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About this blog

As a freelance writer (who does a bit of hourly-paid teaching in philosophy, mathematics and programming), I run this blog on a voluntary basis with no commercial or outside support.

I aim to provide an alternative take on English HE with a focus on finances and have provided about 20,000 words per year since I started 2011. The site has broken several national stories and has more recently led the way in uncovering the fiscal illusions in student loan accounting and how they skew policy decisions like the recent securitisation.

If you want a view on the accounts and finances at a particular university, I will consider requests.

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Please see About page for more details.


Fiscal Distortions – rolling loan cohorts & national account implications

I have in a previous post explained the basic presentational advantages accorded to student loans under national accounting conventions. In particular, a graduate tax with identical cashflows and therefore long-run costs would have a completely different impact on the deficit measure, which the government targets in its fiscal mandate.

Because a loan creates an asset (money owed to government), interest accruing against the outstanding balance counts as income (though it is receivable, not received) and write-offs, when they occur, count as capital expenditure. The net effect – the difference between the two – equates to the loss (or surplus) made on the loans issued for a particular cohort.

For a graduate tax, there is no asset, only a policy, and so a graduate tax cannot exploit the conventions governing loans as “financial transactions”. For that identically costing graduate tax, annual outlay counts as current expenditure and repayments count as income.

As explained before, the timings therefore flatter the student loan scheme: Annual Interest Accrued is recorded as income every year and the expenditure item occurs only at the end, when accounts are closed and balances written off.

For the graduate tax, the opposite happens: expenditure is recorded first and then gradually undone by payments coming in.

If you suffer from deficit fetishism, or just opportunism, then this rules out a graduate tax.

I have explained this before. It forms part of what the Office for Budgetary Responsibility calls a ‘fiscal illusion’. (In its most recent Economic & Fiscal Outlook, OBR again complained that the treatment of student loan interest ‘does not reflect fiscal reality’.)

The problem arises because here the government exploits international accounting conventions on loans. They are designed for loans which are repaid in full and in particular loans where periodic repayments at least match interest accruing. The conventions were not designed to cope with income contingent repayment loans with large subsidies.

As a result, the Treasury Committee has asked the Office for National Statistics to review the accounting treatment for student loans:

The Government is not responsible for the international accounting rules that allow the fiscal illusions within student loans to exist. However, the National Accounts accounting rules regarding financial transactions were not intended to be used for loans that, as the Government readily promotes, are designed to not be paid back in full. Loans that are intended to be written off are, in substance, a partially repayable grant rather than a loan. The ONS should re-examine its classification of student loans as financial assets—which they are in legal form—and consider whether a portion of the loan should, in substance, be classed as a grant.
Paragraph 31, Student Loans

Here, I want to underscore two further points using OBR figures.  Read more…

Real interest rates – submission to Treasury Committee report

I recommend reading the Treasury Committee’s report into Student Loans. It was published last month and is based on a series of hearings held from October to December.

I prepared a couple of private submissions before my appearance as a witness. Unfortunately I neglected to “OK” them for publication afterwards. One was on the background to interest rates on student loans; the other a briefing on accounting.

I have covered the accounting on here in detail but the interest rate piece summarises some thoughts that came together at the time. The pdf below gives some background to the following extract from the Treasury report:

The Committee also took evidence from Dr Andrew McGettigan who, when asked about the interest rate as a mechanism to introduce a degree of progressivity into the student finance system, argued that this was not the Government’s original intention.
(page 17)

The exchange referenced above can be seen in the following extract from the transcript.

