DfE opens applications for colleges capital loans

Loans are available for college capital projects originally planning private sector borrowing prior to reclassification

Loans are available for college capital projects originally planning private sector borrowing prior to reclassification

25 Apr 2023, 17:11

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Applications have opened for colleges in England to apply for capital loans from the Department for Education, following reclassification into the public sector.

Bids can be submitted from today until midnight on May 31 for colleges to apply for loan funding to fill funding shortfalls for capital schemes in the 2023/24 and 2024/25 financial years.

The Office for National Statistics reclassified general FE colleges as public sector back in November, which resulted in many colleges having to put key campus projects on hold.

That was because funding rules introduced overnight by the DfE around managing public money said that commercial finance deals would only be allowed by the government in rare circumstances, as it was deemed “very unlikely” by the department that higher private sector borrowing costs would be considered value for money.

Last month the DfE confirmed it would launch its own loan scheme for colleges for a limited period of time to help address the issue.

Guidance published today as applications opened confirmed that general FE colleges, sixth form colleges and designated institutions are eligible to apply, and there is no limit for the number of applications per college.

The eligibility criteria dictates that for projects to be eligible they must be either already underway or in the advanced stages of planning, have a funding gap as a direct result of restrictions to commercial borrowing arising from the reclassification, and must provide evidence of their original intent to borrow commercially prior to the date of reclassification in November last year.

Projects must improve the college estate or support the delivery of high-quality further education in England, the guidance said.

A cap has not been set on the amount that can be borrowed, with amounts set to be considered on a case-by-case basis and considered in line with evidence of intended amounts of commercial borrowing planned prior to reclassification.

The loans will be paid between June 1, 2023, and March 31, 2025.

The DfE confirmed it had a ring-fenced budget for the scheme, but refused to tell FE Week how much this totalled.

Minister for skills, apprenticeships and higher education, Robert Halfon, said he recognised that reclassification had caused challenges for colleges in financing their capital projects.

“The scheme will enable capital projects to continue as planned, and support the sector in its vital mission of enabling young people and adults to gain the skills they need to climb the ladder of opportunity into further study and work,” he said.

“This fresh support being offered is in addition to over £3 billion of capital investment in England’s college estates and facilities to build a world-class skills system that supports learners and delivers the skills that the economy needs, as well as bringing forward £300 million of payments to improve cash-flow.”

According to the DfE the funding will come from the department’s existing budget. The DfE refused to say how much has been set aside, but it is understood to be based on returns from colleges to two letters sent to accounting officers in November 2022 and March 2023.

The loans can be used on schemes that are being self-funded entirely, or on those which have already attracted other government cash such as T Level capital funding, post-16 capacity funding, FE capital transformation cash, Institutes of Technology or strategic priorities grants from the Office for Students.

For the latter, loans can be used to meet any match funding requirements.

The DfE’s timeline said that colleges should expect to receive notification of bids relating to DfE capital grant funded projects in the summer and outcome of bids for self-funded capital projects (those not to have attracted other government pots of cash) in the autumn.

Projects deemed ineligible include those not related to the provision of further education or training, such as “large atria, commercial activities not related to government funded provision or where the estate is being let to tenants”.

Residential provision will be considered essential to provision, it said.

Ineligible costs include rent service charges, internal staffing costs, routine maintenance costs and supply of loose furniture or equipment.

Interest rates will be charged at the rates for the Public Works Loan Board’s new loan fixed rate for a debt maturing up to one year, which is currently 5.15 per cent.

Julian Gravatt, deputy chief executive of the Association of Colleges said it represented a cheaper form of loan than private borrowing, the interest of which would likely be two or three per cent higher, but said the short time scale for applications will leave “a bit of a scramble” for some colleges.

He added: “It’s a short term thing, which is kind of understandable because no-one knows what’s going to happen to the budget after 2025 [the end of the spending review period], and that’s partly politics.

“What we all really want is for Treasury in a future financial settlement to set out a continuing capital budget for FE.”

However specialist colleges, which remain a part of the private sector and can continue to borrow commercially, have expressed dismay that they are left out of scope of central government capital grants funding, leaving them reliant on more expensive private loans.

Clare Howard, chief executive of Natspec, said that it has “now been ten years since we have received a slither of a capital fund” and had left staff “having to deliver education and training to some of society’s most vulnerable young people in damp classrooms and under leaking roofs”.

She added: “Our students’ education and wellbeing are suffering due to the disrepair of buildings and the lack of new facilities. That is why there needs to be a dedicated capital funding stream for specialist colleges.”

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