Category: Fees & Funding

  • Higher education should lift students out of poverty – not trap them within it

    Higher education should lift students out of poverty – not trap them within it

    As a former student who benefited from welfare payments, I’ve long been consumed with the educational struggle of students on free school meals (FSM) —the official marker we have of relative poverty.

    That’s why I found recent newspaper headlines in autumn 2024 celebrating “record numbers” of poorer students entering university so troubling. On the face of it, this sounded like welcome progress. But this “record” in fact reflected a grim reality: rising numbers of pupils qualifying for free school meals in a growing bulge of 18-year-olds in the population.

    The government’s framing of the latest university admissions figures as good news was unwittingly celebrating rising levels of poverty. A pupil is eligible for free school meals (FSM) if their parent or guardian receives benefits or earns an annual gross income of £16,190 or less. As of January 2024, a quarter (24.6 per cent) of school pupils in England were on FSM – up from 18 per cent in 2018. This rapid rise meant that in the 2022–23 university intake, around 57,000 FSM students were enrolled (alongside 300,000 non-FSM students).

    The 2022–23 academic year will be remembered for an ignominious distinction – the university progression rate for FSM students declined for the first time since records began in 2005–06. The gap in degree enrolment between FSM and non-FSM students widened to a record-breaking 20.8 percentage points (29 per cent versus 49.8 per cent). A meagre 6.1 per cent of FSM pupils secured places at the UK’s most selective universities.

    These statistics are a damning indictment of our collective failure to uphold the principle that university should be open to all, regardless of background.

    Heating and eating

    This year’s Blackbullion Student Money & Wellbeing Survey, now in its fifth year, brings with it more alarming data, shining a harsh light on the lived realities of these university students. The findings are based on 1200 students, surveyed across the UK. This year they are also categorised by measures of disadvantage, including whether students have been eligible for FSM at any point during their school years.

    Almost three-quarters (72.94 per cent) of FSM students said they’d been too hungry to study or concentrate, compared with 47.32 per cent of their non-FSM peers. Nearly seven in ten (67.82 per cent) said they’d been too cold to focus, avoiding heating their homes because they couldn’t afford it (compared with 42.39 per cent of non-FSM students). They are also much more likely to report not being able to study because they are unable to purchase books. Just under half worry that work commitments get in the way of their study. More than eight in ten worry their final degree grade will be harmed by their lack of money.

    These latest findings lay bare the inequities that scar our higher education system—a system that should lift students out of poverty, not trap them within it. As someone who benefitted from a full maintenance grant during my own time at university, these reports of hunger, cold, and financial stress are heartbreaking. I know what a lifeline financial support can be. My termly cheques were a godsend, enabling me to focus on my studies without having to worry about affording the next meal or keeping the heater on in my room. Shorn of basic support, it’s been little surprise to me that recent waves of FSM students have been far less likely to complete their degrees compared with their better-off counterparts.

    Failure to maintain

    It’s time to reintroduce maintenance grants for FSM students in England as part of the new financial arrangements for universities being considered by the Labour government. The removal of grants in 2016 has meant that FSM students are graduating with the largest loan debts. This could understandably be putting many off applying to higher education in the first place.

    At the same time, maintenance loans should increase with inflation, building on the 3.1 per cent rise already announced for 2025–26, going some way to help all students facing immediate hardship while at university. This would be a fair settlement and mirror similar arrangements in Scotland.

    As education officials brace themselves for the toughest of government spending reviews, I don’t underestimate how hard it will be to fund such a reform. But to fail in this task would be a national travesty, betraying not only these students but also the very principle that a university education should be accessible to all, no matter their background or economic circumstances.

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  • Universities want more money upfront. DfE wants proof students are really there

    Universities want more money upfront. DfE wants proof students are really there

    When students get their student maintenance loans, they get the first instalment a lot earlier than their university gets the corresponding tuition fee payment.

    That might help explain the curious case of disparities between pulldown – but there’s a sound theory to it. Students without savings could face a cashflow issue if it was any other way.