Rushanara Ali: Do you agree with the IFS that the high interest rates will act as a redistributive tool from higher earners to lower earners? That is what the evidence seems to be pointing to as well. Do you have any further comments to add to that?
Dr McGettigan: I do not think that is what it was meant to do. There is some careful distinction to be made between whether we think higher earners are repaying more than the equivalent of what they borrowed in the first place, so you make a little surplus on them and that cross-subsidises the scheme and brings up the average. The original  design was very careful to minimise the number of people who were going to be repaying more than they borrowed and the extra surplus they would be repaying.
Rushanara Ali: The Government has been accidentally progressive. That is interesting.
Dr McGettigan: This is what I mean about a series of piecemeal decisions. On the original loan scheme, the discount rate was RPI plus 2.2%, which is in the ballpark of an interest rate taper from RPI to RPI plus 3%. When you change the discount rate down to RPI plus 0.7%, all of a sudden you are making a spread and the additional interest that is being repaid is much larger. You have not changed your projection of cashflows, but you have changed how you value those cashflows.
People will not feel it in their pocket, but you are saying, “I value those repayments higher now, so I am making less of a loss”. When you look at it in terms of “Am I getting more back from them than I lent to them?” it will look like that, because you have pushed up the value of all those repayments.
One thing about the design of the interest rate taper was it was tied to this idea that the cost of borrowing was RPI plus 2.2%. You can see that in the extract from the Browne Report I put in my written submission. They were suggesting an interest rate at RPI plus 2.2% in the Browne Report, and we have got one of nought to three. The discount rate change in 2015 has altered this profoundly, and not because it was a planned decision to try to introduce a redistributive element to the payments.

Rushanara Ali: Whether it happened deliberately or accidentally, we are where we are. What is your assessment of this tool, as a more redistributive mechanism for financing, given that 40% of the lower earners would be better off than the pre-2012 system? If you disagree with it, what is the alternative? What might be the alternative to this model?
Dr McGettigan: At the moment, I do not understand what it is trying to achieve anymore, because it has been divorced from the discount rate. That is my first point. Is it there because it is an incentive for higher earners to make additional voluntary repayments? The Treasury has a preference for cash today, as we know from the sale. If you have a real interest rate, is it signalling to borrowers that they should consider making additional repayments over and beyond what is demanded of them each month? That may be part of the design.
The other point is, if you lower the interest rate, the people who will benefit are the highest earners. That is clear. It is a regressive move in that technical sense.
Presentationally and optically, it [the current interest rate] is awful. You are having people making decisions: “Should I look at alternative finance options? Should I remortgage for the sake of my children, because I can get a lower interest rate?” In my opinion, those questions should not even be on the table. No one should be asked to make that kind of decision. The loan scheme should be clearly the best deal out there. No one should be taxing themselves to work out between the options.

Dr McGettigan: I have one very quick point: the interest rate on pre-2012 loans is recognised to be an impediment to their sale to the private sector, because it is below RPI. Another thing you have to factor in here is whether the overall real interest rate design is also because it is much closer to a private sector preference for potential purchase of post-2012 loans if they are ever offered to market.

PDF: Real Interest Rates on Student Loans REVISED

Talk – Where did it go wrong for the English fee-loan regime? (KCL, Wed 28 March)

Where did it go wrong for the English fee-loan regime?

King’s College London
Wednesday 28th  March 2018  17.00 – 18.30

Venue: Bush House
Room: NE -1.01

Introduced as part of the Coalition government’s austerity programme, “post-2012” undergraduate fees were given a more substantive rationale when student numbers controls were lifted from universities in 2015. The shift to loans was presented as central to ending the rationing of full-time places for Home and EU students and the new regime was trumpeted as a triumph of secure, sustainable funding.

Just three years later and terms on loans have been changed twice, before even two full years of graduate repayments have come in. Now the government has announced a major review, backed by an independent expert panel.

This talk will outline what’s going on in terms of the politics, the finances and the accounting and set out the likely implications for undergraduate teaching for 2019 onwards.

Whatever Happened to the Polytechnics? Part IV – Concluding Comments

Here’s Lord Stevenson speaking in the House of Lords in April 2017:

“Where are the policies to reinvigorate part-time provision? The collapse in enrolments at Birkbeck, University of London and the Open University coincided with the hike in course fees and the introduction of maintenance loans. No real change in approach is signalled in the higher education Bill or in the Technical and Further Education Bill, which passed through this House yesterday. … So we have a policy approach which will not work: a system of fee increases, and thereby personal borrowing increases, which will not enhance social mobility or improve part-time provision.”[1]

By cutting all teaching grant to institutions, part-time study is hit because the fee is pro-rata and loan eligibility is restricted and other funding has dried up. In 2012/13, two-thirds of part-time students were ineligible for loans and the proportion getting employer support with fees declined by 35 percentage points (Callender, HEPI October 2015).

