New rules let borrowers avoid Hefce hurdle

Universities could be allowed to seek cash without asking funding council’s permission

May 15, 2014

More English universities could be allowed to borrow money without seeking permission from the funding council under new financial rules to be brought in later this year.

The Higher Education Funding Council for England has published its analysis of responses to a consultation on changes to the financial memorandum, in effect the terms and conditions attached to funding by the council.

After the consultation, the financial memorandum will in future be known as the “memorandum of assurance and accountability”.

On borrowing, Hefce will still assess “whether the proposed level of financial commitment increases the risk to the public or the collective student interest; if so, the institution will be required to take action to reduce that risk”.

But at present, universities seeking new borrowing must ask Hefce’s permission to push their “annual servicing costs” – the cost of their debt – above 4 per cent of their income, if the borrowing would take the institution above that threshold.

In future, although there will still be a single borrowing threshold above which permission will be needed, the annual servicing costs test will be removed. Instead “a multiple of earnings before interest, taxation, depreciation and amortisation”, or EBITDA – a widely applied measure of company financial performance – will be used.

The switch to EBITDA is thought to have come about because, as banks have moved increasingly towards shorter-term lending that produces higher annual servicing costs, larger numbers of borrowing requests have been submitted to Hefce. The change would head off any further increases in the number of requests for borrowing.

Hefce’s analysis also notes that consultation responses highlighted “concerns that difficulties at alternative providers could adversely impact the reputation of the higher education sector as a whole”.

The funding council periodically reviews the financial memorandum, with the last having occurred in 2010. The new memorandum of assurance and accountability will come into effect on 1 August and will be published in the coming weeks.

Times Higher Education free 30-day trial

You've reached your article limit

Register to continue

Registration is free and only takes a moment. Once registered you can read a total of 6 articles each month, plus:

  • Sign up for the editor's highlights
  • Receive World University Rankings news first
  • Get job alerts, shortlist jobs and save job searches
  • Participate in reader discussions and post comments

Have your say

Log in or register to post comments

Featured Jobs

Most Commented

United Nations peace keeper

Understanding the unwritten rules of graduate study is vital if you want to get the most from your PhD supervision, say Kevin O'Gorman and Robert MacIntosh

Eleanor Shakespeare illustration (5 January 2017)

Fixing problems in the academic job market by reducing the number of PhDs would homogenise the sector, argues Tom Cutterham

Houses of Parliament, Westminster, government

There really is no need for the Higher Education and Research Bill, says Anne Sheppard

poi, circus

Kate Riegle van West had to battle to bring her circus life and her academic life together

man with frozen beard, Lake Louise, Canada

Australia also makes gains in list of most attractive English-speaking nations as US slips