some detail on the company structure at NCH and Tertiary Education Services
Originally posted on Critical Education:
Something bugs me about Anthony Grayling and the way he presents New College of the Humanities. Nothing is ever quite as it seems.
When the original company, Grayling Hall, was founded as a company limited by share back in July 2010 (note the date, before the Browne review was published) Grayling was one of two shareholders: the other was Peter Hall a strong opponent of public services who had previously sponsored David Willetts when he was in opposition.
Grayling Hall changed its name to New College of the Humanities Limited before the college was launched last summer. By far the largest shareholders, over 30 per cent of the company, are the Swiss family Ebstein who run the venture capital firm Meru AG based in Lucerne. They go unmentioned on the NCH website.
Private equity and venture capital is well served on the board http://www.nchum.org/who-we-are/non-academic-staff Many of the illustrious…
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Relevant to today’s news that Southampton Solent will be validating degrees offered at NCH from next year. There’s no mention of this arrangement on NCH’s website, surprisingly only reference to ‘our degrees’.
Originally posted on Critical Education:
This Saturday’s Guardian featured a long article on New College of the Humanities.
It provided some information to supplement the recent analysis of the relevant accounts on here.
It suggests investment amounts to £9million ‘or so’ – I’d assessed it at £10m.
Recruitment for 2013/14 entry came to 65 students, raising the number of students to 121. I suspect this means that the confidence expressed in the accounts was misplaced:
“The directors are confident that the envisaged student intake in the financial year 2013 will more than cover the operating costs of the college and result in a profit being realised in the 2013 financial year.”
The Guardian expressed the same reservation: ‘there is no prospect of imminent profit’. Technically, as a non-profit distributing entity, the teaching college can only make surpluses which it must reinvest. Money moves out the college through the various fees it pays to…
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A new day, a new development for student loans.
Or rather confirmation of something that’s been in the pipeline for a while. I first warned in 2012 that clauses in student loan agreements would allow governments to change the terms for existing borrowers.
Up until the election, ministers were denying that any such change would be needed as the fee-loan regime inaugurated in 2012 was ‘robustly sustainable‘.
Now the government has published a consultation which in order to put English undergraduate financing on ‘a sustainable footing’ proposes as its ‘preferred option’ to go back to all those who have started since 2012 (and taken out loans) and demand that they repay more.
The proposed mechanism is that the repayment threshold of £21000 be frozen at that rate for 5 years after 2016. Borrowers were promised from 2010/11 onwards that the threshold would rise in line with average earnings after 2016.
That change – ‘Option 1′ – will affect around 2million borrowers. A freeze for five years may not sound dramatic but if you expect a graduate starting salary of £30 000 or less the government provides examples to show that you will be £6 000 worse off in net present value terms (using a discount rate of RPI plus 2.2%).
The very highest earners may actually benefit from this change as they will repay their loans more quickly.
The government estimates that this retrospective price hike will raise £3.2billion from the four cohorts who have experienced the £9000 fee (those who started between 2012/13 and 2015/16 inclusive). And their examples show it will be middle and lower earners who take the hit. This is consistent with the recent analysis published by Institute for Fiscal Studies.
The consultation closes on 14 October 2015. I urge you to respond as an individual if you are affected.
It’s fundamentally unfair to impose such changes after individuals have signed up for loans. The silence of the universities on this matter is worse than their craven behaviour in 2010. They don’t have any excuse now that the government’s own figures show the likely impact of what is proposed.
One other option is presented for consultation. This would see a five-year repayment threshold freeze introduced in 2020 for those starting after 2016/17. It would not involve a retrospective change in repayment terms.
I promised a short note on IFS’s analysis of discount rate changes. I have previously offered a brief explainer here on how discount rates work to convert a projected stream of cash payments – that come in over several years – into a net present value today (or 2016).
The basic idea is that £1 000 received or paid in ten years’ time is not worth £1 000 today. Think about swapping some cash in your pocket for a promise from me to pay you £100 in 2025. How much might it be worth? A number of factors obviously come into play here, but when we are talking about the government and student loans a rate of RPI plus 2.2 per cent is used to discount all future repayments.
