Along with Michael Bailey, the co-editor of Pluto’s The Assault on Universities, I will be speaking at a CDBU regional meeting organised for Saturday 19 October in Cambridge.
Time: 11am – 1pm
Venue: Lightfoot Room, Divinity School, St John’s College
The UCU branch at Liverpool has organised a seminar series on ‘The Place of University in Society’ to take place in October.
Update: the venue for Wednesday’s talk is the Rendall Building (‘2’ on this map).
From the publicity:
These lectures are open to all who are concerned with the topics being discussed.
The programme [Venues and booking details to follow]
What is ‘The Great University Gamble’?, Wednesday, 2 October (5.30pm.)
Andrew McGettigan (author of The Great University Gamble: Money Markets and the Future of Higher Education, Verso 2013)
Universities: the neo-liberal agenda, Thursday, 10 October (5.30pm.)
Professor Robert Brecher (University of Brighton)
The Corporatisation of the University (live broadcast), Tuesday, 22 October (5pm.)
Professor Noam Chomsky (MIT)
Defending education: what are the unions for?, Thursday, 31 October (5.30pm.)
Liz Lawrence (UCU, national vice-president for HE); Professor John Holmwood (University of Nottingham) (founder of the Campaign for the Public University)
More details can be found on the link entitled ‘UCU Autumn lectures’ here.
The latest issue of Radical Philosophy has a lot to recommend it for those interested in Higher Education: two comment pieces on open access and open source from John Holmwood and Christopher Newfield respectively; a short piece by me on the recent Spending Review for 2015; and a review of my book from Martin McQuillan.
All of it can be accessed for free here.
Attention will be elsewhere today, but I have come across two news items related to matters that have been covered extensively on here.
The Camden New Journal is reporting that the attempt by New College of the Humanities to launch a free school has been kiboshed. AC Grayling has admitted that the college, owned by Tertiary Education Services, has failed to find a suitable site in the Borough.
I guess we’ll also all be waiting to see how its recruitment fared this year.
Elsewhere, Glyndŵr University , in Wrexham, has pulled out of a partnership with London School of Business & Finance that appeared to have similarities with the deal LSBF had with London Metropolitan University.
As in last year’s case, Glyndŵr was looking into validating degrees at LSBF and sponsoring international students, who would then be allowed to work during their studies (something overseas students at ‘private providers’ are barred from doing). A statement from Glyndŵr in Times Higher Education reads:
“After following a stringent process of due diligence [the university] decided not to proceed. We never validated or delivered any degree programmes and no CAS was ever issued or places offered on any programme leading to a Glyndwr University award.”
There will be a judicial review in October to look at what the now disbanded UK Border Agency and, crucially, the Home Office decided about London Metropolitan last August.
This is termed ‘forward guidance’ and is meant to provide more certainty for investors and producers than inflation targeting.
Regular readers will know that this is unwelcome news for the financing of English Higher Education, since, for income contingent repayment loans issued to those who started undergraduate study between 1998 and 2011, interest accrues on outstanding student loan balances at the lower of RPI (for the preceding March) or the bank base rate plus one. For 2013/14, the relevent RPI is 3.3%, well above 1.5%.
The annual accounts for the department of Business, Industry and Skills – responsible for higher education – show that the value of the ‘loan book’ was written down by £1.6billion (c. 4.5%) in 2012/13 as a result of the low base rate.
The Bank of England predicts that the headline unemployment figures given by the Labour Force Survey will remain above 7% until 2016. This would leave us with another 3 years of 1.5%. (And that’s before we consider any implications for this headline statistic generated by the current furore around ‘zero-hours’ contracts).
With the government announcing plans to sell £10billion of these loan accounts to insurance and pension funds between 2015-2020, this new announcement is significant. The government has ruled out changing the interest rate terms for these borrowers, but would have to compensate potential purchasers for continuing low base rates as they will not contemplate purchasing any ‘asset’ with below inflation interest otherwise. The government proposes to offer a ‘synthetic hedge’ here. I quote from ‘Project Hero‘:
If RPI is above Base Rate +1% at any time following the sale, the underlying loans will accrue less interest, leading borrowers to repay earlier than would otherwise have been the case. Government will therefore compensate investors by paying them cash flows (towards the back end of the maturity profile) representing the final payments borrowers would have made had the cap been removed.
Beyond emphasising the fact that a sale therefore entails a long-run loss for the short-term gain of lowering the headline statistic of public sector net debt, three points can be underscored:
- Additional years of an unanticipated interest rate subsidy means that money will have to come from somewhere to cover the continuing impairment in the departmental accounts to the valuation of existing loan balances.
- Impairment to the value of the loans means that a greater proportion would need to be sold to achieve £10bn of sales. It’s not clear that such investor appetite exists.
- Since rates will only be reviewed when unemployment reaches 7% and will not then leap to match RPI, any sale entails further years of interest subsidy and costs to a future government, who pick up the ‘back-ended‘ tab left by those who put the deal together.
Perhaps, though, the new governor’s first act will force a pause to current thinking around loans.
Say you want to borrow a tenner from me. I agree, but you can either repay £11 in two years or £13 in ten. Which would you choose?