Those students were ineligible for loans also because of the Equivalent and Lower Qualifications regulations brought in 2007. ELQ at the time removed direct teaching grant funding for students who had already studied at an equivalent and higher level and prevented them from accessing loan support. Combine with the new fee regime which allowed part-time fees up to £6750 and part-time study becomes exorbitant.

There has been a partial reversal for ELQ – but only for part-time degrees in STEM subjects[2] – not for non-STEM and not for institutional credit, certificates or diplomas etc.

If we are thinking about retrainees – are they more likely to need another full degree or something else?

Wolf further notes that the flaws in the generalised loan logic can been seen with Advanced Learner Loans: their introduction ‘is associated with a near-halving of enrolments at level 4.

“In 2013-14, £115.8 million was paid out for advanced learning loans. This was the first year – but in 2014-15 only a little more, £149 million, was taken up, out of the £397m allocated. Moreover, 94 per cent of the loans were for adults taking qualifications at level 3 and only 6 per cent for level 4.” (ibid. p. 54)

Here, rather than more loans, I see the need for a new set of institutions given a different set of funding incentives to focus on undergraduate-level provision but with a focus on part-time, lifelong and retraining and a commitment to making students a priority, pace Eric Robinson, before subject discipline, research, employer demands or state. Civic, participatory institutions.

Perhaps what I have in mind are something like US community colleges, which provide general tertiary education and the kind of systematic careers guidance which was promised in the 2011 HE White Paper, but never delivered. I see such institutions as receiving direct grant and being thereby an alternative to various voucher schemes.[3] In this way, headline part-time fees would be cheaper than pro rata’d full-time ones.

If Labour is serious about reforming higher education, creating a National Education Service and abolishing fees, it will need to do so by focusing on supporting a different kind of provision rather than the blanket support of existing institutions and provision. Labour’s mistake before the 2015 election was to highlight the cut in full-time fees to £6000 without explaining how that could have beneficial implications for part-time and lifelong study. It is only by reorienting to lifelong, universal provision that a reduction in fees is more than a saving for the future high-earners.

Politically, any government seeking to undo the changes of the last 5-10 years will have the unenviable task of facing down Oxbridge and the Russell group universities. The attraction of the fee-loan regime is clear – the autonomy, the lifting of recruitment caps and prestige. What I am thereby proposing would perhaps mean a new binary in terms of funding. Full-time away from home academic degrees funded on the fee-loan model, but a separate class of institutions concentrating on flexible provision and joining up with FE.

Some former polytechnics and newer universities may want to revert to a teaching focus with a better set of incentives for part-time and flexible. Some FE and adult education colleges – such as Newcastle College, my hosts this evening –  may also be able to come into such a setup. As with the formation of the original polytechnics, families of institutions could be brought together as is happening at London Southbank University.

There will be objections to a move away from a unitary system – but we don’t have the level playing field our ideologues suggest – it is an abstract equality that ignores disparities of wealth and opportunity. We need to “level up” education at the neglected end.

There are though a couple of key messages that should also be addressed – pay and governance. There are lessons to be learned from the failures of local authority involvement in the polytechnics, but we also cannot be sanguine about university-style governance, particularly as universities extend their reach into public services (for example, sponsoring and running schools). University governance is not democratic and the only social control is the attenuated semblance of such: consumer pressure. With any new institutions, students and staff would need to be involved in governance – along the lines perhaps of the reforms suggested in Scotland by the von Prondzynski review – with its emphasis on ‘independent public bodies’.

And, and, and – nothing of Crosland’s vision of sites of collaboration between industry and education can happen if there is not movement of personnel between industry and education and parity of pay between industry and education. The current pay of educators in further education (and casualisation everywhere) sets a huge impediment before any radical scheme: it cannot work with overuse of hourly paid lecturers and it cannot work if one would have a better standard of living administering the department than teaching in it.

