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December 2004/44
Good practice
Guidance for managers

This report is for information and guidance

Borrowing in the higher education sector

2004 update

This document presents the results of a review of the pattern of borrowing in the higher education sector. It shows, for example, that the sector has increased its level of borrowing in proportion to income, and that borrowing costs have reduced overall. It also makes recommendations to help institutions better manage their borrowing.

To: Heads of HEFCE-funded higher education institutions
Heads of universities in Northern Ireland
Of interest to those responsible for: Senior managers, Finance directors, Finance committees
Reference: 2004/44
Publication date: December 2004
Enquiries to: David James
tel 0117 931 7328
e-mail d.james@hefce.ac.uk

Executive summary (read on-line)

Executive summary

Purpose

1.    This document presents the results of a review of the pattern of borrowing in the higher education sector. It is an update of a similar survey in 2000, the results of which were published as HEFCE Circular Letter 23/00.

Key points

2.    The review has found that since the last survey:

  • the sector has increased its level of borrowing, and at a faster rate than its increase in income
  • institutions are borrowing for longer periods
  • there are differences in the degree of financial exposure
  • borrowing costs have reduced overall
  • the shift from fixed to variable rate borrowing increases financial risk
  • some institutions may be able to reduce the cost of borrowing.

3.    This document makes a number of recommendations to help institutions better manage their borrowing: it encourages institutions to define clearly their borrowing policies, determine appropriate loan instruments, and seek competitive quotes from lenders. It suggests that institutions should expect to borrow at no more than 1 per cent over base rate on variable loans, and aim for margins considerably better than this.

Action required

4.    This report is for information and guidance. We recommend that it is brought to the attention of members of the finance committee, or its equivalent.