College Finance Conference, 3 June 2014

College Finance Conference, 3 June 2014 • Workshop on Growth opportunities in higher and further education? fees, loans and courses • Higher education • Advanced level further education • Where next? • Julian Gravatt, Assistant Chief Executive, AoC • Julian_Gravatt@aoc.co.uk

The bigger spending picture Government plans Deficit reduction Real-terms spending cuts “Year 4 of 9 year plan” (IFS) Spending review in 2015 More cuts in 2016 and after 20% cut for the unprotected Loans may be a safe haven

University –vs- College income Figures from published accounts & forecasts indexed to 2009-10 Universities – science ringfence, higher tuition fees, overseas & residential Colleges – government funded students, relatively low fee income

The past – the 2012 HE reforms The spending decisions HE tuition fee loans replace HEFCE grant (switchs £1 bil/year) Control on number of places to manage loan payments Fee regulation Full-time fees up to £9,000 (with OFFA approval) Part-time fees regulation introduced Allocation of HE loan budget Student number entry controls (Year 2 SNC = Year 1 SNC) High grades exemption (AAB+ in 2012 then ABB+) Core/Margin policies (20,000 in 2012 then 5,000)

Now – the 2014-15 HE round The spending decisions HE teaching grant £2 bil; HE fee loans £7 bil Decisions on HEFCE grants and SNCs notified in March Fee regulation No significant change despite new fair access director at OFFA Allocation of HE loan budget 30,000 additional FT entries in 2014 (8% extra) No core/margin bidding process Redistribution of SNCs within a new flexibility range (6%) Off quota Colleges and private HEIs will get SNCs Some justifiable concern about practices in some private HEIs

The future – 2016 and beyond Could general election change things? “Young people feel they have no control because they are going to get into mountains of debt if they go to university…We do want a radical offer on tuition fees because the future of our young people… is a massive issue that our country faces,” Ed Miliband, ITV interview, March 2014 ..but Ministers would need to act quickly “There are some decisions, however, that can’t wait. We do need to set out in the next few weeks the way forward for graduate contributions and student support if we are going to have any chance of implementing changes for the Autumn of 2012 …..It is rather like A. J. P. Taylor’s thesis that train timetables determined the outbreak of the First World War” David Willetts, October 2010

The future – 2015-16 The spending decisions More cuts/savings in BIS Division of HE and 19+ FE budget for 2015-16 unclear HE maintenance grant would normally set by summer 2014 Fee regulation 2015-16 proposals by 1 May 2014. OFFA decisions by 31 July Allocation of HE loan budget Removal of student number controls but no details as yet 30,000 additional FT entries in 2015 (another 8%) Expansion before the election, contraction afterwards?

HE full-time entries Source: Derived from PQ answered by David Willetts, 24 Feb 2014

BIS budget in 2016-17 and beyond BIS revenue budget £13.2 billion in 2015-16 Treasury spending plans imply 20% cuts to unprotected depts IFS scenarios on BIS departmental spending for UUK 1. Breach the science/research ringfence (£4.6 bil budget) 2. Allow fees for Medicine & STEM to exceed £9,000 3. Switch from HE maintenance grants to HE loans 4. Reduce number of FT students 5. Cut 19+ FE/Skills budget further (35% ASB cut 2009 to 2015)

College capital projects The spending decisions Biggest cuts happen in first full year after an election Options on fees, loans, maintenance and teaching grants Fee regulation Any change to OFFA role needs legislation (contentious) Allocation of HE loan budget Expansion of HE is necessary but needs lower cost per place Plausible that entry qualifications may apply to HE loans The big new SLC IT system makes future reform easier

National agencies HEFCE New Chief Executive Operating a new HE market with out-of-date laws SLC Now responsible for £14 billion in HE system cashflow Big new IT system implementation in time for 2015-16 System is modular. Easier to make changes in 2016-17 SFA Now fewer than 800 people Not very engaged on HE side of colleges but cover FE loans

The HE market Supply Inertia (heritage, three-year degrees etc) Longish lead-times to respond to demand but shortening Fees rising towards the £9,000 cap Evidence of increasing University competition at all levels Demand Applicants need to be qualified to make a choice Degrees are positional goods Higher fees covered by loans with grants + bursaries on offer Living costs loom larger than fees to many students

College HE provision Characteristics Local and/or employment linked Progression from Level 3 courses Lower FT fees since 2006 Partnerships with Universities significant issue Opportunities & Threats 2012 recruitment was difficult but some are expanding 2013 recruitment was even harder Expansion opportunities that exist now may not be for ever

College HE strategies Some tips A longer-term HE plan , owned by Governors and SMT. Scheduling of key decisions. 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)

24+ Advanced Learner Loans Where we are now Successful 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 4s A 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 – the positive messages Eight positives for students and colleges “Loans will help students change careers or make progress” “Fees are higher but are paid after completion and are income-contingent” “Government covers the cashflow and handles repayments” “The systems are complicated but there’s lots of support” “Individuals rather than government officials become the customer” “There’s government funds to expand provision” “Many College HE students start on Level 3 courses” “Government may extend loans to more students after 2016”

College capital projects Eight areas for action Curriculum re-design Pricing Communications Advice Learner offer Processing Bursary Attendance, withdrawals and complaints

Increasing loan activity Some questions A new fees regime requires different thinking about markets Vocational Level 3s and 4s Worth analysing data on 2013-14 take-up SFA encouraging new providers (eg HEIs, existing providers) Could colleges identify new partners? Would development funds help? Employers shouldn’t be ruled out January starts as well as September starts? Pricing for loans can differ from 19-24 fees Needs a cross-college approach

Future FE loan developments FE Loan policy Option for BIS to extend FE loans in 2016-17 Loans could be offered for • 19-24s at Level 3 • 24+ at Level 2 • 19+ for all courses exc entitlements (eg basic skills, first L2) Not automatic that loans must cover 100% of fees Vince Cable suggested national FE maintenance loans RAB charge on FE loans 60% which is an inhibitor Political interest in developing higher vocational education Could any changes be introduced for 2015-16?

Some final thoughts Rethink adult learning Changes to public spending permanent These are long-term trends which take time to implement Loans are a way to make fees more palatable Fees were a bigger part of the mix in the 1980s There’s still considerable demand for education and training People are working longer/need to retrain Employers still think about workforce development Opportunities exist

College Finance Conference, 3 June 2014