    It’s becoming a problem for universities too. The Office for Students’ (OfS) financial sustainability update report highlights low liquidity levels in the sector – especially during certain points in the annual cycle.

    That matters because universities have to meet minimum liquidity requirements in the registration conditions in England. A failure to maintain those levels can also impact “going concern” status and breach some lending covenants.

    In the past, cash flow imbalances tended to be offset by other income sources, borrowing, or cross-subsidies, such as from international student fees.

    But given how universities operate and the demands on cash before those SLC payments come in, there is in some providers a disproportionate reliance on arrears payments from SLC-funded students compared to other funding sources.

    For non-SLC funded students, universities typically charge fees upfront (or at least in front-loaded advance instalments) or get payments for stuff like government-funded apprenticeships monthly. Research funding streams also match payments to incurred costs.

    But the SLC’s payment profile for undergrads is 25:25:50 – so universities face significant upfront costs in the first two terms and then wait longer than standard 30-day payment terms to receive funds, forcing them to bridge the gap using other resources.

    So the University Alliance has a proposal – switch those payments to 40:40:20 to improve the sector’s funding position:

    Even if the move was phased first to 33:33:33 and then to 40:40:20 it would have an immediate impact on the current situation which has been adversely impacted by the previous administration’s approach to international student recruitment through restrictive visa policies.

    The current system is going to have to undergo change anyway, given the potential implications of the LLE. I note in passing that one of the most common student leader manifesto goals this year is better, less front-loaded instalments – surely the principle (and the issue in terms of cashflow) cuts both ways.

    But UA’s proposal might not land in quite the way intended – partly because the Student Loans Company is under pressure to increase yield.

    Leakage

    DfE’s “Tailored Review” of the Student Loans Company back in July 2019 talked of the rapidly increasing size of the student loan book, and the increasing importance and value of having a robust, well-resourced and effective repayment strategy which actively seeks to maximise yield.

    That said that the SLC is hamstrung by IT systems which do not “adequately facilitate the use of smart diagnostics for effective modelling, proactive use of data analytics and more precise customer segmentation” to minimise repayment leakage:

    Indeed, unverified customers account for c. £7bn of uncollected repayments (although many of these would not be in a position to repay)

    September’s SLC board minutes noted that its CEO had been along to DfE’s Audit and Risk Committee, where the department led an item on the student finance loan book, with an emphasis on its “scale and yield potential”.

    And its newly published Business Plan for 2024-25 says it will work with partners in DfE to progress proposals to “improve repayment customer verification rates”, “improve data quality to increase verification and yield” and look at options to apply stronger sanctions to customers not adhering to the terms and conditions of their student finance repayments.

    Some of that is about the SLC’s systems – but one of the problems noted in the National Audit Office’s report into franchising is that there is often “insufficient evidence” that students are attending and engaging with their courses:

    In determining a student’s eligibility for loan payments, and before making payments, SLC uses lead providers’ data to confirm students’ attendance. Lead providers self-assure their own data… there is no effective standard against which to measure student engagement, which attendance helps demonstrate, and there is no legal or generally accepted definition of attendance. Providers themselves determine whether students are meaningfully engaged with their course.

    So in a set of circumstances where the NAO and the Public Accounts Committee (PAC) are already worried about attendance and engagement, and providers are worried about their own cashflow, it seems unlikely that DfE is going to be receptive of a proposal to give providers more of the money early – especially if, in the case of franchised provision, it can’t just claw it back from the lead provider if there’s a problem like the Applied Business Academy.

    As we noted back in October, the government’s response to the NAO and the PAC was that it published guidance on attendance management in May, against which providers can be held to account “in relation to the release of SLC tuition fee payments”.

    That said that there is an “understanding and acceptance” across the sector that providers should have in place published attendance and engagement policies, so that students understand the commitment expected of them and the respective process a provider follows if attendance expectations are not met.

    It also said that in any circumstance where a provider does not have a published policy, the department “expects” that one will exist from the 2024-25 academic year – but it’s pretty clear talking to people around the country that that goal hasn’t been meaningfully met in large parts of the sector, at least in terms of a policy that both covers home students and is “auditable”.

