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Event – UCU Cradle to Grave, Sat 6 Feb

Apologies for the short notice.

UCU is holding its third annual education conference in central London tomorrow. I will be speaking on an HE panel in the slot before lunch.

Other speakers include Jeremy Corbyn and Paul Mason.

More information here.

UCU’s third ‘Cradle to Grave’ Conference

UCU will be holding its 3rd major conference on the defence of public education in London on Saturday 6 February.

Venue: Senate House, Malet Street

The conference is an opportunity to discuss current issues in further and higher education with policy makers, fellow practitioners and politicians.

Our guest speaker this year will be Jeremy Corbyn MP, and keynote speakers Paul Mason and Natalie Bennett.

Please note attendance is by ticket only.

Cardiff University issues £300m bond

Although this blog has tended in recent years to concentrate on private providers and the various issues around student loans in England, a recurring theme has been the trend for universities to turn to the public bond market. I first wrote about the likely turn to public bonds in 2011 for Research Fortnight.

Since then Cambridge, de Montfort, LSE, Manchester, Liverpool, a consortium of Cambridge colleges, and Northampton have turned to the capital markets. What’s notable about this form of unsecured borrowing is the size of the sums involved and the length of the timings (much longer than normal corporate bond issues). Cambridge borrowed £350m in 2012 – it will have to repay that ‘principal’ in  2052 and over the next forty years it will pay a twice yearly ‘coupon’ amounting to 3.75% of the principal borrowed (roughly £13m annually). Last year over £1bn of public bonds were issued by UK universities.

Cardiff University has joined in by issuing £300m. That principal is due in 2055 while the annual coupon is being advertised as the lowest ever achieved by a UK university – only 3.1% per annum. In essence, that’s the attraction of bonds to the institutions – nailing down large borrowings for fixed-cost, low annual payments. (Bonds are ‘non-amortizing’ – annual payments do not reduce the principal borrowed which must be repaid at the end). For investors, the attraction lies in having a secure, long-term return at better return than government bonds. Universities are institutions that have been around a while – Cambridge is older than the British state; Cardiff is also expected to be in existence well past 2050.

At the same time, this increased borrowing activity points to profound changes in the finances and balance sheets of UK Higher Education Institutions. Debt to annual income is a common balance sheet measure used to assess the financial health of institutions. Throughout the 2000s that ratio averaged 20% for English universities – in this current decade that sector average has climbed rapidly to break 30% on latest forecasts for 2015/16 from HEFCE. Individual institutions are now north of that mean – Cardiff itself has gone from having negligible long-term debt to around 60 per cent of annual income (£482m in 2014/15).

No one really knows what these balance sheet changes mean. Back in 2014 I pointed out to the Guardian that

“Previously, [university] governors were advised that prudence ‘beyond what would be expected in a commercial operation’ was required and that institutions should benchmark themselves against peers. In a period of competitive investment, this advice loses its pertinence: with no relevant experience to draw upon, it is difficult to assess what others are doing and whether one should follow.”

What is a sustainable level of debt for large, not-for-profit institutions like universities? What is being funded with the borrowing and does it create significant new revenue streams that can be used to service the debt? Is the assumption that large principals will have their value eroded by inflation in the intervening years? The time-scales involved in the UK mean that the rollover refinancing seen in the States is still some way off.

When I spoke to Barclays Capital in 2011, they thought that the English HE sector could increase its borrowing from its then current £5bn  by about £4-4.5bn. HEFCE estimates that the sector will hit £9.2bn in 2018 (wth sector income projected to be £30bn). Obviously the sector will have grown in that period and what borrowing it can support should be higher. But until we live through these changes it may be hard to work out where ‘prudence’ lies. As always there are potential lessons from the United States, where there was a borrowing splurge in the 2000s, but the specifics – the long ‘maturities’ of the bonds being used in the UK – of the financial instruments make a big difference.


Maintenance Grants scrapped

My first post of 2016 moaned about the democratic deficit plaguing higher education reform.

Yesterday, 18 MPs gathered in a House of Commons meeting room to form a Delegated Legislation Committee. By 10 votes to 8 they voted to scrap all maintenance grants for new undergraduates in 2016/17. The voting followed party lines – the committee make-up reflecting the balance of political party presence in the Commons.


There will apparently now be a debate in the House of Lords, though I am not sure what force any associated vote might have. (Constitutional experts please chip in).


Gordon Marsden, now Shadow Minister for Higher & Further Education led the small-scale debate yesterday. A shorter version of his talk can be found online.


