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Value for money report needed for Alternative Providers

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.

 

 

 

 

Measuring student progression

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.

NAO’s ‘drop-out rates’ are constructed from SLC data – they show full-time students who received for funding but withdrew without completing a full year of study. That is, their SLC payments were stopped at some point. It is not a measure of ‘non-completion’ as the Higher National Diploma, for example, is a two-year course. So if the drop-out rate is 20 per cent that does not mean 80 per cent complete the course of their studies. Completion, of course, is different again from passing.  NAO notes that nobody is monitoring completion or success rates for qualifications.
HESA’s ‘non-continuation’ rate is different again. It scores the number of students enrolled at the beginning who do not return for the start of year 2. This will be higher than the NAO drop-out rate, because it includes students who complete a full year of academic study but choose not to come back. For example, NAO has an average drop-out rate of 4 per cent for established universities, but a non-continuation rate of nearly 8 per cent. For mature students that rises to 12 per cent on average. As can be seen from the data, many of those who do not continue at a particular institution have transferred elsewhere.
Update 11 December 2014
It again conflates HESA’s non-continuation measure with NAO’s ‘drop-out rate’ but adds further confusion by suggesting that Student Loans Company data,
‘… 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.’
This may or may not be the case. However, this should not lead readers to conclude that the 2011/12 and 2012/13 drop out rates provided by NAO include the 5 500 students in 2013/14 who were found to have made ineligible maintenance applications to SLC. We do not yet have NAO drop-out rates for 2013/14: they are likely to be much worse.
It is also worth pointing out that Open University’s part-time students do not attract maintenance support in the same way as full-time HND students.

HE Commission report on the financial sustainability of English HE

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.

Alternative provider expansion – latest annual data from Student Loans Company

Today, the Student Loans Company published its annual ‘First Release’ on the amount of student support issued in the preceding academic year to students in English higher education. The report reveals that roughly 960 000 borrowers accessed £1.59billion in Maintenance Grants (a rise of 11% on 2012/13), £3.72bn in Maintenance Loans and £5.89bn in Tuition Fee loans giving a total of £11.2bn. Of that a proportion went to students studying at ‘alternative providers’. In 2013/14, those students received:

  • £133.3million in Maintenance Grants
  • £246m in Maintenance Loans
  • £192m in Tuition Fee Loans

To give a total outlay of £571m. That’s some rise on the equivalent figures for when the Coalition took over (£30m in 2009/10; £42m in 2010/11). And that’s despite the government intervening to suspend funded recruitment at the fastest growing colleges in November 2013. There’s also a proviso:

The 2013/14 payments are not yet final and will be revised in next year’s publication. This is partly due to the alternative provider subset being subject to significant movement due to later course start dates.

Alternative providers do not just recruit in September (or February) but throughout the year in some cases. Data for those enrolled in, say, July would not yet be included in that £571m. 2012/13 figures are a case in point. This time last year the amounts were published as:

  • £66m in Maintenance Grants
  • £119m in Maintenance Loans
  • £85m in Tuition Fee Loans

To give a total outlay of £270million. The new report revises up that total to £386m. That is, last year’s figures were ultimately out by £115m. Total outlay in 2011/12 was only £120m. The new breakdown for 2012/13 is:

  • £73m for Maintenance Grants
  • £180m for Maintenance Loans
  • £133m for Tution Fee Loan

Both loan figures were out by £50-60m.

Update – 28 Nov 2014

I neglected yesterday to include figures for numbers of students at private colleges accessing SLC funds. Here is the data for tuition fee loans.

2010/11         4,700

2011/12         9,800

2012/13       29,200

2013/14       45,000

Regulatory bodies and private providers

Times Higher Education has published an article by me on the regulation of HE’s ‘alternative providers’.

This caps the work I did with the Guardian earlier in the year by giving adding a policy dimension to those stories.

Observer article on loans

Here’s a new article for the Observer.

Please ignore the ‘standfirst’ summary added to the online version – there are viable alternatives but the political imaginery is circumscribed by loans.

A longer version can be found here.

And see here for more information on how the accounting for student loans was changed in April.

Mortgage-style student loans – the repayment threshold goes down !??!?