If you choose the first because it’s a lower total amount, then you may not have considered the ‘present value’ of the deal – how to calculate what a future payment, or flow of payments over time, is worth in today’s terms.
The above example is trivial but let’s add a few zeros to those figures and a few years. What’s preferable repaying £110 000 in 22 years or £130 000 in 30? Bit trickier? Especially if you have to make a series of fluctuating (income-contingent) monthly payments rather than a one-off lump sum at the end of the period.
Unfortunately, a report published by Political Quarterly and covered by Times Higher Education (£) and the Daily Mail ignores this whole aspect, with headlines reading respecively ‘Poor to face bigger student loan bill than rich’ and ‘Middle-class women face unfair tuition fees burden: Squeezed graduates face paying more than highly-paid peers or low earners’.
Here’s some figures quoted:
In banking, finance and insurance, for example, women’s starting salaries are around £22,500 compared to £29,000 for men. Based on a debt of £43,500, the woman would repay £131,416 over 30 years, after which £31,796 would be written off. But male peers would pay £109,766 and be debt free after 21 years and ten months.
Which brings us back to the opening questions: which is ‘more’, £130 000 over 30 or £110 000 over 22 years?
Perhaps the first question is: what’s inflation predicted to be? The official ‘ready reckoner’ model, on which the research is based, has been built with an assumption of RPI running at 2.75% each year (and earnings growth in excess of that so that in 2041 the repayment threshold is £70 000 compared to £21 000 in 2016).
These figures should make one pause and ask what does repayment measured at £100 000+ over 30 years even mean? Especially as the assumptions in this model – put together in 2009/10 – have since diverged from economic reality.
One way is to do a crude calculation to factor out that inflation figure of 2.75% (as if it were a lump sum rather than the aggregate of a stream of payments), when you find that the ‘present value’ of £130 000 over thirty years is less than £110 000 over 22 years: £58 235 to £60 432. At an inflation of 2% it might be more (£72 550 to £71 000), but it’s the former figure that’s been used in the generation of those numbers in the first place.
All a lot trickier than the headlines and the study suggest. If you want a more informed analysis on these distributions then I can recommend that Institute for Fiscal Studies’s analysis, The distributional impact of the 2012-13 HE Funding Reforms (July 2012).
Yesterday, the government published its strategy for promoting education as a UK export.
Contained within is the telling paragraph:
§2.12 UK education institutions have a noble history, rooted in the charitable impulses of past generations. To this day, many schools, universities and colleges have charitable status. They consider that this is an important part of their identity, and they discharge their obligations willingly and diligently. Although this model has many strengths, it does not lend itself to rapid growth. The governance structures and obligations of charities, or of bodies of similarly ancient pedigree established by Royal Charter or equivalent instruments, were not designed to grow rapidly, or to run a network across the world. Consequently, many higher education institutions are conservative in their approach to risk, in both the size and type of funding, viewing equity finance as a last rather than optimal resort.
This tallies with a contested interpretation I offered of certain paragraphs in the 2011 White Paper. I argued that paragraphs 4.35 & 4.36 pointed to allowing universities to convert to for-profit forms ‘to make it easier for them to attract private investment’. Direct equity finance is not possible for a chartered corporation or charity, which explains the attraction of joint venture subsidiaries.
From the new document: ‘It is for institutions themselves to decide their own structures. Some have found ingenious ways to combine profit-making and non profit-making arms.’
With the warning that, ‘A positive strategic commitment to remain at a certain size is one thing. A reluctant ossification and decline, caused by an inability to see how to change a structure that is thought to have outlived its usefulness, would be quite another.’
Does the government believe that the charitable status of universities ‘has outlived its usefulness’? The College of Law is offered up as the model ‘that could be of interest to others’ – a charity with a Royal Charter that was purchased by Montagu Private Equity, of which it is now a for-profit subsidiary.
Buried away in Footnote 5 to Table A1 on page 59 of the Appendix to Osborne’s Spending Round, is the following statement:
Figures for [the Department of Business, Innovation and Skills] include the Resource and Budgeting charge for student loans, which is £2.9 billion in 2014-15 and £4.4 billion in 2015-16.
The ‘resource and budgeting’ charge is better known as the estimated loss on student loans recorded in accounts at time of issue. This year-on-year increase is so large that BIS’s overall expenditure budget actually increases from £17billion to £17.7bn.
You won’t see much trumpeting of this figure though since it undermines the claims to be putting HE finances on a ‘firm financial footing’.
Something else is a little rum too.
Neither of those figures is what was given to parliament in 2012: the estimated write-off for 2014/15 was then thought to be £3.3billion rising to £3.7bn in 2015/16 as annual tuition fee loans rise. (See p. 7 here )
So in the Spending Round footnote, one number looks too low and the other too high. And what should be a year-on-year increase of about £400million has turned into one of £1.5bn.
What might be going on here?
I can only guess, but perhaps the upwards revisions to write-offs that we have seen in recent months are being recorded in 2015/16 – postponed and thus inflating that figure – in order to improve the figures for 2014/15, when there’s an election to be fought.
Critical Education 