1. AoC Conference, 18 November 2014 Making loans work in advanced level and h higher education Julian Gravatt, Assistant Chief Executive, AoC Julian_Gravatt@aoc.co.uk @JulianGravatt http://www.aoc.co.uk/term/funding-finance

2. Making loans work in FE and HE Two areas of activity Higher education “professional and technical education” Further education for adults Two themes in this presentation What might change? How colleges should approach things?

3. What might change - university fee regulation The politics surrounding fees Labour government (re) introduced full-time fees in 1998 Coalition government allowed fees to rise to £9,000 in 2012 Big MP rebellions in the 2004 and 2010 votes Labour party would like to reduce fees – to £6,000 Scotland has no university fees (and no maintenance grants) Non-resident EU students can access tuition but not maintenance The timeline General election in May 2015 Long lead-times for fees (OFFA) and admissions (UCAS) Parliamentary must decide 2017-18 rules by spring 2016 Existing fee rules apply in 2015-16 and in 2016-17

4. How the HE budget has changed 2011-12TeachingStudent Support ResearchTotalRAB charge Grants4.61.34.610.52.1 Loans2.64.4-7.0 Total7.25.74.617.7 2015-16TeachingStudent Support ResearchTotalRAB charge Grants1.71.64.67.96.4 Loans8.26.2-14.4 Total9.97.84.622.3 Source: AoC summary of HEFCE grant letters for 2010 & 2014, BIS annual accounts

5. 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

6. The HE student loan outlays £ billions 2013-142014-152015-162016-172017-182018-19 Outlays 10.312.714.415.616.717.4 Repayments 1.82.12.32.5 2.6 RAB charge@ 45% 4.65.76.57.07.57.8

7. HE loans – understanding the RAB charge Understanding the RAB charge An impairment charge on loans in government accounts Equivalent to 30 year’s of depreciation in 1 year Charged up front because loan terms are “soft” ie. Repayment at 9% of income over £21k plus 30 year write off RAB for highest earning graduates is zero Graduate salary forecasts reduced -> more write-offs in 2040s Interest rate assumptions make a big different in NPV calculations £ billionsInterest rate What graduates payRPI2.3% Cost of capital in RABRPI + 2.2%4.5% UK 30 year gilt rate2.90%

8. HE loans – cutting government loan costs Some options to reduce net loan outlays or RAB charge Tuition fee loans to cover less than 100% of tuition fees Tighter conditions or lower rates for maintenance loans Graduates 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

9. * Official forecasts reported in a PQ Student number controls Student 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 2015 Expansion before the election, contraction afterwards? HE loans - student number controls 2012-132013-142014-152015-162016- Full-time entrants312,000345,000360,000390,000*? Average fee£7,700£7,800£7,900£8,100*?

10. 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 loans 4. 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

11. A starter for five £6,000 fee only if Labour use this promise to get into power Some cuts to HE maintenance grants for 2016-17 Reintroduction of some controls on HE numbers for 2016-17 No big HE student loan changes but changes at margin Actions on postgraduates, EU & Muslim students Implications for colleges Business as usual for a couple of years to come Opportunity to expand in 2015-16 could be for one year only Changes in the long-term as data becomes available HE loans – my predictions

12. College HE provision Characteristics of English College higher education 100,000 students in 280 colleges (range 100 to 3,500) Local, employer-led, technical, some niche 50% full-time, 50% part-time c50% apply for one course/one institution (UCAS) 70% live within 25 miles of campus Student cohort more disadvantaged than HE average Partnerships with Universities long-standing & important The core/margin policy caused a shift to direct control

13. Overall College HE numbers have remained stable but there has been an increase in directly controlled full-time numbers English College HE trends 2008-92012-3 Full TimeDirect31,00044,000 Indirect28,00024,000 Full TimeSub-total59,00068,000 Part TimeDirect24,00020,000 Indirect33,00018,000 Part TimeSub-total56,00038,000 117,000106,000 % Direct47%60%

14. College HE strategies Some tips A 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)

15. “Breaking the mould” Analysis English post-secondary higher-level skills system weak and small Policy & history biased towards full-time residential three-year degree model Proposals Re-balance the system Technical Education Accreditation Council Accredited colleges award Levels 3, 4 & 5 Colleges/universities to work on progression

16. 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

17. 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 ”

18. The consultation about FE loan extension The proposals set out in Option for BIS to extend FE loans in 2016-17 Proposal 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 obstacles Likely that Ministers will be seeking quick savings after May 2015

19. Increasing loan activity now and in 2015-16 Some tips A longer-term Level 3 & 4 plan, owned by Governors and SMT. Understand your market & the rules Different thinking & internal development funds Necessary to analyse data on 2013-14 and 2014-15 take-up SFA 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 fees Needs a cross-college approach

20. Increasing loan activity now and in 2015-16 Cross-college activities Curriculum re-design Pricing Communications Advice Learner offer Processing Bursary Attendance, withdrawals and complaints

21. Some final thoughts Rethink adult learning Changes to public spending permanent HE, FE, AE – different routes & funding but same ages Loans are a way to make fees more palatable Fees 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 changing People are working longer/need to retrain Employers still think about workforce development Universities need roots in the community Colleges can make loan-funded courses work but it won’t be easy