If RPI is projected to be 1.8%, then the government discounts a payment made a year in the future by roughly 4% (1.018 * 1.022 – that ‘plus’ is a 2.2% increase on top of one of 1.8%). So a repayment of £1.04 made in 2017 is worth £1 in 2016 NPV terms. And so on – the rate is applied to a repayment received for each year away from 2016 that transaction is projected to occur (e.g. for five years away the rate would be 1.04 to the power of 5 – so £1.22 then would be worth £1 today).
It is this idea that underlies all discussion about how much the government ‘loses’ on student loans: it sends money out into the world today and repayments come back over the next few decades; how do you compare what is issues compared to what it gets back? What sum today (or in 2016) would be the equivalent of all the associated repayments generated over the lifetime of the loans?
Similarly, if we are discussing the impact of government changes to borrowers then the sums expressed, say £13 000 worse off, are also discounted in this way in reach an NPV figure using the government’s preferred measure.
In its analysis from Tuesday, the IFS considered a fourth measure proposed by government (subject to Treasury review). The discount rate would be brought into line with the government’s cost of borrowing. IFS suggest this might be around RPI plus 1.1%.
No change to projected repayments occurs here, only how those repayments are to be valued. Lowering the rate by which future payments are discounted would improve the overall value of the cohort’s aggregated repayments such that the government ‘contribution’ to HE drops dramatically from £7bn (after the other three changes) to £4.6bn. You can see how this presentational effect might alter the rather ill-informed debate we currently have around the sustainability of English HE (a drop in the resource accounting and budgeting charge or 15 percentage points according to IFS!).
Using a discount rate of RPI+1.1% (instead of RPI+2.2%) would increase the value of repayments from an average of £30,700 per student to an average of £37,900 per student in 2016 money when looking at the three policies combined.
That is, an additional £7 000 in value is recognised by altering the discount rate.
In yesterday’s blog, I stressed that the IFS analysis of the proposed changes to the financing of undergraduate study in England did not show how the repayment threshold freeze would affect those students who had also seen full maintenance grants replaced with loans.
I went back to the IFS to ask them about that. Dr Jack Britton the report’s author kindly ran the analysis.
On page 17 of the report the IFS summarised the effects of higher maintenance loans on future repayments.
We estimate that 65% of students who would have been entitled to a full maintenance grant are likely to experience no change in how much they can expect to repay (as they would not have paid back their old lower loan in full, let alone their new higher loan). Of the remaining 35% of those students, the average student will be repaying their loan for an extra four years, contributing an extra £9,000 towards their degree.
When you add in the effects of the proposed repayment threshold freeze the results are that the extra £9 000 contribution rises to an extra £13 000. (All these sums are Net Present Value calculations for 2016 based on the government’s discount rate of RPI plus 2.2 per cent. A brief explanation of NPV can be found here.)
Overall the two proposals would see on average students eligible for a full grant make £3000 in additional contributions owing to the move from grants to loans and then £7000 with the repayment freeze. You can see the higher earning 35 per cent drag this average up, but that group also has a significant impact on the repayments of the whole cohort’s higher earning deciles.
On twitter, IFS has provided a reformatted version of its ‘Figure 4′.
For deciles 1-6, there is little impact from the additional debt associated with replacing grants with loans, but the repayment freeze (olive bar) increases the costs of undergraduate study by a quarter or more.(Again, if the government were to implement this freeze for those who have already taken out loans it would be a large retrospective price hike, even though a freeze sounds like a minor change).
For the higher earning deciles, the replacement of grants with loans has the bigger impact as the new figures above illuminate.
The Institute for Fiscal Studies has just published its analysis of the HE funding reforms that were announced in the Budget on 8 July.