    And part of the difficulty there is what is or isn’t meant by “attendance”.

    Attending isn’t always in person

    The Attendance Management guidance says:

    Attendance means participation in a course by a student, including, but not limited to, teaching face-to-face or blended study, in line with a provider’s published attendance policy. A provider should communicate its policy to a student and have an auditable process in place to support the action it may take when a student does not meet attendance expectations.

    It goes on to say that providers have flexibility to ensure every student engages with a course, and that the student and/or the course may require greater or less attendance than another due to circumstances or content.

    SLC told me that there is no difference between “attendance” and “engagement” – the definition of “attendance” for student finance purposes is active and ongoing engagement. Crucially, it said that “attendance” doesn’t have to mean “in person”, or “studying on campus”.

    But the conflation of “attendance” and “engagement” doesn’t seem to apply when a course is designed and designated. Noting that “blended learning” combines traditional classroom teaching with online learning and independent study, it says that there has been some confusion as to whether these courses should be coded as distance learning courses:

    Courses of any teaching method are distance learning if the students only attend occasionally, for example once a term. If students attend regularly, for example once a week, and follow a structured timetable, the course is not distance learning and you should not add it to CMS as such.

    That paragraph draws a clear distinction between attendance and engagement. Its two scenarios also appear to draw a distinction between (physical) attendance and “engagement”:

    • Scenario 1: Thomas is studying a BA Hons in sports coaching. His course hours are 30 weeks online study including lectures and tutorials, 2 days per week physical attendance at sports academy, 6 days per year attendance at university. As Thomas needs to attend the sports academy regularly rather than occasionally, this is an in-attendance course.
    • Scenario 2: Kate is studying an HND in Musical Theatre. Her course hours are 30 weeks online study including lectures and tutorials, 3 days per year (1 day per term) attendance at college. As Kate only needs to attend college occasionally rather than regularly, this is a distance learning course.

    The difference between Scenario 2 and the patterns of attendance being seen by many providers around the country this term is that in that scenario, the course is designed not to include regular physical attendance.

    A two-stage process

    SLC told me that whether it’s distance or in-person, engagement on a course is required and confirmation of that engagement is therefore required for SLC to make a fee loan payment on the student’s behalf.

    Ongoing engagement is not part of the definition of in-person or distance learning. That distinction relates to the attributes of the course that is supplied by the provider, as to whether the course has elements of in-person learning or if the student is not required to be in-person.

    But the obvious question is as follows. Notwithstanding codified exemptions for disabled students, if a course is designed as blended, would an acceptable “attendance management” policy for a course of that sort allow a student to engage all term, but only occasionally physically attend?

    If yes, and Kate’s HND wasn’t designed as blended, and her mate Kathy was on a course that was designed as blended, that would seem to mean that they could both have exactly the same attendance and engagement pattern, but Kathy would get a maintenance loan while Kate wouldn’t.

    If, on the other hand, a course was designed as blended and requiring regular in-person attendance, and SLC would expect an attendance/engagement policy to enforce that regular in-person attendance, there’s plenty of providers right now falling foul of those expectations.

    So you end up with three categories:

    1. Providers who’ve never really had a proper policy on any of this for home students – let alone enforce one – beyond noticing if a student doesn’t submit what can often be end-of-year summative assessment.
    2. Providers who designed a course as blended where students are in reality engaging in a “distance learning” kind of way – which, while confirming engagement in accordance with the rules, seems hugely unjust to tens of thousands of OU students if nothing else.
    3. Providers who are heavily auditing and requiring physical attendance – partly to achieve parity with international students – at just the point that students are struggling to attend in-person given wider demands on their time.

    It may well be the case that SLC is stuck with the definitions it has – which in part date back to the Teaching and Higher Education Act 1998.

    But if it’s the case that it’s OK for an attendance policy to not actually require regular in-person attendance, it’s hard to believe that whatever size and shaped-problem that DfE and the SLC have with student loan fraud is going to get anything other than worse.

    And in the end, this all comes back to an old problem – not knowing what’s going on underneath headline non-continuation.

    How far in?