In November last year the government sold its remaining ‘mortgage-style’ student loans to Erudio. These loans were available to those starting HE between 1990 and 1998 as replacement for student grants. At the time, outstanding balances on those loans were roughly £900m.

Unlike student loans now being issued, these loans are fixed-period repayment loans meaning that outstanding balances must be repaid within 5 years once an earnings threshold is crossed.

The 1998 Education (Student Loans) Regulations specify that threshold as

‘85% of the lender’s estimate of average monthly earnings of all full-time employees in Great Britain for the January when the level will apply based on figures published by the Office for National Statistics’

Each September a new threshold is announced and borrowers are able to apply for deferral. In September 2013, the threshold was £28 775, much higher than on other student loans and one reason Erudio paid much less than the face value of the outstanding balances.

BIS continues to calculate the repayment threshold each year. The figures applies to the loans bought by Erudio but also those sold in the 1990s and now owned by Thesis Servicing.

The 2014/15 threshold was announced at £26 727 and came into effect on 1 September.

That’s a drop of over £2000. Since wages are not falling that looks very odd.

A BIS spokesperson told me:

“The repayment threshold for mortgage style loans will be £26,727 from 1 September. The threshold is calculated annually by BIS using earnings data published by the Office for National Statistics (ONS). This is set out in legislation and outlined in borrowers’ loan credit agreements which are regulated by the Consumer Credit Act 1974. As a result, neither BIS nor any third party are able to alter these terms.

“The threshold has reduced as a consequence of the reduced earnings growth indicated by the ONS data.”

Now reduced earnings growth is not a decline in earnings (or negative earnings growth, if you must). So it’s still hard to see what has happened.

BIS kindly provided me with their calculations.

BIS aim at estimating the Annual Mean Earnings found in the Annual Survey of Hours and Earnings (ASHE). Unfortunately there are lags in the publication of data which means that when trying to estimate a figure for 2014/15, BIS only has the ASHE data from April 2013 to go on.

So BIS uses monthly data about average weekly earnings which is provided more regularly and with much less delay (also ONS data) to estimate the likely increase in mean annual earnings over the next 21 months (Jan 2015 is the target in this case). BIS focuses on the weekly earnings data for April each year to get a year-on change.

The culprit is clear: April 2013 average weekly earnings are anomalous because of a large amount of bonus payments (following the abolition of the 50% tax rate for higher earners). The figure jumps to £484 pw from £472 pw (Apr 2012) but has now settled back to around £478 at present. If you just use those data points, it looks as if there were large wage increases in 2012/13 but that we have then had declines in income; since BIS then projects that trend forward into 2015, the effect is magnified.

On that basis, BIS has looked at the average annual earnings in April 2013 – £32 370 – and has projected, on the basis of the change in weekly earnings, a decrease of 1.65% per year over the 21 months to January 2015 to give estimated average annual earnings of £31,444. This then generates the repayment threshold for 2014/15 of £26 727.

But this is unreasonable – the ONS data overall shows a small but steady increase over the relevant period – roughly 1.9% pa, which would give a Jan 2015 figure of £33 464 and a 2014/15 repayment threshold of £28 444. A threshold £1717 higher.

That is a significant difference. Moreover, you won’t find anyone who thinks the ONS data supports the official figure. BIS have used the same calculation as every year but not used common sense to correct for a clear anomaly.

I do not know how many people might be caught out here for the next year (before the threshold ‘corrects’), but I do know they will face having to pay back at least one fifth of their debt over 12 months before they can get a new deferral – that could be over £100 per month.

Obviously the sales have complicated matters, but nothing in the legislation or loan agreements specifies the particular calculation used by BIS.

You could argue that by sticking to the method they have always used they have in fact gone against the legislation.

BIS have ended up using the only ONS data point which would indicate a decline in earnings.  BIS are meant to be estimating the ASHE figure for 2015 but have reached something mechanically that no one believes to be reliable. Prima facie that looks unreasonable and ought to be open to challenge under consumer credit legislation.

BIS have promised to provide me with further comment on Monday.

Update

This blog was updated on Friday afternoon to reflect the fact that the BIS calculation is used for loans owned by Thesis Servicing as well as those bought recently by Erudio.

Second Update

An expanded version of this blog with updates from BIS and NUS appeared on the MoneySavingExpert website. It includes a discussion page.

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