It has modelled the distributional impact on graduates repayments of the three changes proposed to undergraduate financing:
- converting maintenance grants to loans for those commencing undergraduate study in 2016/17;
- freezing the loan repayment threshold at £21 000 from 2016 rather than increasing it in line with average earnings (as was promised to those who started back in 2012 and after);
- increasing the maximum undergraduate tuition fee in line with inflation from 2017/18 for institutions which can demonstrate high ‘quality’ teaching.
Of these three, only the first is confirmed, with the other two proposals going out to consultation shortly. Regarding the second, the likely scope of the consultation is probably restricted to whether the freeze should be applied retrospectively to all who have faced higher tuition fees since 2012, ie existing borrowers, or only apply to those starting in 2016/17 and later, new borrowers.
IFS take each of the three measures in turn and model it before assessing the combination of all measures for a hypothetical cohort of 360 000 students starting in 2016/17. This is a change from recent IFS practice where analysis had centred on the 2012/13 cohort (as per their work for the recent Universities UK Student Funding Panel) and therefore elides the retrospective effect of the repayment freeze.
The IFS document also discusses possible changes to the discount rate – which is to be reviewed by the Treasury. IFS describe any reduction – which they see as most likely – as a ‘trick’ since it would not affect future repayments in cash terms, only how those projected repayments are valued today (or 2016). Although IFS do not spell this out, the discount rate is a matter specific to Business, Innovation and Skills, rather than government: it determines how loans feature in departmental budgets and accounts. I will discuss their analysis of the discount rate in more detail in a subsequent post.
Converting Maintenance Grants to Maintenance Loans
Regarding the first measure (abolishing maintenance grants), IFS note that ‘The poorest 40% of students going to university in England will now graduate with debts of up to £53,000 from a three-year course, rather than up to £40,500′. In return for an extra £766 per year in cash while studying.
While they believe that that the future loan repayments of two thirds of those students will be little affected by this change, high earners coming from poorer backgrounds will now repay for longer with ‘the average individual contributing an extra £9,000 towards the cost of their degree’ in net present value terms.
That’s before the second measure – freezing the repayment threshold – is factored in and for those outside London. IFS only model the impact on students who live ‘away from home outside London’ for three years. Those studying full-time in London will be able to borrow higher rates of maintenance loan. Those taking out their full entitlement of loans will have a commencing debt of c. £60 000 and higher earners graduating from London courses would then likely face even higher repayments.
Freezing the Repayment threshold
IFS conclude that freezing the repayment threshold for five years from 2016 is the most significant measure (after 2021 they model an increase in line with earnings; an alternative increase in line with inflation is modelled in a technical appendix).
For the 2016/17 cohort this would boost projected repayments going to the government by £1.4billion (2016 NPV terms) over the lifetime of the loans.
Graduates would see their repayments increase by £3,800 on average This is a substantial increase in cost and one that does not fall progressively: a median lifetime earner (‘earning around £23,000 per year in their early 20s, rising to £34,000 in their early 50s, both in 2016 prices’) would see an increase in repayments of £6 000:
£27,000 in 2016 money in total under the revised 2016–17 system, compared with £33,000 in total in 2016 money under the system with a threshold freeze.
For those who started between 2012 and 2015, such an impact would represent a sizeable retrospective price hike on what they were promised before signing up to a loan agreement. The IFS modelling for last month’s Universities UK report in fact shows higher increases in repayments for those in the middle lifetime earnings deciles of the 2012 cohort (see image in this blog post) though they have since revised assumptions about future earnings.
IFS save most of their comment in the press release for the effects on participation. Compared to the 2012 reforms, the measures outlined by George Osborne are regressive – one affects those coming from the poorest backgrounds adversely; the second affects median earners hardest. IFS note that this breaks with the 2012 design.
Commenting on the analysis, Jack Britton, Research Economist at the Institute for Fiscal Studies (IFS), said:
The 2012 reforms appear not to have had a negative effect on higher education participation amongst full-time students from poorer backgrounds. This likely reflected the fact that the system was designed to protect both that group and those with low expected lifetime earnings. Only time will tell whether these new changes will be similarly benign in their effect.
The report spells this out more fully.