    Remember those risks that OfS identified in its insight brief on subcontracting:

    • Data of extremely poor quality has been submitted in relation to students at some subcontractual partnerships, leading to payments being made to, and on behalf of, students who are not genuinely entitled to them.
    • Delivery partners have lacked clear attendance policies, making it almost impossible for lead providers to submit accurate data to the OfS and the SLC in relation to these students.
    • Students have been encouraged to register for courses that they do not genuinely intend to study, to access public funding through maintenance loans. In some cases, students have withdrawn from courses shortly after receiving these funds; in others there are grounds to doubt that they are continuing to study, despite their termly attendance being confirmed.

    Whether we’re looking at a select group of partnerships as OfS published data on last week or directly taught provision, while we know what percentage of UG students don’t make it to the second year, we don’t know what proportion:

    • Got instalment 1 of the maintenance loan but didn’t get as far as “engaging” enough for the provider to claim instalment 1 of the tuition fee loan (they don’t show up at all in non-continuation)
    • Engaged enough to enable the provider to claim instalment 1 but not enough to enable the provider to claim instalment 2 (and what proportion of them claimed maintenance instalment 2)
    • Engaged enough to enable the provider to claim instalment 2 but not enough to enable the provider to claim instalment 3 (and what proportion of them claimed maintenance instalment 3)
    • Engaged enough to enable the provider to claim instalment 3 but then failed and was withdrawn
    • Engaged enough to enable the provider to claim instalment 3 and was eligible to progress but then self-withdrew
    • And we don’t know any of the above for subsequent years of study.

    In many ways, what we have here is (yet) another iteration of the stretch involved in a single level playing field. There have been endless tales down the years of Russell Group alumni not really “engaging” at all for entire years, and in some cases entire degree courses – only to pull it out of the bag at the end. It’s an adult environment, after all.

    On the other hand, with another part of the sector now under close scrutiny over ghost students of differing definitions – just as the FE sector saw scandals over in the 90s – it doesn’t feel like that kind of legend is to be allowed.

    In terms of the cashflow thing, if DfE and the SLC are going to push more of the money upfront, they’re surely going to want to know the percentages and numbers in each of the above categories.

    And the accuracy of those percentages and numbers involves providers being sure about “enough” engagement – in an auditable way across the diversity of programmes and reasonable adjustments – to tick the box in the data return to SLC three times a year.

    It does feel like there’s some distance to go on all of that as it stands.

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  • Connect more: creating the conditions for a more resilient and sustainable HE sector in England

    Connect more: creating the conditions for a more resilient and sustainable HE sector in England

    Despite it being the season of cheer, higher education in England isn’t facing the merriest of Christmases.

    Notwithstanding the recent inflationary uplift to the undergraduate fee cap, the financial headwinds in higher education remain extremely challenging. Somehow, in the spring/summer of next year, the Secretary of State for Education is going to have to set out not only what the government expects from the sector in terms of meeting the core priority areas of access, quality and contribution to economic growth, but how it will deliver on its promise to put the sector on a long-term sustainable financial footing.

    The overall structure of the sector in terms of the total number of providers of higher education and their relationships to each other might arguably be considered a second-order question, subject to the specifics of the government’s plans. But thinking that way would be a mistake.

    The cusp of change

    There are real and present concerns right now about the short term financial stability of a number of providers, with the continued increased risk that a provider exits the market in an unplanned way through liquidation, making the continued absence of a regime for administering distressed providers ever more stark.

    But on a larger scale, if, as some believe, the sector is on the cusp of entering into a new phase of higher education, a much more connected and networked system, tied more closely into regional development agendas, and more oriented to the collective public value that higher education creates, then the thinking needs to start now about how to enable providers to take part in the strategic discussions and scenario plans that can help them to imagine that kind of future, and develop the skills to operate in the new ways that a different HE landscape could require. It is these discussions that need to inform the development of the HE strategy.

    The Office for Students (OfS) has signalled that it considers more structural collaboration to be likely as a response to financial challenge:

    Where necessary, providers will need to prepare for, and deliver in practice, the transformation needed to address the challenges they face. In some cases, this is likely to include looking externally for solutions to secure their financial future, including working with other organisations to reduce costs or identifying potential merger partners or other structural changes.

