands of people viewed the Guardian’s site in 24 hours.
Secondly, the Commission came down firmly against funding an expansion of undergraduate places through the sale of student loans:
Witnesses to this inquiry have convinced us that a sale would be undesirable. … It will be poor value for money for the taxpayer, and this is not a sustainable method for funding higher education. The amount of student debt is set to rise dramatically over the next 10 years and continually selling off tranches of debt to fund higher education is going to be very difficult. There are few organisations that can buy this amount of debt, the market will begin to saturate, and more extreme financial engineering will be needed to sell off the debt.
Several witnesses reflected on this argument, noting the similarities to events in the run up to the financial crisis. The Commission has heard almost unanimously that the sale of the student loan book to fund HE is not a good idea. The government will find it hard to get value for money and the loan book is a valuable income stream. Holding onto it will protect students and provide future opportunities for the Government.
In the Summer, Vince Cable also reached that conclusion. This coming Wednesday, George Osborne will produce this year’s Autumn Statement where the sale of student loans may make a re-appearance. Perhaps he’ll get his sums right this time and find a way to replace the £10-12bn gap left by Cable’s volte face.