Peter Davies, Mick Fletcher and Maggie Greenwood discuss the case for HE in FE under the new fees regime

This paper considers how impending Government changes to the funding and fee arrangements for higher education (HE) may affect further education (FE) colleges that deliver significant amounts of HEFCE-funded higher education, and their students. It is not the intention here to debate the merits of these proposals – though they are not short of critics.[1] Rather, we want to outline what we see as the substantial opportunities for HE in FE presented by the intended reforms, and also the considerable threats that arise if these opportunities are ignored or pursued insensitively. First, however, let us consider what the changes in question are, and why they are important.     

The changes to HE funding

The arrangements being put in place by the Coalition Government for the 2012–13 intake of students represent the most radical change in HE funding for many years. Although tuition fees and income-contingent loans were introduced under the previous administration, only one university set its fees below the maximum then allowed. Some offered bursaries to students from lower income backgrounds to offset the size of outlay otherwise faced, but these do not appear to have had much impact, possibly because they were not widely known about or understood by most applicants. Nothing approaching a mature market characterised by differentiated net prices – the tuition fee levels net of any fee waivers or bursaries – materialised.

Government statements about its HE policies emphasise competition between institutions, increased choice for students and greater diversity of degree-awarding institutions. Together these are perceived as helping to drive down the level of fees, improve quality and encourage greater social equity and mobility. The Government only intends to fund universities directly to a very limited extent – in the main aimed at laboratory and clinical subjects where grant funding will be available to ensure that fees to students need be no higher than for other courses. Institutions instead will be funded primarily through fees paid by students supported by government-provided income-contingent loans. To this end, the fee cap was raised to £9,000, though this level was envisaged as exceptional, as institutions intending to charge above £6,000 would first have to satisfy the Office for Fair Access (OFFA). An average fee level of £7,500 – inclusive of fee waivers – was assumed.

In practice, as we have seen, most universities announced fees very much higher than this. The Government was therefore faced with the prospect of a substantial increase in its anticipated budget for financing the associated income-contingent loans. In these circumstances, it is not surprising that the most significant measures in the recent White Paper Higher Education: students at the heart of the system are directed at ensuring that fee levels are brought down. The Government’s preference for relying on market forces and student choice to create a degree of competition that would hold down fees has in effect been substantially diluted in favour of more direct control over the level of fees that are charged. This takes the form of a mechanism whereby institutions with fees of over £6,000 will have their student number allocations reduced each year. These ‘confiscated’ student numbers will be used to create a pool from which additional numbers will be allocated to eligible institutions if they reduce their average net fees to £7,500 or less.

In addition, universities will be free to recruit any number of high achieving students – a threshold set at AAB grades at A-level, or their equivalent – and the anticipated number of such students will also be deducted from institutional allocations.  Universities unable to recruit sufficient high achievers are therefore likely very quickly to find that they are financially unviable unless they reduce their fees to £7,500 to make themselves eligible to bid for an allocation from the pool.

The consequence of all this is likely to be a bi-polar university sector in which institutions with almost all their students in the high achieving category will charge fees of £9,000 – albeit with bursaries incurred to meet the OFFA requirements – but a large number will charge £7,500 to be eligible to bid from the pool for students that they lose through the core reduction mechanism. (Some of the latter group may in fact announce fees above £7,500, while offering large fee waivers to reduce their net fee to £7,500 – a cost-effective way of meeting OFFA obligations.)

There remains, however, widespread uncertainty about the likely effects of the decisions on fees taken by individual institutions. If net fee levels are set too high, applications and enrolments may prove insufficient to sustain financial viability. If they are set too low, the enrolments obtained will provide an overall fee income lower than that which could have been achieved – with potentially similar threats to financial health. Although estimates of the seriousness of the situation vary widely, there are real worries that some university courses and departments – and even whole institutions – will be rendered unviable.