    Financial challenge may be the backdrop to some of this thinking; it should not be the sole rationale. Looking ahead, the sector would be planning change even if it were in good financial health: preparing for demographic shifts and the challenge of lifelong learning, the rise of AI, and the volatile context for international education and research. Strategic collaboration is rarely an end in itself – it’s nice to work together but ultimately there has to be a clear strategic rationale that two or more providers can realise greater value and hedge more readily against future risks, than each working individually.

    There’s no roadmap

    In the autumn of 2024, Wonkhe and Mills & Reeve convened a number of private and confidential conversations with heads of institution, stakeholders from the sector’s representative bodies, mission groups, and regional networks, Board chairs, and a lender to the sector. We wanted to test the sector’s appetite for structural change; in the first instance assessing providers’ appetite for stepping in to support another provider struggling, but also attitudes to merger and other forms of strategic collaboration short of full merger. Our report, Connect more: creating the conditions for a more resilient and sustainable higher education system in England sets out our full findings and recommendations.

    There is a startling dearth of law and policy around structural collaboration for HE; some issues such as the VAT rules on shared services, are well established, while others are more speculative. What would the regulatory approach be to a “federated” group of HE providers? What are merging providers’ legal responsibilities to students? What data and evidence might providers draw on to inform their planning?

    We found a very similar set of concerns, whether we were discussing a scenario in which a provider is approached by DfE or OfS to acquire another distressed provider, or the wider strategic possibilities afforded by structural collaboration.

    All felt strongly that the driving rationale behind any such structural change – which takes considerable time and effort to achieve – should be strategic, rather than purely financial. Heads of institution could readily imagine the possibilities for widening access to HE, protecting at-risk subjects; boosting research opportunities, and generally realising value through the pooling of expertise, infrastructure and procurement power. The regional devolution and regional economic growth agendas were widely considered to be valued enablers for realising the opportunities for a more networked approach.

    But the hurdles to overcome are also significant. Interviewees gave examples of failed collaboration attempts in other sectors and the negative cultural perceptions attached to measures like mergers. There was a nervousness about competition law and more specifically OfS’ attitude to structural change, the implications for key institutional performance metrics, and a general sense that no quarter would be given in accommodating a period of adjustment following significant structural change. The risks involved were very obvious and immediate, while the benefits were more speculative and would take time to realise.

    Creating conditions

    We have arrived at two broad conclusions: the first being that government and OfS, in tandem with other interested parties such as the Competition and Markets Authority could adopt a number of measures to reduce the risks for providers entering into discussions about strategic collaboration.

    This would not involve steering particular providers or taking a formal view about what forms of collaboration will best serve public policy ends, but would signal a broadly supportive and facilitative attitude on the part of government and the regulator. As one head of institution observed, a positive agenda around the sector’s collaborative activity would be much more galvanising than the continued focus on financial distress.

    The second is that institutions themselves may need to consider their approach to these challenges and think through whether they have the right mix of skills and knowledge within the executive team and on the Board to do scenario planning and strategic thinking around structural change.

    In the last decade, the goal for Boards has been all about making their institution stronger, and more competitive. While that core purpose hasn’t gone away, it could be time to temper it with a closer attention to the ways that working in a more collective way could help higher education prepare itself for whatever the future throws at it.

     

    This article is published in association with Mills & Reeve. View and download Connect more: creating the conditions for a more resilient and sustainable higher education system in England here.

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  • Higher education in England needs a special administration regime

    Higher education in England needs a special administration regime

    Extra government funding for the higher education sector in England means the debate about the prospect of an HE provider facing insolvency and a special administration regime has gone away, right?

    Unfortunately not. There is no additional government funding; in fact the additional financial support facilitated by the new Labour government so far is an increase to tuition fees for the next academic year for those students that universities can apply this to. It is estimated that the tuition cost per student is in excess of £14K per year, so the funding gap has not been closed. Add in increased National Insurance contributions and many HE providers will find themselves back where they are right now.

