When I first heard reports of the Autumn Statement, I thought that the proceeds of the planned loan sale were to be used to plug the budgetary problems BIS has been experiencing.
I no longer think that’s the case, but what that means for further announcements is obscure.
The budgetary problems reported in the Guardian two weeks ago, included the following BIS statement:
“Work continues to resolve the difficult but important challenge of balancing the departmental books while not damaging growth. A range of proposals are being considered but final decisions have not been made.”
Planned cuts were on the table amounting to £570m in 2014/15 and £860m in 2015/16. The first £75m of the savings for 2014/15 materialised when the government brought forward the planned winding down of the National Scholarship Programme (announced in Parliament on 28 November).
Since the pressures appear to have been caused by overrecruitment at private providers and HEI’s in 2013/14, the announcement of new places for the latter may mitigate the situation (though the over-recruitment relates to 2012/13, for private providers -£80m , and 2013/14, for both, though the scale is not yet confirmed and may also be reined in by the suspension of funds to various classes of students). An additional £120m for 2014/15 and £290m for 2015/16 only goes so far.
Writing for wonkhe.com yesterday, Andy Westwood enthused:
What of last week’s rumoured ‘black hole’? Well something obviously still needed filling. Private providers still get a tight number control for this year and next (though they will be happier about the promised ‘level playing field’ for 2015-16), the National Scholarship Programme is all but over and it looks unlikely that any of the 30,000 extra places will be filled by people with Bulgarian or Romanian accents. But in the context of expansion, any overspend this year simply matters less. The Treasury has changed its mind.
I don’t see any evidence of this change of mindset yet (especially if this expansion is being paid for with putative loan sale proceeds). Perhaps, BIS has had another emergency reserve acccepted, we’ll have to wait for letters to HEFCE and the research councils early in 2014 to feel relieved.
If the plans for 2015/16 to reduce maintenance grants and make up the difference with more loans were off the table, I’m sure we would have had a statement to that effect.
The short answer to this question is: beyond 15/16, I’m not sure yet.
The Autumn Statement (§1.203) quantifies the expenditure costs in 2018/19 of the 60 000 new places at:
- £720 million a year in student grants and teaching grant
- £700million a year to cover the subsidy built into the loans.
But only refers to the outlay on loans being covered by proceeds from the planned sale of a portion of the Income Contingent Repayment loans issued before 2012 . Outlay and expenditure are not the same and the relevant detail only shows the national accounts impact, not what is going to happen at departmental level.
As Jonathan Clifton of the IPPR notes, the Autumn Statement sets out the financial transactions by which the sale will finance a series of capital investments but we don’t know what that means for the budget yet. The Table he uses shows that the estimated outlay on the additional loans will be £2bn per year from 2018/19.
The Statement does not explain the budgetary impact beyond 2015/16, when an additional £290million will be made available to finance the first phase of expansion (30 000 places).
This lacuna is emphasised by both the Institute for Fiscal Studies and the Office for Budgetary Responsibility.
The IFS have said (Slide 15):
Autumn Statement announced new policies for which money is available up to 2015–16 but not beyond: … Scrapping cap on HE student numbers (£0.3bn in 2015–16, increasing to £0.7bn in 2018–19 and further thereafter)
The OBR have said in their new Economic & Fiscal Outlook:
§1.9 But there are specific decisions on departmental spending identified in the Autumn Statement policy table that, if continued after 2015-16, would require extra spending between 2016-17 and 2018-19. For example, the extension of free school meals costs £755 million in 2015-16, while the Autumn Statement confirms that removing the cap on student numbers rises to a cost of £720 million by 2018-19. (The size of additional departmental spending pressures was spelt out in detail in the Autumn Statement 2012 and Budget 2013 policy decisions tables, but the Treasury has chosen not to quantify them this time.) This spending would reduce the amount available for departments to spend on other things when plans for those years are set out in future spending reviews.
We do not know if the departmental budget will be expanded or if savings will be found elsewhere to cover the expenditure elements outlined above. Most likely is that revenues from a sale could cover this additional £1.4billion per year,
Importantly, the OBR underscores that selling the loan book gives up an income stream so that in 2018/19, although £2.3billion may be raised by sales, £1billion of related repayments will be lost (repayments in 2018/19 are estimated to be only £3.2billion against outlay of £17.4billion). As a net cash gain, that no longer looks so good.
§4.145 Selling the loan book reduces repayments over the latter years of our medium-term forecast, by just under £1 billion in 2018-19, and beyond, whereas removing the numbers cap increases forecast outlays by around £2 billion by 2018-19.
So all in all, more detail is needed before we assess the sustainability of what is proposed. Really, public expenditure is needed – financing an expansion through loan proceeds is short-termist. What would happen after 2020, when the cash received from the loan sales runs out?
A BIS source told the Guardian: “New student loans get taken out all the time, so there are always in theory newer loans the government could sell on.”
