The TES is reporting that experts have warned colleges owe £1.6 billion in long-term loans and mounting financial pressures, combined with the structural overhaul of the sector, could lead to debts continuing to surge.
TES understands that around 12 colleges have been forced to turn to the Skills Funding Agency (SFA) for financial assistance in recent weeks after failing to comply with the terms of their bank loans. Many more have been forced to accept higher interest rates or borrow additional money from other banks or local authorities to manage their debts.
Colleges reported an overall operating deficit of about £60 million in 2014-15, about 1 per cent of their total income, according to the Association of Colleges (AoC). This was the second consecutive year in which the sector as a whole was in deficit.
The AoC has warned that the significant number of college mergers expected to result from the area reviews could lead to banks renegotiating any outstanding loans.
“The banks reserve the right to treat a merged college as a new organisation and to require a new loan application with new terms,” warns an AoC briefing for MPs, seen by TES. “This may not happen in all cases but there is clearly a risk either that colleges end up paying more, diverting resource from students, or that the banks withdraw entirely from some loans.”
According to the AoC, the total value of long-term loans to colleges stands at around £1.6 billion – more than the entire adult education budget (excluding apprenticeships) for 2015-16 (see figures, above)…
The warnings came as one prominent leader spoke of colleges in the capital having to remortgage buildings so that they could afford to make staff redundant…
See more in the 26 February edition of TES
Sounds pretty ominous – are the fears expressed here well-founded?
Please give us your insights and reactions in the comments or via Twitter…
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