    It is a problem that there is no viable insolvency process for universities. But a special administration regime is not solely about “universities going bust.” In fact, such a regime, based on the existing FE special administration legislation, is much more about providing legal clarity for providers, stakeholders and students, than it is about an insolvency process for universities.

    Managing insolvency and market exit

    The vast majority of HE providers are not companies. This means that there is a lack of clarity as to whether current Companies and Insolvency legislation applies to those providers. For providers, that means that they cannot avail themselves of many insolvency processes that companies can, namely administration, company voluntary arrangements and voluntary liquidation. It is debatable whether they can propose a restructuring plan or be wound up by the court, but a fixed charge holder can appoint receivers over assets.

    Of these processes, the one most likely to assist a provider is administration, as it allows insolvency practitioners to trade an entity to maximise recoveries from creditors, usually through a business and asset sale.

    At best therefore, an HE provider might be able to be wound up by the court or have receivers appointed over its buildings. Neither of these two processes allows continued trading. Unlike administration, neither of these processes provides moratorium protection against creditor enforcement either. They are not therefore conducive to a distressed merger, teach out or transfer of students on an orderly basis.

    Whilst it is unlikely that special administration would enable survival of an institution, due to adverse PR in the market, it would provide a structure for a more orderly market exit, that does not currently exist for most providers.

    Protections for lenders

    In addition to there being no viable insolvency process for the majority of HE providers, there is also no viable enforcement route for secured lenders. That is a bad thing because if secured lenders have no route to recovering their money, then they are not going to be incentivised to lend more into the sector.

    If government funding is insufficient to plug funding gaps, providers will need alternative sources of finance. The most logical starting point is to ask their existing lenders. Yes, giving lenders more enforcement rights could lead to more enforcements, but those high street lenders in the sector are broadly supportive of the sector, and giving lenders the right to do something is empowering and does not necessarily mean that they will action this right.

    Lenders are not courting the negative press that would be generated by enforcing against a provider and most probably forcing a disorderly market exit. They are however looking for a clearer line to recovery, which, in turn, will hopefully result in a clearer line to funding for providers.

    Protections for students

    Students are obviously what HE providers are all about, but, if you are short of sleep and scour the Companies and Insolvency legislation, you will find no mention of them. If an HE provider gets into financial distress, then our advice is that the trustees should act in the best interest of all creditors. Students may well be creditors in respect of claims relating to potential termination of courses and/or having to move to another provider, potentially missing a year and waiting longer to enter the job market.

    However, the duty is to all creditors, not just some, and under the insolvency legislation, students have no better protection than any other creditor. Special administration would change that. The regime in the FE sector specifically provides for a predominant duty to act in the best interest of students and would enable the trustees to put students at the forefront of their minds in a time of financial distress.

    A special administration regime would therefore help trustees focus on the interest of students in a financially distressed situation, aligning them with the purposes of the OfS and charitable objects, where relevant.

    Protections for trustees

    Lastly, and probably most forcefully, a special administration regime would assist trustees of an HE provider in navigating a path for their institution in financial distress. As touched on above, it is not clear, for the vast majority of HE providers, whether the Companies and Insolvency legislation applies.

    It is possible that a university could be wound up by the court as an unregistered company. If it were, then the Companies and Insolvency legislation would apply. In those circumstances, the trustees could be personally liable if they fail to act in the best interest of creditors and/or do not have a reasonable belief that the HE provider could avoid an insolvency process.

    Joining a meeting of trustees to tell them that they could be personally liable, but it is not legally clear, is a very unsatisfactory experience; trust me, this is not a message they want to hear from their advisors.

    A special administration regime, applying the Companies and Insolvency legislation to all HE providers, regardless of their constitution or whether they are incorporated, would allow trustees to have a much clearer idea of the risks that they are taking and the approach that they should follow to protect stakeholders.

    In the event a special administration was to be brought in, we would hope it would not need to be applied to a market exit situation. Its real value, however, is in bringing greater legal clarity for lenders and trustees and more protection for students, in the current financial circumstances that HE providers find themselves in.

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