Odd, since the new iteration of loans are considered unsellable. This is why the government abandoned plans to set up an ‘ongoing’ programme of sales of the new loans (see the 2011 White Paper). The ‘retrospective’ sale currently in motion is a fallback option. Think about that £12billion raised between 2015-2020 compared to circa £12billion or more needed to issue new loans in the one year – 2018/19 (£17billion netted against estimated repayments received and estimated loan sale revenues).
There is no liquid market in student loan debt. How many buyers want or are able to buy what the government would like to shift? In 2011, Rothschild told the government that market appetite might be limited to £10-12bn of sales as there just weren’t that many pension funds and insurance companies, and the ilk, able to buy the product the government is offering (whole cohorts by year first repayments fell due). So either the BIS source knows something new, or they have their fingers crossed.
The government appears to be taking a big punt here – that something will turn up in 2020 or this expansion can continue to be financed in some other way. In any case, the sale rings false against a commitment to economic growth (which would generate higher returns from the asset).
One of the biggest conundrums resulting from yesterday’s Autumn Statement announcement about HE is how to control the finances without ‘core’ recruitment caps set for each institution.
Perhaps the solution is back in the Browne review. That report recommended introducing a different form of control. Home & EU students with university places would only qualify for ‘student support’, loans and maintenance grants, if they achieved a minimum ‘UCAS tariff’.
From page 33 of that report:
Entitlement to Student Finance will be determined by a minimum entry standard, based on aptitude. This will ensure that the system is responding to demand from those who are qualified to benefit from higher education.
All students who meet the standard will have an entitlement to Student Finance and can take that entitlement to any institution that decides to offer them a place. Institutions will face no restrictions from the Government on how many students they can admit. This will allow relevant institutions to grow; and others will need to raise their game to respond.
Rather than create a new test of aptitude, our proposal builds on the UCAS tariff admissions system, which is currently used by around 70% of full time undergraduate students. … The minimum tariff entry standard will be set every year by Government shortly after the UCAS deadline for receiving applications.
The expansion would make available an extra 30 000 places in 2014/15 and 60 000 in 2015/16 to ‘young people who have worked hard at school, got the results, want to go on learning and want to take out a loan to pay for it’ (George Osborne’).
A minimum entry requirement of this kind would keep control of finances, but test the limits of traditional of ‘institutional autonomy’ and present difficulties for dealing with other qualifications and other forms of experience.
There appears to be general scepticism about the government’s claim to be able to pay down Public Sector Net Debt through sales of an asset such as the student loan ‘book’. The IFS have just labelled the policy of funding new loans through selling old loans ‘economically nonsense‘, while in the comments under a recent article of his for wonkhe, Emran Mian doubts the claim.
Here’s an old quote we had from Anthony Szary of the Office for National Statistics when we were writing the ‘Third Revolution’ series for Research Fortnight two years ago.
“Public Sector Net Debt is calculated as government liabilities less liquid assets. Student loans are not a liquid asset, so they do not feature in the calculation. However, as noted above, government finances loans to students by issuing debt instruments (gilts), that are scored as government liabilities, which increase PSND accordingly. … Insofar as government will need to increase its liabilities by issuing more debt instruments, this will push up PSND. ”
The proceeds from any sale of the loans can be used to reduce the annual cash requirement and hence slow down the rate of growth of PSND. (Or if you like a ‘snapshot’ approach, with the loan proceeds included PSND is lower than it would otherwise be). As an asset, the loans don’t appear in PSND, when sold the cash they generate can be set against it.
The policy may still be economically nonsense, but the accounting explains why the government is not mistaken in making their claims.
I have been invited to give the CARDIFF PHILOSOPHY CHRISTMAS LECTURE 2013. As a change from sitting all day in government and university accounts, I will be discussing Augustine’s Confessions with some modern resonances.
LEARNING MORE FROM BOOKS THAN TEACHERS: Reading, Writing, and Conversion in Augustine’s Confessions
Date: Wednesday 4th December
Time: 7pm
Venue: Large Chemistry Lecture Theatre, Cardiff University Main Building, Park Place, Cathays, Cardiff
This applies to students whatever course they are studying (HNC, HND, BA, BSC etc) and whatever stage of their course they are on. The payments for tuition fees and maintenance support (loans and grants) will be restored on proving that each student is entitled to what they are receiving.
EU students have access by right of citizenship to tuition fee loans, but must prove prior residency in UK of 3 years in order to access maintenance loans and grants.
This does not apply to Home students at private providers. But Bulgarian and Romanian students at established universities and colleges are similarly affected.
It appears that there has been a catastrophic process breakdown at BIS, which ‘designates’ courses as eligible for student support, and the Student Loans Company, which processes individual student support applications.
This emergency measure comes on top of revelations that uncontrolled Home & EU recruitment to alternative providers has caused severe problems for the BIS departmental expenditure budget. Cuts of £570million in 2014/15 and £860million in 2015/16 are required. The first of the former was announced on Thursday – £100m from the National Scholarship Programme.