Implications for HE in FE

What bearing does all this have on HE in FE? The key questions here are whether, compared to universities, FE colleges offering HE have better defined niche markets and more advantageous ratios of costs to perceived quality that they can exploit? And if they do not or cannot, are they among the most vulnerable parts of provision if university battles for survival produce increased competition for the same types of student?

Some of the signs are encouraging. The recent HEFCE consultation confirms that Government is keen for some of the marginal HE numbers to be allocated to FE colleges where they have a proven track record and the capacity to expand. The mechanism for allocating these extra places seems likely to be a bidding process, but a lot depends on the composition of the panel of experts who will judge the bids. Colleges need to influence the criteria adopted by the panel to include factors such as the need for more local provision and links with industry, as well as traditional measures of academic quality.

FE colleges play a larger role in delivering higher education in England than is generally recognised by those outside the sector. One in eight undergraduates studies for their degree in an FE college, and this includes particularly large numbers of adult and part-time students. The FE offer complements that of universities, but also comprises unique and niche specialist courses and has particular strengths based on strong links with local employers and progression to HE from vocational programmes. In addition, there are opportunities for developing progression pathways to degrees for employed students, which colleges may be able to validate. Here there is a clear imperative to be smarter in identifying market opportunities and to focus on potential students with the capability to progress to HE. FE colleges are known to be responsive and flexible in their offer and can work up qualifications in a shorter timeframe than universities. Niche markets are likely to be the most secure, and colleges offering these types of course should be able to charge fees according to demand.

FE colleges attract many students from backgrounds with historically low rates of participation in HE, and for many represent their only practical opportunity to take part. However, these are the very students most likely to be deterred from taking degree courses because of the increased fees, and the future loan repayments. In spite of Government assurances that students will be paying less and have no upfront fees, young people and their parents are worried about the costs of HE in England. There are reports of potential students considering study abroad or taking an Apprenticeship route. The latter option could be very beneficial to FE colleges, where progression through the vocational route is well established. The development of HE pathways with local employers will therefore be of crucial importance.

HE provision in FE colleges can also be very cost-effective, both for individuals and for Government. It caters in particular for local students who study while living at home, an arrangement that some prefer. Many HE in FE students are already in employment so may not require maintenance support, which is one reason why Government may favour expansion in FE colleges as opposed to traditional HE institutions. FE colleges also traditionally concentrate on teaching – typically HE students in FE are taught for more hours a week than students in universities, which is reflected in very high rates of reported student satisfaction. However, FE colleges would be unwise to assume that they will always have a price advantage over HE institutions. A university with substantial numbers of students on classroom-type courses might adopt a strategy based on lecturing to very large groups and providing minimum contact hours, which could reduce unit costs considerably.

There are threats too. Colleges may be vulnerable on courses that are franchised from universities but are also still available in HE institutions. These will be particularly open to competition when universities are fighting for their numbers. And as the Government seeks to free up the universities’ stranglehold on awarding degrees, these powers will be taken up not only by colleges but potentially also by awarding bodies and even large employers as they develop their own universities. This touches on the issue of quality as perceived by the public. The Government seems enthusiastic about introducing private providers of HE into the market, which would reduce the student numbers available to colleges. Colleges therefore need to combat the erroneous assumption that cheaper provision is necessarily poor provision: in a field like HE, where objective measures of quality are hard to come by, reputation (deserved or otherwise) counts for a great deal. This will need to be done sensitively, however, if the goodwill of partner universities is to be maintained.

Taken overall, we believe that the prospects for HE in FE are not as gloomy as some have painted them, and may even present substantial opportunities for expansion, but there remains considerable uncertainty about the pattern of future student demand that will emerge. We in the Policy Consortium therefore intend to keep the progress of HE in FE under the spotlight, including by lobbying for research aimed at helping to inform the setting of fee levels that are optimal for both colleges and students.

Peter Davies, Mick Fletcher, Maggie Greenwood

September 2011