Home Business NewsBusiness Further education colleges banned from taking out commercial loans

Further education colleges banned from taking out commercial loans

by LLB Reporter
23rd Mar 23 5:15 pm

Further education institutions in England have been struggling financially for decades, and recent plans to rebuild and repair them are now at risk of being scrapped. Further education colleges offer a wide variety of courses including access courses, higher education-level diplomas and sometimes even bachelor’s degrees.

In November 2022, further education colleges were reclassified as part of the public sector after having been formally independent of the government for the past three decades. This change in classification has meant that colleges are now subject to strict government lending restrictions and are effectively barred from taking out commercial loans such as payday loans or personal loans.

College leaders warn that this change, which cuts off a key source of capital funding, will prevent badly needed improvements to the further education estate. Julian Gravatt, policy director at the Association of Colleges, has expressed fear that the Treasury will be reluctant to lend to colleges as it tries to reduce the government’s deficit.

The Department for Education has released £150mn to support capital projects and brought forward £300mn in support since the 2022 reclassification. However, college leaders warn that this is not enough.

Gravatt said, “There’s a fear we’ll now be in a queue with every other part of the public sector at a time when the government is trying to cut debt.”

The Association of Colleges reports that further education colleges have made 55 loan applications to the DfE, of which 22 were refused and 10 are pending. It added that the 23 applications that had been approved were all for short-term loans.

Projects that have already begun are now in limbo as financing has been disrupted by the new borrowing rules. The affected institutions are now asking for a commitment from the government to provide funding through state loan facilities or allow them to borrow from banks.

However, in a statement made in November, the Department for Education (DfE) said that it was unlikely to approve bank lending because commercial loans come with higher financing costs than government loans.

This means that colleges are left with severely limited options for financing their projects. Even those who have secured grants from the government still need to secure the remaining funds to complete their projects. If they cannot do so, they risk losing the grants they have already received and may be forced to abandon the projects entirely.

Furthermore, delays in securing the necessary funding could lead to projects being unfinished by the time courses begin, which could have disastrous consequences for both students and institutions. These consequences will have a significant impact on further education colleges and their students.

For instance, Luminate Education Group, which operates three colleges and a music school, has planned five capital projects, including a new sixth form and college campus, worth a total of £82 million.

Although grants from the Education and Skills Funding Agency covered a majority of the costs, the remaining quarter was supposed to be covered by commercial loans. However, the group can no longer access these funds, and the Department for Education (DfE) has not offered any guarantee that they can pick up this remaining fee.

Colin Booth, Luminate’s chief executive, said that if the projects do not go ahead, the college would be unable to run courses for students in the future. Delays to loan approval could also hinder the completion of projects that need to be finished by the time courses begin in September 2025.

Leave a Comment

You may also like


Sign up to our daily news alerts

[ms-form id=1]