Full-time participation rates amongst students from poor backgrounds did not fall following the major changes to higher education finance introduced in 2012, but the changes introduced in 2012 differ significantly from those due to be introduced in 2016–17.
In 2012, grants went up for the poorest students (by 10%) and the net present value of loan repayments went down for those in the bottom 30% of lifetime earnings (in which those from the poorest families are likely to be over-represented).
Under the 2016–17 system, grants have been abolished and the net present value of repayments is likely to increase substantially for those from the poorest backgrounds. We would expect both of those changes to have negative effects on participation for the poorest students, all else equal.
BIS sent me an unsolicited press statement on this particular matter. In its entirety:
The IFS recognises the reforms in 2012 did not deter students from going to university and in fact applications from disadvantaged students are at a record level. With the lifting of the student number cap we are confident that thousands more students will be able to benefit from a higher education.
BIS does not dispute the conclusions that the greater share of the change in costs from these measures falls where the IFS analysis indicates.
It remains to be seen how vice-chancellors and university managers will respond to this IFS analysis. The recent Student Funding Panel suggested freezing the repayment threshold but evaded direct discussion of the distributional impacts. It also choose not to ask their convened focus groups or questionnaire-fillers whether changing the repayment threshold for existing borrowers was acceptable.
One vice-chancellor told the Independent this weekend that she supported the plan to scrap maintenance grants before outlining that reductions in tuition fees were a bad idea.
People at the Institute for Fiscal Studies have said that [eliminating tuition fees] would be regressive, haven’t they? And who am I to argue with their financial analysis?
I’m sure the vice-chancellors, like BIS, will be finding ways to avoid this latest analysis, but they do need to come out now against a retrospective price hike for those already with loans.
There was no reference to the planned sale of ‘pre-2012′ student loans in the 2014/15 accounts published by BIS on Tuesday.
Even standard clauses that had appeared in previous years were absent. For example, in the 2013/14 edition we had the following:
The Government is continuing to assess how best to manage its holding of current and future loans, and has made public its intention to realise value for the taxpayer through sales of pre-HE Reform income contingent loans. These Accounts present the current student loans portfolio valued on the basis that it will continue to be held by the Core Department until such time as a decision to sell the asset has been made.
Nothing of the kind.
This may prove to be insignificant, but the Budget also failed to confirm that a sale was going ahead. And the Chancellor’s speech to the CBI back in May failed to contain a mention, despite the press having been briefed to expect it.
The OBR indicates that the first sale (of five) is expected in 2015/16, but also suggests that BIS has revised its approach very recently:
At Autumn Statement 2013, the Government announced its intention to sell part of the student loan book, which it expected would raise around £12 billion over five years from 2015-16. This intention was reiterated in Budget 2015. The Government informed us at the time that the sale in 2015-16 remains its firm intention, but that there had been changes in the form of the expected sale relative to that which underpinned our previous forecast assumptions. While the preparations for the sale are still at an early stage and significant uncertainties remain, one implication is that it is likely that a larger quantity of loans would need to be sold to meet the Government’s £12 billion central estimate for the proceeds from the sale. The Government has confirmed to us that it intends to proceed on that basis. (my emphasis)
Fiscial Sustainability Report, June 2015, paragraph 3.75
A sale has been policy for the last four years and plans have already gone through different forms. Our best understanding at present is that the government plans to sell whole loan ‘cohorts’ starting with those borrowers with outstanding loan balances who graduated in 2001 to 2004.
BIS’s ‘Critical Business Models’ published today mentions a specific model that simulates ‘student loan borrowers in [payment cohorts] 2002-2005 that meet the criteria for inclusion in the loan sale’. The latest information on these accounts is that the face value of the outstanding balances is just under £5billion. The government hopes to raise £11.5bn over the course of parliament from loan sales. The government would probably be happy to raise £2-3bn from the cohorts specified above.
I have ask the BIS press office on Thursday morning for comment on the absence of loan sale discussion from the accounts, but haven’t had a reply.