A cash-strapped college has spent almost £2 million of the bailout cash it received from the government on bank charges – although it has actually saved money.
Stoke on Trent College successfully bid for a reported £21.9 million from the Department for Education’s restructuring facility in September.
According to its recently published 2017/18 accounts, £1.93 million of this cash went on “break costs”.
These are the fees levied by a bank for repaying a loan earlier than agreed, to compensate it for lost interest.
“Most people who have received fixed-term or fixed-interest loans or mortgages in their personal or business lives will have also experienced this penalty when repaying loans early,” said Denise Brown, Stoke on Trent College’s principal.
“In the college’s case, the fee paid represents a net saving of around £2.5 million on further payments that would have been due under the original loan agreements.”
The accounts said that on September 27, 2018 “the college received restructuring funding from the transaction unit which resulted in three of the college’s loans with Lloyds Bank being repaid in full (£9.06 million plus £1.93 million break costs)”.
A further £5,475,000 of the cash went on repaying exception financial support owed by the college, which included a £1.1 million loan from the former Department for Business, Innovation and Skills.
The college also received a £500,000 “interest-bearing” loan, repayable by July 2030 “subject to a capital loan repayment holiday until October 2021”.
FE Week previously reported on the college’s successful bid to the restructuring facility in September, although it wouldn’t say at the time how much it was awarded.
Ms Brown has now confirmed that the college has so far received £16.5 million, with a further £5 million available for it to draw down.
The college had been through a “rigorous process” to get its hands on the funding, she said.
The support package it has received “provides an adequate injection of funding to clear the burden of debt, to ensure that the college meets its immediate financial commitments and starts to build the foundations of a more sustainable future”.
According to the 2017/18 accounts, the college was “reliant on exceptional financial support in order to meet its working capital requirements and debt-serving obligations”.
It made an operating deficit over the year of more than £3 million on an income of £23 million, before adjusting for other gains and losses, and owed a combined total of £13.3 million in bank and BIS loans.
The previous year it was almost £16 million in the red, according to the 2016/17 accounts.
That year, the college made two separate requests for EFS over the year – one for £990,000 and the other for £2.55 million.
FE Week reported in February that the college had drawn down more than £500,000 in EFS in December 2017 alone, although it wasn’t clear if this was part of or in addition to the £3.5 million.
Unlike other colleges with similarly precarious finances, Stoke on Trent has no plans to merge.
An FE commissioner-led structure and prospects appraisal in 2017 “recommended a ‘fresh-start’ approach as the college had been unable to find a willing strategic partner”.
It is currently rated ‘requires improvement’ by Ofsted – a grade it has had for two inspections in a row.
A monitoring visit report, published in December, found that the college was making ‘reasonable progress’ in all areas under review.
The restructuring facility, which closed for applications in October, was originally intended to fund changes resulting from the area review of poat-16 education and training, which ended in March 2017.
However, it has increasingly been used to prop up failing colleges, although both the DfE and the skills minister Anne Milton have both denied this.
Other huge payouts from the fund include a reported £54 million to Hull College last year, and £21 million for Telford College, formed through the merger of New College Telford and Telford College of Arts and Technology in December 2017.