Administration. The new normal for struggling colleges?

29 Sep 2019, 5:00

After a new report has revealed that government-backed mergers haven’t been a silver bullet for colleges in financial distress, further education leaders need to focus on student attainment in order to avoid educational administration

For some time now, the perceived wisdom has been that a struggling college’s financial performance can be improved if it merges with a more successful institution. Now, a new report from the Department for Education (DfE) looking at the impact of college mergers is challenging this assumption.

The study found that, on average, government-backed college mergers resulted in no significant change to financial performance and, perhaps more insidiously, can lead to lower levels of student attainment. The findings will undoubtedly inform the DfE’s position, and further education leaders must realise that the option is less likely to be offered as a lifeline if they find themselves in financial difficulty.

Until the publication of this report, it’s reasonable to say the DfE viewed mergers as a preferred rescue measure for colleges in precarious financial positions.  Now, with clear evidence this isn’t as effective as thought, the DfE is likely to be more willing to wind down struggling colleges, declaring them insolvent and placing them into educational administration.

Difficulties arise when problems unique to one institution are transferred to another

Educational administration carries significant personal risk to the institution’s leadership. In August, West Kent and Ashford College became the second college to fall under the DfE’s insolvency regime. The Insolvency Service is now set to determine whether governors and members of the college’s board are liable for financial mismanagement or guilty of additional statutory offences, which could lead to criminal charges. While this is an exceptional case, it highlights the stark reality of insolvency proceedings.

Another recent report from the DfE evaluating area reviews (a far-reaching programme that led to many colleges being consolidated to improve further education provision regionally) could compound a change in approach from the department. It found that £433 million had been made available to make bespoke and often protracted mergers work. It wouldn’t be surprising if the DfE now judged this money better spent elsewhere with more demonstrable effects.

However, if it becomes less common for the DfE to incentivise mergers, it doesn’t mean further education leaders shouldn’t consider the route as a viable way to improve their financial position. Mergers usually referred to as Type A (when a college merges with another, similar-sized institution) can have benefits, creating a leaner and generally more financially efficient operation.

Difficulties arise when problems unique to one institution are transferred to another, a reality underlined by the DfE’s report. This means due diligence needs to be comprehensive – factoring in financials, but also placing greater importance on student attainment and experience. By giving each of these equal weight, colleges looking to pursue a merger to strengthen their financial position will cultivate an attractive environment for successful partnerships.

The shadow of the government’s Augar Review also looms large in this context. It recommended that the Office for Students should become the national regulator for non-apprenticeship education provision at levels four and above. This means colleges could soon be subject to the same league tables as universities. If this happens, a college that ranks poorly in areas such as student satisfaction and attainment is not likely to be judged as an appealing proposition for a merger. 

Colleges continue to operate amid challenging conditions. Last week, a report from the Institute for Fiscal Studies found further education spending per student remains lower than in 2010 in real terms. While this must be treated with the seriousness it deserves, there is a danger that sector leaders get distracted. As with any other sector, the important thing is to get the core business right. Following this will put colleges in a strong position and make mergers, if progressed, more likely to be successful.

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