aoc conference, 18 november 2014 making loans work in advanced level and h higher education julian...
TRANSCRIPT
AoC Conference, 18 November 2014
Making loans work in advanced level and h
higher education
Julian Gravatt, Assistant Chief Executive, AoC
@JulianGravatt
http://www.aoc.co.uk/term/funding-finance
Making loans work in FE and HE
Two areas of activityHigher education “professional and technical education”Further education for adults
Two themes in this presentationWhat might change?How colleges should approach things?
What might change - university fee regulation
The politics surrounding feesLabour government (re) introduced full-time fees in 1998Coalition government allowed fees to rise to £9,000 in 2012Big MP rebellions in the 2004 and 2010 votesLabour party would like to reduce fees – to £6,000Scotland has no university fees (and no maintenance grants)Non-resident EU students can access tuition but not maintenance
The timelineGeneral election in May 2015Long lead-times for fees (OFFA) and admissions (UCAS) Parliamentary must decide 2017-18 rules by spring 2016Existing fee rules apply in 2015-16 and in 2016-17
How the HE budget has changed
2011-12 Teaching Student Support
Research Total RAB charge
Grants 4.6 1.3 4.6 10.5 2.1
Loans 2.6 4.4 - 7.0
Total 7.2 5.7 4.6 17.7
2015-16 Teaching Student Support
Research Total RAB charge
Grants 1.7 1.6 4.6 7.9 6.4
Loans 8.2 6.2 - 14.4
Total 9.9 7.8 4.6 22.3
Source: AoC summary of HEFCE grant letters for 2010 & 2014, BIS annual accounts
Between 2011 and 2015, the overall HE budget has increased but
there has been a cut in HEFCE grants, a freeze in research spending
and an increase in tuition and maintenance loans.
How the HE budget has changed
Total HE spending in England in 2011-12 and 2015-16
The HE student loan outlays
£ billions 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19
Outlays 10.3 12.7 14.4 15.6 16.7 17.4
Repayments 1.8 2.1 2.3 2.5 2.5 2.6RAB charge@ 45% 4.6 5.7 6.5 7.0 7.5 7.8
HE loans – understanding the RAB charge
Understanding the RAB chargeAn impairment charge on loans in government accountsEquivalent to 30 year’s of depreciation in 1 yearCharged up front because loan terms are “soft”ie. Repayment at 9% of income over £21k plus 30 year write offRAB for highest earning graduates is zeroGraduate salary forecasts reduced -> more write-offs in 2040sInterest rate assumptions make a big different in NPV calculations£ billions Interest
rate
What graduates pay RPI 2.3%
Cost of capital in RAB RPI + 2.2% 4.5%
UK 30 year gilt rate 2.90%
HE loans – cutting government loan costs
Some options to reduce net loan outlays or RAB chargeTuition fee loans to cover less than 100% of tuition feesTighter conditions or lower rates for maintenance loansGraduates to repay loans faster, earlier or for longer (ie a tax)Limit loan access to prime borrowers (via entry qualifications)Replace loans with graduate equity contracts
… or wait and see
* Official forecasts reported in a PQ
Student number controlsStudent number entry controls (Year 2 SNC = Year 1 SNC)High grades exemption (AAB+ in 2012, ABB+ in 2013, nothing in 2015)Core/Margin policies (20,000 in 2012, 5,000 in 2013)Flexibility range (3% in 2013, 6% in 2014)Private HEIs and Colleges new to HE (controls started in 2014)Removal of SNCs for most HE providers in 2015Expansion before the election, contraction afterwards?
HE loans - student number controls
2012-13
2013-14
2014-15
2015-16
2016-
Full-time entrants
312,000
345,000
360,000
390,000*
?
Average fee £7,700 £7,800 £7,900 £8,100* ?