Unfortunately, he showed little mastery of his new brief leaning heavily on some numbers taken from an IFS response to July’s Budget.


Removing grants makes even less sense when you consider the Institute for Fiscal Studies conclusion that ‘this change won’t improve Government finances in the long-term.’ They went on to say ‘the replacement of maintenance grants will raise debt for the poorest students, but do little to improve government finances in the long run. The net effect is to reduce government borrowing by around £270 million per cohort in the long run in 2016 money – a 3% decline in the government’s estimated contribution to higher education.’  It’s therefore important to ask the why the government is embarking on this leap in the dark which will, as the IFS makes clear, diminish their contribution to HE while doing little to address the black hole?
If Marsden had read the full IFS paper, he would have known the answer to his question: freezing the loan repayment threshold transforms all these figures for savings. Converting grants to loans and combining it with the freeze achieves short-term presentational gains to borrowing and boosts the projected flow of cash back to Treasury, so improves finances in the long-run too.
Whatever the merits of Marsden’s other points about higher debt impacting negatively on participation, there’s no ‘leap in the dark’ in fiscal terms. By freezing the loan repayment threshold for all borrowers (who started since 2012), BIS has set a precedent that allows future governments to actively manage the ‘loan book’. To continute to talk of a ‘black hole’ misunderstands this change to the fundamentals.
In related news, Martin Lewis has written an open letter to David Cameron objecting to the retrospective changes levied on borrowers.  Lewis is also currently consulting lawyers with a view to backing a judicial review of the repayment threshold freeze. The following two paragraphs get to the heart of the issue.

As you may be aware, I have engaged lawyers who are currently looking at whether this change can be challenged legally. Yet this is just as much a moral issue as a legal one. A retrospective change will destroy any trust current and future generations can have in the student finance system, and perhaps, even more widely, in the political system as a whole.

The repercussions of this loss of trust may be far-reaching. Although I had reservations about the student finance changes made in 2012, I always believed it was more important to explain the practical realities of the system so no student was wrongly put off due to misunderstandings. But how can anyone in good conscience now explain student finance to young people when the system can be unilaterally changed, even after they’ve signed their loan contracts?

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Belated views on Autumn Statement

Apologies – December was very busy for me with other projects and I forgot to add links here to two pieces I published with wonkhe relating to the Autumn Statement.

The first reveals a striking absence from the Statement: BIS has not yet been given a specified budget allocation to cover the ‘impairment’ on new student loans (the difference between the cash used to create them and the estimated value of the loans as a financial asset that generates future income).
That piece also discusses what this blog has been detailing for some time: there are continuing problems with the planned sale of income contingent student loans from the early 2000s to the private sector. A sale was postpoined again in November – Osborne will therefore miss his target of achieving the first sale by March 2016.

The second repeats an analysis already made on this site: the government has now created a ‘tax on social mobility’ through its changes to student maintenance support and the loan repayment threshold. High earners who come from poorer backgrounds will now pay more for undergraduate study than their richer peers.

As an aside, the retrospective freezing of the loan threshold appears to have been the quid pro quo for lifting the age restriction on post-graduate loans and extending maintenance loans to part-time students from 2018.





Graduate earnings data & Teaching Excellence

Happy 2016!

English HE is once again preparing for the possibility of imminent primary legislation, though voices in the sector are worried that, as in 2012, a planned Bill may fail to appear. Oliver Letwin is one in Cabinet who is championing the advantages of the low-key, piecemeal approach we saw between 2011 and 2015.  (I have previously characterised this manner of avoiding scrutiny as contributing to a ‘democratic deficit’.)

Many of the measures outlined in the Autumn’s Green Paper can be effected without primary legislation. The major aspects of the proposed Teaching Excellence Framework included.

Jo Johnson favours moving towards the TEF using three initial metrics:

After informal discussions with the sector, we believe at present there are three common metrics (suitably benchmarked) that would best inform TEF judgements. We propose initially to base the common metrics on existing data collections:

  1. Employment/destination – from the Destination of Leavers from Higher Education Surveys (outcomes), and, from early 2017, make use of the results of the HMRC data match.

  2. Retention/continuation – from the UK Performance Indicators which are published by Higher Education Statistics Agency (HESA) (outcomes)

  3. Student satisfaction indicators – from the National Student Survey (teaching quality and learning environment)

Fulfilling Our Potential: Teaching Excellence, Social Mobility and Student Choice, paragraph 12

The reference to ‘HMRC data match’ in number 1 may be a a bit obscure, but we can supplement it with a note recently published by the Higher Education Statistics Agency (hit tip, wonkhe), which wrote to the BIS Committee in December.