I will end with a more philosophical point.  Classically the urban forum is the site of philosophy – where ideas are tested in debate. This was overwritten with the scholarly refunctioning of the monastery and its emphasis on lack of distractions. We do need both models – a research oriented and an engagement model. And by the latter I mean – not the show and tell of much academic conferencing but the cut and thrust of political and street debate. Robinson, whose 1968 manifesto The New Polytechnics is worth revisiting, called for institutions that looked to an urban, community model as appropriate for mass higher education.

Robinson: “One of the social needs which the universities have failed to meet is that of co-ordinating and stimulating intellectual activity in the community generally. This is most notable in respect of the further education of professionally qualified people working in industry, commerce and the public service …” [p. 131]

We are living through the crisis of public expertise as presented by the media- that is partly because the model is so unappealing. “Let us tell you what you should think, like, want etc.” A different kind of institution would be open to a public testing of knowledge distinct from the idea that academic researchers have a message to deliver to the people.

A new polytechnic movement could create and test out knowledge in new form with spaces that would not be dominated by accreditation or by the bestowal of qualifications from figures of authority.

Sites of popular learning predate the polytechnics – working class education projects – but they had much of their energy and raison d’être removed by the recent expansion of formal higher education. Part of the necessary democratic revolution facing the UK is the need to recapture some of what was lost in that transition. We forget that learning and expertise take many forms and that the university is not always the best site for it to happen. Nor should the degree be sacrosanct.

Robbins was accused by Robinson of failing to ask: ‘what is a degree and what is it for?’  Our current government would rather leave such a question unanswered and let a market sort it out. My sense is that the market cannot provide the solution – it will give us more of the same, because of how fees and loans work.

We should instead experiment with funding part-time and lifelong tertiary education differently and in institutions given the special task of linking that to technical, professional and vocational aspirations. New Polytechnics as the ‘anchor’ institutions? A National Education Service that aims at educating our diverse citizenry differently?


This is the final part of four.



[2] PT maintenance loans will also be available for these students from 2018/19.

[3] Wolf’s own recommendation of a lifelong learning entitlement does not appear to have any clear incentive benefits if the repayment terms are initiated once any resource is drawn down.

Whatever Happened to the Polytechnics? Part III

I will now turn to what I consider to be the moral imperative for part-time provision, which leads me to conclude that we have grave problems with our current funding settlement.

Regardless of debates about what the proper cost of HE should be, what we have is a system that gives people in the main one shot at funded study and a culture that pushes them to make that decision at 17 or 18. As someone who changed undergraduate courses in the mid-90s, I am acutely conscious of the pressure put on young people to go to university too soon and the difficulty of redressing mistaken choices. The fee-loan regime introduced without adequate credit transfer arrangements is hopeless from this perspective.

It is very inflexible and at odds with lifelong learning and retraining. Crosland laid great stress on these points – the Polytechnics would have close ties to industry, business and the professions and in doing so would not only offer part-time provision (that was not beholden to e.g. the University of London external degree programmes)[ but offer training and retraining opportunities to citizens and workers throughout their lives.[1]

Read more…

Whatever Happened to the Polytechnics Part 2

Let’s move on to today’s concerns about technical education.

As we move towards a new settlement for higher education, there is a overt sense that the previous settlement, finalised in 1992/93, misfired in abolishing the binary divide between Polytechnics and Universities as separate higher education institutions with distinct missions and modes of administration and funding.

In what way did it misfire? Well, there is a longing for institutions specialising in undergraduate professional, technical and industrial training – institutions that are more connected and responsive to industry and commerce – at a time when industrial strategy is no longer a dirty word and when Brexit threatens to make apparent to everybody that England /Britain is a de-developing nation. And it does not appear that the £170m set aside for new Institutes of Technology (or existing colleges rebadged as such) is going to be adequate to the challenge of

‘linking up other providers, including FE and sixth-form colleges, the national colleges and UTCs as part of a system of professional and technical routes from education into employment. higher level technical education – along with Level 4+ structure for technical education’[1]
January 2017 Green Paper, Building Our Industrial Strategy.

The average annual operating budget of a single university is £200m.

Read more…