1. AoC Finance Conference, 9/10 June 2015 Growth opportunities in higher and further education? -fees and loans in higher education Julian Gravatt, Assistant Chief Executive, AoC Julian_Gravatt@aoc.co.uk @JulianGravatt http://www.aoc.co.uk/funding-and-corporate-services/funding-and-finance/reports-and- presentations

2. HE fees & loans – the politics Higher education fees Labour government (re) introduced full-time fees in 1998 (after 25 years) Full-time fees rose from £1,200 (1988) to £9,000 (2012) Scotland abolished university fees in the 2000s in two stages Full-time fee cap fixed at £9,000 since 2012 Politically difficult to make big increases in the fee cap Full-time HE fees might rise with inflation – but this affects HE loans Student loans Student loans started in 1990 on small scale, for maintenance Since 1998, income-contingent loans cover 100% of fees Total student loan debt £74 billion. Annual repayment <£2 bil. Annual outlays £14 bil. RAB charge (a measure of impairment) 45%

3. HE fees & loans – first principles Objectives A self-governing & strong (“world class”) university system Everyone capable of benefitting should be able to attend System cover university costs (+3% surplus) via fees + HEFCE Student loans in place to remove up-front fees & living costs Tensions Fees rose to the cap (now £9,000). No price competition System expensive, resulting in average loan debt of £44,000 Growing sense that universities have made lots of money Weaknesses in regulation (eg private colleges) Some poor “consumer protection” practices

4. 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 A £5.7 billion write off this year

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. The HE budget – up 26% in 4 years Total HE spending in England in 2011-12 and 2015-16

6. The HE budget – up 26% in 4 years 2011-12TeachingStudent Support ResearchTotalRAB charge Grants4.61.34.610.52.1 Loans2.64.4-7.0 Total7.25.74.617.7 2013-14TeachingStudent 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

7. HE loans – the RAB charge The 45% write-off is… 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” RAB for highest earning graduates is zero Graduate salary forecasts down -> more write-offs in 2040s Interest rate assumptions make a big difference… £ billionsInterest rate What graduates payRPI2.5%..on higher incomesRPI +3%5.5% Cost of capital in RABRPI + 2.2%4.7% UK 30 year borrowing rate2.9%

8. HE loans – cutting government loan costs Lots of discussion in recent years about how to cut loan costs Labour suggested £6,000 fees Also higher interest rate (+1%) on income over £45k (eg 5.5%) Think tanks have suggested graduate equity contracts Also penalties for universities with poor repayment records More likely…. Wait for an economic recovery to revise the forecasts Repayment threshold may not increase much from £21k Student Loan Company big push on repayment Risk for colleges Return of some form of control of entry qualifications

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 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. Higher education rules of the game A complex mesh of regulation and self-regulation Courses need to be validated (universities, Pearson, colleges with DAP) Fees over £6,000 need Offa approval,18 month in advance Admissions for full-timers dominated by UCAS with 12 month lead-in Quality assessment by QAA; adjudication by OIA Consumer protection reviewed by CMA Access to student loans via HEFCE Loan application managed by SLC which also pay grants, DSAs etc Parallel data collection via ILR Some general points HE is not for amateurs Young Universities Summit in 2014 focused on post-1964 institutions!

11. Know your market - 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

12. Overall College HE numbers have remained stable but there has been an increase in directly controlled full-time numbers Know your market - 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%

13. The demand for higher middle skills Source: UKCES, Working Futures 2012-2022. Top left box sums SOC Major Groups 4 and 5; top right Major Groups 1 to 3; bottom left Major Groups 8 and 9; bottom right Major Groups 6 and 7. Analytical & interactive Manual tasks Routine tasksNon-routine tasks Managers; professionals; and technicians +2,400k 17% net increase in jobs 2012-2022 Care and leisure; sales and other service +600k 11% net increase in jobs 2012-2022 Elementary; process and plant operatives -300k 5% net decrease in jobs 2012-2022 Secretarial and clerical’ and skilled trades -800k 5% net decrease in jobs 2012-2022

14. College HE strategies The fundamentals A longer-term HE plan, owned by Governors and SMT. Validation (university relationship, DAPs etc) Compliance (SLC, HEFCE, QAA, CMA) Think about your students 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. Ensure that your advice & advertising is fair & truthful

15. 24+ Advanced Learner Loans Where we are now Low public awareness Successful implementation of systems in autumn 2013 £220 mil allocated by SFA in 2013-14. Perhaps £120 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. C£300 mil allocated by SFA in 2014-15. Limited growth Some new providers Colleges account for more than 60% of the market

16. FE loan supported enrolments by age group

17. FE loan supported enrolments by deprivation

18. FE loan supported enrolments by region

19. Most popular subject areas Health, public services and care (16,000) Business, administration and law (5,500) Education and training (5,500) 24+ Advanced Learner Loans

20. The consultation about FE loan extension The proposals set out in June 2014 Option for BIS to extend FE loans in 2016-17 -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? 60% RAB charge (reflecting low pay) is an obstacle Ministers are seeking quick savings after May 2015 Competing demands on SLC for 2016 My guess: yes but not sure when and in what form!

21. Increasing loan activity 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

22. 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 Demand exists but it is changing People are working longer/need to retrain Universities need roots in the community Employers still think about workforce development