You may also wish to know that, reflecting growing use of data about the destinations of leavers from HE, we are currently reviewing national requirements for information. Our aim is to replace the current Destination of Leavers from Higher Education (DLHE) survey, and the Longitudinal DLHE, in 2017. We aim to improve data quality and reduce the burden of collection, by linking to HMRC data made available under the Small Business, Enterprise and Employment Act. We will also utilise improved links back to our student data to enhance our understanding of the paths students take into and through study, and on to their next destination.

The HMRC data made available by the Small Business, Enterprise and Employment Act (SEE) refers to graduate salary, and hence loan repayment, data.

Last year, in a paper for Goldsmiths’ Political Economy Research Centre I described this ‘human capital’ metric as key to the next phase in Higher Education policy:

      if the Treasury funds HE education because students acquire skills and knowledge that ought to boost their productivity, then courses and institutions should be evaluated according to whether they do indeed provide training which does that.

Productivity would then by captured by earnings data. The SEE Act makes it possible for such metrics to be included in Key Information Set data provided by institutions; the TEF would link it to tuition fee levels. The first is already law, the second could be done using existing powers.

I understand that many want to keep an open mind about initiatives to improve education, but the TEF is skewed towards training.






TEF & fee increases

For many, the Higher Education Green Paper‘s central component will be the proposals to link the Teaching Excellence Framework to the ability to set undergraduate tution fees from Home/EU students above £9000 per annum.

What detail there is appears on pages 29 to 30 of the document. Here are the relevant paragraphs:

We propose that fee cap and fee loan cap uplifts will apply at an institutional level for reasons of simplicity, lower bureaucracy and to provide an incentive for an institution to maintain and improve all its courses. After the first year (see “Starting the TEF: Years one and two in Chapter 1), and over time, we would expect fees to increasingly differentiate according to the TEF level awarded.

We anticipate that Government would set a maximum fee cap to correspond to each TEF award level, i.e. a maximum fee an institution can charge if it is assessed as level 1, level 2 etc. The Government would not pre-set a formula for this fee uplift, but would set the uplift each year, maintaining the current model of basic and higher amounts, and not exceeding real terms increases. Institutions would be able to charge fees up to the maximum of their current TEF level fee cap. This would be regardless of their TEF performance in previous cycles, so institutions will not be able to ‘bank’ increases gained if they performed better on the TEF in previous years. We do not envisage the fees charged to individual students changing during their course.

I find the second paragraph extremely difficult to unpack. It is not clear that it bears careful reading as it has the hallmarks of being compressed from a longer original explication. But this is the basis for Question 9 on the consultation:

Do you agree with the proposed approach to incentives for the different types of provider?

In “Year 1”, 2017/18, the maximum tuition fee cap would increase in line with inflation for those HEI’s that have a satisfactory Quality Assurance report. After that, the government is proposing to bring in the additional ‘TEF award levels’. The question is: what incentives does the government believe will be put in place by these extra levels?

A BIS spokesperson told me:

The Teaching Excellence Framework would allow those universities who offer high quality teaching  to increase their tuition fees in line with an annual fee cap up to but not beyond inflation. Among the proposals, one possibility is to link the levels of TEF attained by institutions to different fee levels within the inflationary cap.  These proposals form part of a consultation on reforms to the higher education landscape, which runs until 15 January 2016. (my emphasis)

That is, after 2017/18 it appears that only the highest TEF award level available would attract a “full” inflationary increase, while other levels would attract fractions of that as increases.

I cannot see that this is sufficient incentive for established universities to change their approach (if any such change is needed). Such tiny increases in tuition fees mean that universities have a much stronger incentive to recruit additional students than to concentrate on scoring well on ‘contact hours’ and ‘small group work’ (two potential TEF measures).

And if you work in HE, then pay bargaining is going to be a dismal business for the foreseeable. As I noted for wonkhe, the OBR has repeatedly stressed that university teaching income needs indexing to average earnings, not (fractions of) Consumer Price Index, the likely measure of inflation.

At present, CPI is negative – minus 0.1%. Ironically, next month sees 2012’s tuition fee increases drop out of the CPI measure. That means 0.22 percentage points of ‘upwards pressure’ will be removed making it less likely that CPI will be back above zero for a while.


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