English colleges face funding hit after ban on commercial loans

Plans to rebuild and repair England’s crumbling further education estate could be scrapped or delayed after the government imposed restrictive new lending rules on colleges.

Post-secondary colleges in England have for the past three decades been formally independent of the government, allowing them to fund capital projects through private loan funding.

But after being reclassified as part of the public sector last November, they are now subject to strict government lending restrictions and are effectively barred from taking out commercial loans.

College leaders warn the change, which cuts a key source of capital funding and requires institutions to borrow from the government or with its permission, will prevent much-needed improvements to the further education estate.

“What has been lost is the ability to borrow,” said Julian Gravatt, director of policy at the Association of Colleges. He fears the Treasury will be reluctant to lend to colleges as it tries to reduce the government’s deficit. “There is a fear that we will now be in line with every other part of the public sector at a time when the government is trying to reduce debt.”

The Department for Education has released £150m to support capital projects and brought in £300m in support from the Office for National Statistics reclassification in November, but college leaders said this was not enough.

According to the association, colleges have submitted 55 loan applications to the DfE, of which 22 have been rejected and 10 are pending. He added that the 23 applications that had been approved were all for short-term loans.

Funding for projects already underway has had to be reviewed and is now awaiting a commitment from the government to provide money from state loan facilities or approve bank borrowing. But the DfE said in a statement in November that it would be “unlikely” to grant permission because commercial loans have higher funding costs than money borrowed from the government.

The delays mean additional costs for colleges, while uncertainty about future funding will discourage them from starting projects vital to skills and development, said Gravatt, who added: “It has real consequences.”

Luminate Education Group, which runs three colleges and a music school, is to embark on five capital projects worth a total of £82 million, including a new sixth form and college campus.

Grants from the Education and Skills Funding Agency, a government body, funded around three-quarters of the costs and the college planned to cover the rest with commercial loans. However, it can no longer access these funds and the DfE has offered no assurances that it will cover the shortfall.

Without funding, the projects will not go ahead and the college will lose grants and £4 million it has already spent. “It’s worrying,” said Colin Booth, chief executive of Luminate. “If we don’t move forward, we won’t be able to hold classes for students in the future.”

Loan approval delays could also prevent completion of projects that must be completed by the time classes start in September 2025. “Delays of a few weeks would be a nightmare,” Booth said.

Ian Pryce, chief executive of Bedford College Group, which runs six campuses in the Midlands, said barriers to securing loans would make long-term investment more difficult, leaving colleges with more dilapidated buildings and poor infrastructure.

“If we are not allowed to secure this kind of money, then inevitably the fortunes of the college will decline in value and quality,” he said.

The DfE said it was “working on options” to support colleges, including a possible government-backed loan scheme. “We are . . . providing a package of measures that will allow colleges to continue to provide for students and invest in their assets,” he said.

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