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Talk: The New Higher Education Settlement (Keele, 20 October)

The New Higher Education Settlement: Does it Add Up?

This summer’s White Paper for Higher Education, Success as a Knowledge Economy represents a new settlement for English universities and colleges.  The White Paper heralds an intervention in settled notions of institutional autonomy and academic freedom as powers will be extended to establish a market for quality.  The three-pronged justification for this reorientation is degree inflation, student dissatisfaction, and employer complaints about graduate abilities.  Lurking in the background a further dimension has become clearer – the government as investor has not seen the expected return: an increase in graduate salaries.  At the same time, the expansion of undergraduate places over the last two decades has not been accompanied by the predicted increase in British productivity, despite successive governments’ faith in the generic value of a degree in human capital terms.

In this context, the government has commissioned research into the ‘value add’ of particular degrees and institutions which will dovetail with the development of new metrics and measures for the later phases of the teaching excellence framework, including tests for generic learning gain.

This talk will outline these developments and the contours of the next decade of HE policy as it is motivated by the government’s economic and financial considerations and what the resulting new ‘financialised’ framework will mean for the sector

Date: Thursday 20 October
Time: 1-2pm
Venue: Keele Hall – The Salvin Room      Keele University

The talk is free and open to all.

More details here

Sale of Student Loans

The 2015/16 BIS accounts state that a first sale of ‘pre-2012’ income contingent student loans is planned for 2016/17.

For the first time, the BIS accounts breakdown the loan book into ‘pre-2012’ and ‘post-2012’ loans, providing separate fair and face values for each category.

Click on image to enlargepre-post-2012-loans

The fair value of loans earmarked for potential sale is therefore £34bn and BIS was aiming to raise around £12bn from a five-year sale programme.

It is important to note that the fair value – what the government thinks the loans are worth – is not what will be used in a value for money test. This is because the government uses a much higher discount rate to assess VfM: a sale could represent a substantial loss to government but still go ahead, since a higher discount rate means a lower valuation for future money.

Page 75 of the 2015/16 accounts:

Under accounting policies the amortised cost discount rate (currently 0.7 per cent) applies whereas the Department has agreed with HM Treasury that any decision to retain or sell an asset on the balance sheet the applicable discount rate is the social time discount rate (currently 3.5 per cent). The Department will also explore options to sell Green Investment Bank and the Government’s 33 per cent shareholding in Urenco.

The decision to change the reporting discount rate for student loans has sidestepped the dominant political debates about the sustainability of student finance with a classic accounting move, but this means that a central pillar of HE policy – selling the loans to clear the balance sheet and lower national debt – becomes less ‘presentable’.

Remember that the government only raised £3.3bn from the sale of Royal Mail shares and was thought to have missed out on millions. The government is entertaining an annual process that would generate more losses each year – but it’s hoping no one will pay too much attention.

For illustrative purposes here is a simple cash stream (£10 per year for 10 years) discounted at the two different rates (using RPI of 2.8%). You can see that an asset worth £83 would pass a VFM sale test if someone offered £72.


Click on image to enlarge


(ps this was updated as my original spreadsheet used the old plus 2.2 discount rate rather than the plus 3.5 VfM discount rate)


Headlines from the BIS accounts

The 2015/16 annual accounts for now-defunct BIS were published back in July. They covered the financial year to 31 March 2016 (which can cause some confusion when comparing with other figures, such as SLC, that operate on the academic year).

Figures inside represent the first official updates to student loan estimates, valuations and projections since the Autumn, when the government confirmed it would freeze the loan repayment threshold for five years and lower the official financial reporting discount rate for loans to RPI plus 0.7% from ‘plus 2.2%’.

These measures were designed to secure the ‘sustainability’ of the student loan scheme and when combined they boosted the fair or carrying value of the student loan book by over £8bn.

At the end of March 2015, existing student loans had a face value of £64bn (what was nominally owed to government) and were expected to generate repayments equivalent to £42bn (‘fair’ or ‘carrying’ value) in net present value terms.

By the end of March 2016, the face value of the book had increased to £76bn with a fair value of £57bn, an increase for the latter of £15bn on the back of only £12bn issued in new loans. (FE Advanced Learner Loans account for £160m of the year’s new issuance).

The accounts report that the official RAB estimate for new loans issued is 23% (down from over 40%) and that the Treasury has set a target RAB of 28% (down from 35% to reflect the rebasing that the discount rate change has produced.

In a separate email, the BIS press office confirmed to me that the RAB allocations given to BIS in the 2015 Autumn Statement have been replaced by the following, which will pass over to DfE.

RDEL £bn
2016-17           2017-18             2018-19            2019-20

   3.4                       3.8                       4.2                      4.5


Theresa May on international students

The Times reports today that Theresa May’s government is looking at ways ‘to examine how to reduce the number of international students coming to the UK’. This will require universities to develop funding models ‘not so dependent on international students’. (I teach once a week in one where 30% of its income comes from international fees).

It’s worth recalling the speech May made when she was Home Secretary to the 2012 Conservative Party conference. This took her spat with the BIS ministers public at the height the London Metropolitan University visa controversy.

They argue that more immigration means more economic growth. But what they mean is more immigration means a bigger population – there isn’t a shred of evidence that uncontrolled, mass immigration makes us better off.

… They argue, too, that we need evermore students because education is our greatest export product. I agree that we need to support our best colleges and universities and encourage the best students to come here – but to say importing more and more immigrants is our best export product is nothing but the counsel of despair.

We were elected on a promise to cut immigration, and that is what I am determined we will deliver.


Has the number of English students entering HE who were educated in state schools fallen? No.