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Times Higher Education reports that Willetts made a ministerial statement yesterday announcing the decision to bring forward by a year the planned changes to the National Studentship Programme. The summer’s Spending Round for 2015/16 had earmarked cuts their and the wholesale transformation of the programme. Changes will now be seen in 2014/15 in order to save £75million.
This change required Nick Clegg’s ‘sign-off’ as the creation of the NSP was a concession granted to Liberal Democrats to keep them on-board through the vote on raising the maximum tuition fee in December 2010.
Universities now have to revise their Access Agreements for next year.
This is the first in a series of emergency measures designed to locate £570m of savings from the department’s budget. For more on what’s to come, see this column for the Guardian.
Update 2 December
Details of how these cuts affect individual colleges and universities here. Note these cuts sum to £100m because £25m is being put towards a ‘one-off’ collaborative outreach initiative.
In a written ministerial statement on 19 November, David Willetts wrote:
“ We have … written to the 23 Alternative Providers that are expanding most rapidly to instruct them to recruit no more students for HNCs and HNDs in the current 2013/14 academic year.”
In fact, as revealed in today’s Guardian, the department for Business, Innovation and Skills suspended the ‘designation’ of all HNC & HND courses at those colleges. The suspension applies for the rest of the 2013/14 academic year. These were ‘the fastest growing’ providers of HNC and HND courses – there is no suggestion of impropriety, only that the departmental budget could not support such growth.
Eligible Home and EU students on a ‘designated’ course are eligible for tuition fees loans up to £6 000 per year and maintenance support (loans and grants). As London is the epicentre for new providers, the average maintenance loan is £6 800 per year, much higher than the average such loan across the rest of the sector.
As these are private colleges – the government has no control over recruitment. What the government has done instead is suspend access to support for students.The cutoff date is 18 November for 2013/14 academic year – those who already have offers must take up their places by January 2014.
That is, these colleges can continue to recruit Home and EU students, but students can no longer apply for student support.
Icon College, one of those suspended, has recruitment windows in January and May, in addition to the traditional September/October window. This intervention has therefore had an important impact.
Full information can be found here.
The Colleges affected are:
1 AA Hamilton College, London – 2 courses
2 Brit College Limited, London – 2 courses
3 Fairfield Academy, Croydon – 1 course
4 Grafton College, London – 12 courses
5 Icon College of Technology and Management, London – 8 courses
6 London Bridge Business Academy – 2 courses
7 London Churchill College Ltd – 4 courses
8 London School of Business and Finance – also operates in Birmingham & Manchester
15 courses
9 London School of Science and Technology – 4 courses
10 Mont Rose School of Management and Sciences, London – 12 courses
11 Nelson College London, Ilford – 5 courses
12 OLC (Europe) Ltd incorporating EETTEC Ltd, Bolton – 4 courses
13 RTC Education Limited Harrow – 6 courses
14 St Patrick’s International College, London – 7 courses
15 Stratford College London – 1 course
16 London College UCK – Far the biggest – nearly 100
17 West London College of Business and Management Sciences – 6 courses
18 British Institute of Technology & Engineering, London – 2 courses
19 East End Computing & Business College – 4 courses
20 Centre for Advance Studies Ltd, London – 4 courses
21 EThames Graduate School Limited, Ilford – 6 courses
22 UK College of Business and Computing LTD, Ilford – 3 courses
I have been invited to give the CARDIFF PHILOSOPHY CHRISTMAS LECTURE 2013. As a change from sitting all day in government and university accounts, I will be discussing Augustine’s Confessions with some modern resonances.
LEARNING MORE FROM BOOKS THAN TEACHERS: Reading, Writing, and Conversion in Augustine’s Confessions
Date: Wednesday 4th December
Time: 7pm
Venue: Large Chemistry Lecture Theatre, Cardiff University Main Building, Park Place, Cathays, Cardiff
BIS has put out a press release in the last 30mins confirming the sale of part of its student loan portfolio to Erudio Student Loans, a consortium of ‘consumer debt management’ companies.
The sale relates to the ‘mortgage-style’ maintenance loans issued to those who commenced undegraduate study between 1990 and 1998. Two previous sales were undertaken in the late 90s, and this latest sale shifts the final tranche of those loan accounts off the government’s books.
The face value of those loans – total outstanding balances – is £900m (£734m England) but they remaining accounts have been performing poorly (40% in default; 46% earning under the repayment threshold of £28,775) so the government has only received £160million from the sale. This may well be under the ‘fair value’ recorded in the government’s accounts, though the latest BIS accounts do not disaggregate the mortgage-style loans from income contingent repayment loans on this score.
David Willetts put it this way:
The sale of the remaining mortgage style student loan book represents good value for money, helping to reduce public sector net debt by £160 million. The private sector is well placed to maximise returns from the book which has a deteriorating value.
The sale will allow the Student Loans Company to focus on supplying loans to current students and collecting repayments on newer loans. Borrowers will remain protected and there will be no change to their terms and conditions, including the calculation of interest rates for loans.
All in all, it’s a paltry deal when you consider that from 2014/15, the government will be backing £10billion of new loans annually.
Critical Education 