BIS revenue budget £13.2 billion in 2015-16 (£8 billion HE)Spending plans imply 30-40% cuts in BIS after 2016
IFS scenarios for UUK to cut RDEL (back in October 2013)
1. Breach the science/research ringfence (£4.6 bil budget)2. Cut Medicine & STEM funding (involves raising fee cap)3. Switch from HE maintenance grants to HE loans4. Reduce number of FT HE students 5. Cut 19+ FE/Skills budget further (on top of 35% cuts 2009-15)
A Scottish style HE maintenance grant cut means more debt
HE loans – HE spending options
A starter for five£6,000 fee only if Labour use this promise to get into powerSome cuts to HE maintenance grants for 2016-17Reintroduction of some controls on HE numbers for 2016-17No big HE student loan changes but changes at margin Actions on postgraduates, EU & Muslim students
Implications for collegesBusiness as usual for a couple of years to comeOpportunity to expand in 2015-16 could be for one year onlyChanges in the long-term as data becomes available
HE loans – my predictions
College HE provision
Characteristics of English College higher education100,000 students in 280 colleges (range 100 to 3,500)Local, employer-led, technical, some niche50% full-time, 50% part-timec50% apply for one course/one institution (UCAS) 70% live within 25 miles of campusStudent cohort more disadvantaged than HE averagePartnerships with Universities long-standing & importantThe core/margin policy caused a shift to direct control
Overall College HE numbers have remained stable but there has been an increase in directly controlled full-time numbers
English College HE trends
2008-9 2012-3
Full Time Direct 31,000 44,000
Indirect 28,000 24,000
Full Time Sub-total 59,000 68,000
Part Time Direct 24,000 20,000
Indirect 33,000 18,000
Part Time Sub-total 56,000 38,000
117,000 106,000
% Direct 47% 60%
College HE strategies
Some tipsA longer-term HE plan , owned by Governors and SMT.Understand your market & the rules Progression up from Level 3 courses and access courses.Progression out to work or degree level study.Courses & fees influenced by marketing analysis.Look at FT, PT together. Avoid generic courses.A clear plan on validation (university relationship, DAPs etc)
“Breaking the mould”
AnalysisEnglish post-secondary higher-level skills system weak and small
Policy & history biased towards full-timeresidential three-year degree model
ProposalsRe-balance the system Technical Education Accreditation CouncilAccredited colleges award Levels 3, 4 & 5Colleges/universities to work on progression
24+ Advanced Learner Loans
Where we are nowSuccessful implementation of systems in autumn 2013£220 mil allocated by SFA. Perhaps £150 mil used.Apprenticeships bombed. Access maintained. Some vocational Level 3s strong. Low use for Level 4sA few colleges have expanded but picture is mixed.Colleges offered 27% growth in 2014-15 (doubling activity)SFA officials considering ways to grow activity
FE loans – why they’re a good thing
The positives for students and colleges“Loans help students change careers or make progress”“There are no upfront payments or credit checking” “Repayments are income-contingent and handled by govt”“Access students get a write-off on degree completion”“The systems and rules are fairly well-established”“Individuals not government is the customer” “There are currently no caps on expansion”
The obvious negatives“We only have loans because fees have replaced funding”“Some people won’t borrow - fullstop”“Higher fees has meant fewer students and fewer courses”
The consultation about FE loan extension
The proposals set out in Option for BIS to extend FE loans in 2016-17Proposal in June, consultation response by December 2014-19+ for all courses -Entitlements (100% funding) stay basic skills, first L2 & L3-Transfer of higher nationals from HE to FE system -Include FE loans in any sharia-compliant scheme
Will this happen?Political interest in developing higher vocational education 60% RAB charge (reflects low pay) and the election are obstaclesLikely that Ministers will be seeking quick savings after May 2015
Increasing loan activity now and in 2015-16
Some tipsA longer-term Level 3 & 4 plan , owned by Governors and SMT.Understand your market & the rules Different thinking & internal development fundsNecessary to analyse data on 2013-14 and 2014-15 take-upSFA encouraging new providers (eg HEIs, existing providers)Could colleges identify new partners?Employers shouldn’t be ruled out January starts as well as September starts?Pricing for loans can differ from 19-24 feesNeeds a cross-college approach
Increasing loan activity now and in 2015-16
Cross-college activitiesCurriculum re-designPricing CommunicationsAdviceLearner offerProcessingBursaryAttendance, withdrawals and complaints
Some final thoughts
Rethink adult learning Changes to public spending permanentHE, FE, AE – different routes & funding but same agesLoans are a way to make fees more palatableFees were a bigger part of the mix in the 1980s.. but we’re now in an Aldi / Amazon world with big income gaps
Demand exists but it is changingPeople are working longer/need to retrainEmployers still think about workforce developmentUniversities need roots in the community
Colleges can make loan-funded courses work but it won’t be easy