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Role of funding systems

Spending per student

4.3 Role of funding systems

Funding for further education in England is allocated through three different funding systems, which each have very different roles for students, learning institutions and government.

 Funding for 16- to 19-year-olds is covered by the 16–19 Funding Formula. This formula

covers technical and vocational qualifications for students in this age range as well as academic qualifications such as A levels.

 Funding for adult education (aged 19 and older) comes from the adult education

budget. The funding formula for this supports adult students undertaking eligible

qualifications. Unlike the 16–19 system, not all students and courses are eligible for support; Table 4.2 gives a more detailed overview of where this system applies.

 Adult students taking a more advanced qualification that is not eligible for funding

under the adult education budget are able to take out advanced learner loans. These are designed to mimic the student loans available for students in higher education: rather than making fixed repayments like a mortgage, the amount that students pay back depends on their income after graduating.

 From May 2017, apprenticeships are funded from the new Apprenticeship Levy and

funding system. Employers pay a levy of 0.5% on payroll expenditure above £3 million, which is transferred into a digital account and can then be used to pay for the off-the- job training costs of apprentices. Other expenditure on off-the-job training for

apprentices (by levy- and non-levy-paying employers) is subsidised by 90% from public funds (up to a maximum limit).

Table 4.2 provides further detail on where the first three systems apply. In the rest of this section, we describe how all four systems work: where they apply, how they allocate funds, and the incentives that this creates for students, government and FE providers.

Table 4.2.Applicability of further education funding systems First

English or maths

GCSE

Level 2 Level 3 Level 4–6

First Subsequent First Subsequent

16–19 16–19FF 16–19FF 16–19FF 16–19FF 16–19FF 16–19FF 20–24, EHC plan 16–19FF 16–19FF 16–19FF 16–19FF 16–19FF 16–19FF 19–23, unemployed

AEB AEB AEB AEB ALL ALL

19–23, other

AEB AEB AEB

co-fund

AEB ALL ALL

24+,

unemployed

AEB AEB AEB ALL ALL ALL

24+, other AEB AEB co-fund AEB co-fund

ALL ALL ALL

Abbreviations: ‘EHC plan’ = Education, Health and Care plan. ’16–19FF’ = 16–19 Funding Formula. ‘AEB’ = adult education budget funding formula. ‘ALL’ = advanced learner loans.

Note: ‘First’ qualifications refer to the first full qualification.

Describing the systems

Unlike schools or higher education, the FE sector has several funding formulas that allocate money in quite different ways. Table 4.3 provides an overview of each of the systems and where they do – or do not – coincide.

As Section 4.1 describes, the FE sector serves a diverse set of learners. Students aged 16 and 17 are now largely enrolled in full-time education, while adult learners are much more likely to study part-time. The FE funding system further distinguishes between young people studying certain types of qualifications – primarily at Level 2 and 3, equivalent to GCSEs and A levels – and older adults who are returning to education.

In practice, this means that there are very different sets of principles underpinning each of the funding systems. In keeping with the legal requirement that 16- to 18-year-olds are enrolled in education or training, the 16–19 Funding Formula functions in a similar way to the National Funding Formula for schools. Qualifications are delivered at no cost to the student, and institutions are reimbursed based on a central government estimate of how expensive they ought to be to provide.

By contrast, the advanced learner loan (ALL) system reflects the approach taken in the higher education system, where students are treated as consumers who pay tuition fees to finance their education. The government provides up-front financing to students through a system of loans, and as students repay these loans they are effectively taxed on part of the value (in the form of higher earnings) that they have received from their qualification. Of course, these loans are much more generous than a regular loan from the bank; students who have lower earnings pay back less (or none) of their loan, so the

Table 4.3.Overview of the elements of the further education funding formulas

16–19 FF AEB ALL

Unit of funding Banded hours Banded hours Course fee

Area cost factor? Up to 20% Up to 20%

Area disadvantage? 8–34% 8–34%

Student disadvantage? Care leaver

No GCSE maths No GCSE English

[Loan Bursary Fund]a

Subject uplift? Up to 75% Up to 72%

Large programme uplift? Up to 20% Some qualifications

have set funding

Retention factor? 50% penalty

for dropouts

Monthly payments; 20% at completion

Student contribution? 50% co-funding in

some cases

Income-linked repayments

aThe ALL Loan Bursary Fund is funded by central government to support vulnerable and disadvantaged loan recipients. It is administered by individual institutions, which set their own criteria for eligibility.

government provides substantial insurance to people who do not benefit as much in the labour market from their qualification. ALLs are also written off for students who go on to and complete a higher education course, which reduces the student debt held by these graduates.

The adult education budget (AEB) is more closely aligned with the 16–19 Funding Formula, but with the important difference that some learners – primarily those aged 24 or older who are in work or not seeking a job33 – are expected to co-fund their qualifications. These

students pay 50% of the agreed rate for their course. However, the ‘agreed rate’ in this case is still centrally set by the government based on the number of learning hours in the course, which are in turn regulated by the Office of Qualifications and Examinations Regulation (Ofqual). This means that AEB students are asked to pay for some of the cost of their qualification, but have limited ability to search out institutions that offer the programme more cheaply, since the funding rate is mainly determined directly by government policy.

In addition, AEB students who co-fund their qualification do not have access to the insurance against low earnings offered by the ALL programme: under the AEB system, students pay up front, and the contribution expected of them does not take into account their earnings either before or after they earn their qualification.

33 In 2018–19, the government is running a new trial that extends full funding to some learners who are employed but with low earnings.