University debt could come under more scrutiny

Universities’ borrowing could come under more scrutiny with the form and extent of debts being part of risk assessments by England’s funding council

September 17, 2013

The Higher Education Funding Council for England yesterday published a consultation on a new financial memorandum – the contract between Hefce and the universities it funds that sets out the conditions institutions must meet to receive grants.

The main issue up for consultation is a change to the way Hefce, which must give consent to larger borrowing by universities, assesses risk in borrowings.

The proposed new memorandum also says that universities must sign up to the Research Integrity Concordat to receive funding, and sets out a plan for a new register of higher education providers.

The financial memorandum is being revised as part of a shake-up of the sector’s regulation, following the switch to £9,000 fees and a new funding regime.

On borrowing, Hefce says in a press release on the consultation: “The current way that Hefce consents to borrowing by HEIs [higher education institutions], which is based upon annualised servicing costs [the annual cost of the debt], is no longer suitable because banks are now generally lending on shorter timescales.”

Hefce says in the consultation document that its aim is to address the risks that universities “take on financial commitments that are unaffordable” and “accept covenants that cannot be met, that then trigger repayments that cannot be met”.

“One option…is that a threshold could be set that would require an HEI to seek approval where its financial commitments exceed a multiple of its reported…surplus,” Hefce says.

Another possible option suggested by Hefce is that universities’ levels of borrowing are assessed as part of their annual accountability returns.

“This in turn would impact on whether an HEI was considered to be ‘at higher risk’ or ‘not at higher risk’,” Hefce says.

“We would require all those HEIs considered to be ‘at higher risk’ to seek approval to increase their financial commitments; and we would reserve the right to require other HEIs ‘not at higher risk’ to seek such approval where we considered their levels of financial commitment to be significantly above sector norms, or where large transactions are involved.”

Responses to the consultation are invited by 6 December.

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