Expert voices raise alarm over capless costs

Hepi head and HE analyst tell MPs that coalition sums don’t add up

December 19, 2013

Source: Geoff Franklin

Risk aversion: unlimited recruitment is problematic, says Bahram Bekhradnia

The abolition of student number controls poses a “real risk to the public finances” by allowing universities and colleges unlimited recruitment of students from the European Union, a sector expert has warned MPs.

Bahram Bekhradnia, the outgoing director of the Higher Education Policy Institute, made the claim at an evidence session on student loans held by the Business, Innovation and Skills Committee on 17 December.

The committee also took evidence from Andrew McGettigan, author of The Great University Gamble, who said that the government’s plan to finance extra places by the future sale of student loans was “entirely speculative” – and that the funding projections provided by the Treasury had been “shoddy”.

The MPs called the session after the National Audit Office criticised the government’s running of the student loans system amid growing Westminster scrutiny of higher education funding (see box below).

Mr Bekhradnia gave evidence on the day that Hepi published another highly critical report on the cost of the coalition’s £9,000 fees system.

He told the committee that the abolition of the student numbers cap would create “huge incentives for universities and colleges – public or private – to recruit”. Universities could “go to Europe and recruit for all they are worth”, Mr Bekhradnia argued in the hearing. “There is a real risk here to the public finances.”

The Hepi report, The Cost of the Government’s Reforms of the Financing of Higher Education – An Update, says: “Already large numbers of students with no Ucas tariff scores enter higher education. No one can know how many more might be sought out and recruited by universities exercising a new freedom to recruit without limit. And EU students represent an almost unlimited additional potential source.”

The analysis, authored by Mr Bekhradnia and John Thompson, a higher education analyst, says the plan to finance extra student places by future loan sales “has many of the characteristics of a Ponzi scheme, relying on future diminishing income to make good increasing present deficits”.

It warns that the expanded version of the system can “at best…only be a bridge for a few years prior to an increased budget for higher education, or to reduced student numbers, or to a cheaper package”.

The cheaper package might include student “maintenance grants turned into loans, less generous loan repayment terms, cuts in the teaching grant or cuts in other parts of the HE budget”.

Dr McGettigan said it was “entirely speculative” for ministers to suggest that expansion “could be financed by loan sales post-2020”.

Selling the post-2012 loan book – with relatively generous terms and conditions – would take “a whole different level of financial engineering” to make it appealing to private purchasers, he argued. If those loans could be sold, “we would be doing it now”, he added.

The government has said that pre-2012 income-contingent loans will be sold by 2015, but only if “value for money” can be secured.

Dr McGettigan said that the sector would start expanding in 2014-15 “before we even know if we’ve got the loan proceeds”.

This would be problematic for universities, which need “long-term sustainable finance to make these kind of plans”, he added.

john.morgan@tsleducation.com

Christmas stuffing: PAC chair slices up student loan mandarins

“Jesus,” muttered Margaret Hodge, chair of the House of Commons Public Accounts Committee, under her breath.

Ms Hodge was not breaking into a Christmas carol: she was giving her verdict on two “deeply unprepared” senior civil servants (her words), who were appearing before the committee of MPs last week after a highly critical National Audit Office report on the student loans system.

First up was Martin Donnelly, permanent secretary at the Department for Business, Innovation and Skills. Asked to provide the department’s assumptions on future graduate earnings – a key part of the multibillion-pound student loans system – Mr Donnelly’s answers included the sentences “I’m not sure I understand” and “I can’t give you a precise figure”.

Ms Hodge responded: “I don’t know how I do [know] and you don’t. I will tell you what it is.” She went on to cite a BIS estimate of 2 per cent annual growth in graduate earnings – a figure she described as “optimistic”, considering it is above the Office for Budgetary Responsibility’s estimate (1.3 per cent).

One aspect Mr Donnelly was able to confirm was that BIS now estimates “35 to 40 per cent” of student loans will never be repaid.

Mick Laverty, chief executive of the Student Loans Company, explained how the SLC’s telephone system cannot handle international prefixes, so cannot automatically dial the numbers of borrowers in arrears who are living overseas.

“Pathetic,” was Ms Hodge’s concise response.

Her mood reached its blackest when she asked for BIS’ figures on what percentage of graduates are women – a key factor in repayment forecasts.

“I think we’d better come back to you with a more detailed analysis,” replied Mr Donnelly.

“I am amazed that you have not got these figures,” said Ms Hodge.

She continued on the female graduates figure: “I know it. I don’t know why you don’t know it. You’re the boss of the department.”

When Mr Laverty drew a similar blank on the female graduate figure, she fumed: “Jesus. Honestly, I am quite surprised.”

For Mr Donnelly and Mr Laverty, Christmas cheer was in short supply: indeed, after the roasting they received from Ms Hodge, they must have an inkling of how turkeys feel.