Earlier this month, the Department for Education published a report on widening participation in England which compared entrants to HE by whether students were state-educated or privately educated.

The results in this report were widely reported as showing a recent fall in the number of state school students starting HE by 19 between 2010/11 and 2013/14. The Guardian’s coverage in particular linked this claimed fall to the introduction of higher tuition fees in 2012. (1) The claim has now been picked up by the two Labour leadership candidates.

This interpretation of the report is incorrect. Numbers entering HE by 19 remained stable at around 185,000 to 190,000 during a period when universities had recruitment capped.

So what does the report say?

70% of A level and equivalent students at state schools aged 17 in 2008/09 had entered HE by 19 in 2010/11. This dropped to 62% for the equivalent students by 2013/14.

The percentage change is due not to a fall in numbers entering HE (the numerator) but a large change in the denominator: the numbers of 17 year-olds in post-16 education increased significantly between 2008/09 and 2011/12.

Here are the relevant tables (the ‘Total state’ row is the relevent one):


201011 state

Number progressing to HE from all state schools = 186,065
Total aged 17 studying for A levels or equivalent =   264,230

Percentage = 70%


201314 state

Number progressing to HE from all state schools = 187,075
Total aged 17 studying for A levels or equivalent =   300,905

Percentage = 62%

As you can see, the numbers of state school educated students going into HE by 19 has increased very slightly. You might reasonably argue that this percentage is too low (85% of privately educated students continue to go on to HE), but this is very different from claiming a fall in state-educated HE entrants that can be attributed to tuition fees.

The real test on this particular measure of widening participation is what results from uncapping recruitment and the expansion of providers.


(1) I wrote to the Guardian last Monday requesting a correction but no response has been forthcoming.



An Apology & House of Lords Economic Affairs Committee

I must apologise for the lack of posting on this blog over the last two months. I fell ill in mid-May and spent a month in hospital. I am still recovering so posts over the summer may be irregular.

I published two articles with wonkhe on the HE White Paper just before I fell ill.

Ten Things you might have missed about the White Paper

The challengers (and challenges) in higher education market reform


Update: unfortunately I am not well enough to attend the EAC today but you can watch the session here

This coming Tuesday (5th July) I am scheduled to appear before the House of Lords Economic Affairs Commmittee, which is holding an evidence session on student loans. Also appearing will be Nick Hillman (HEPI) and Steve Lamey, chief executive of SLC.

Venue: Room 1, Palace of Westminster

Time: 3.15pm start


SLC loan repayment calculator is being fixed

The SLC have confirmed to me that they took down the loan repayments calculator ‘temporarily’ for ‘maintenance and enhancement’.

In a separate statement to Radio 4’s Moneybox (who will cover the story today at 12 noon) they confirmed that ‘The Repayment Calculator changes will provide a more general reflection of earnings, that will not be based on male only.’

As analysed on here previously, the SLC loan repayment calculator made two serious errors:

  • it overestimated male graduate salary pathways leading to early annual salary increases of over 15 per cent each year;
  • and assumed all applicants were male.

It also failed to update its information on average graduate earnings, missing that the the figure had dropped from 4.4 per cent to 1.9 per cent recently and that OBR had revised down the long-range projection of that figure to 3.5 per cent. But this point is secondary since the graduate salary pathways were based on annual percentage increments applied on top of the annual increment due to rises in average earnings.  For more detail see the original post were I outlined the problems.

The end result was that the SLC’s official calculator was overestimating likely loan repayments.

Why is a more significant problem?

Firstly, it leads to misunderstandings of the loan scheme. Secondly, by presenting SLC loans – which are subsidised by government – as more expensive than they are likely to be, the SLC may lead applicants to consider alternative means of financing study. Private loans, which are not subsidised and must make a return for their backers, can only present themselves as a cheaper alternative to SLC loans, if the SLC trades in overestimates.

The repayment threshold in SLC loans protects borrowers with lower earnings – this is why I have long argued that political efforts should centre on protecting such features more than arguments about the level of tuition fees. The recent decision to freeze the repayment threshold will have much more impact on the repayments of lower and middle earners than the decision to abolish maintenance grants. (NB: if you have never seen the figures supporting that case, you should follow the link).

It only remains to say one thing – an awful lot of academic and think tank work (as well as other calculators) has been based on the SLC calculator (which was also hosted on directgov). All these studies and analyses are flawed and didn’t ask basic questions about the likelihood of these very high cash totals that the calculator was generating.

For example, it is not uncommon to see claims that the average borrower will repay £100,000.

Here’s the kind of questions borrowers and analysts should ask when they see such figures. What must I have earned to repay such amounts? (A major flaw of the SLC presentation was it didn’t show applicants the earnings pathway underpinning the repayment estimates)


let’s say £100,000 is repaid over 30 years. That’s £3,333 of repayments per year. To repay £3,333 at present you’d have to be earning over £58,000 (3,333 / 0.09 + 21,000).

Now bear in mind that the £21,000 repayment threshold in these models is increasing by average earnings from 2020, so 4.4% every year for the disgraced SLC model! leading to a threshold over £60,000 itself at the end of the repayment period. To generate an average of £3,333 in repayments over 30 years takes some very big salaries. How likely is that for every borrower or even for the average borrower? (Only if inflation is such that our present reference points are largely meaningless.)

To repeat a basic point, income contingent repayment loans are unfamiliar loans. They do not behave like fixed period loans (or ‘mortgage-style’) loans.

Repayments are contingent on earnings, so you should always ask, ‘what earnings model underpins these figures?’ and ‘what percentage of income is repayable each period?’ – that is invariably more important that the starting debt or interest rate (two aspects of fixed period loans that do not have the same significance here).