Funding partial completion: the introduction of the flexible study measure

June 2009 | ref: Circular letter 12/2009

To:

Heads of HEFCE-funded further education colleges, Heads of HEFCE-funded higher education institutions

Dear Vice-Chancellor or Principal

1. This letter describes HEFCE’s approach to funding partial completion through the introduction of the flexible study measure in 2009-10. It also explains our policy in relation to data audits

Our approach towards non-completions

2. Since we began distributing funding to institutions, HEFCE has only counted for funding purposes students that have completed their initial study intentions. This has meant that if a student intended to study a course full-time for one year (that is, 1 FTE (full-time equivalent)), but only completed 0.5 FTE before withdrawing, the completed 0.5 FTE would not have been taken into account when calculating the institution’s grant. Whether a student has completed their study intentions for the year is, in general, determined by whether or not they attend the final examination and/or submit the final piece of coursework associated with each module. Whether they pass the module has not been generally taken into account, although students are counted as having completed if the reason they chose not to undergo the final assessment was because they knew they had already done enough to pass the module.

3. A full definition of non-completion is provided in the annual Higher Education Students Early Statistics (HESES) and Higher Education in Further Education: Student Survey (HEIFES) guidance. The guidance is reviewed each year; the most recent isHEFCE 2008/37 (HESES) and HEFCE 2008/36 (HEIFES)¹. The definition is contained in Annex E paragraphs 22-31 of HEFCE 2008/37 (HESES) and Annex E, paragraphs 18-25 of HEFCE 2008/36 (HEIFES).

4. There are a number of reasons why, up to this point, we have not counted non-completing students when distributing our grant to institutions:

We want to ensure that our funding system encourages institutions only to recruit students that they are confident are likely, with appropriate support, to complete their courses. Institutions will commonly have collected and retained a tuition fee from students who do not complete their studies. We therefore consider that the institution has a responsibility to ensure that students are offered good support to maximise their chances of success and completion. This is important because there is evidence that students who enter higher education but do not achieve a qualification could be disadvantaged by lower wages than those who do not enter higher education at all².
This approach has helped us to bear down on rates of non-completion, something that has been included regularly in grant letters from the Department for Education and Skills and Department for Innovation, Universities and Skills (DIUS). Excluding non-completions from funding calculations provides a strong incentive to institutions to support their students through to the end of the academic year.
Counting non-completing students in our funding method would not increase the total funds available to the sector because the Government already takes into account non-completing students when calculating its planned numbers. Rather, to count non-completions would result in an overall reduction in the unit of resource per student that we count. Since 2003-04 we have recognised the additional costs of recruiting and supporting students who are more likely not to complete through our improving retention funding (amounting to £253 million in 2008-09).
In order to allocate funding, we need to decide whether or not a student should attract HEFCE funding. Counting only completing students is the least burdensome approach, while alternatives have some inherent difficulties. For instance, we could fund only those students who are allowed to progress to a subsequent year by their institutions’ academic regulations, but this would be inequitable, because academic regulations vary significantly between institutions; in addition, such an approach would put pressure on academic standards and we would still need to have some measure of what the student completes in the year. Although our decision to count only completing students has attracted some controversy, we believe the strong performance of English higher education, compared to Organisation for Economic Co-operation and Development (OECD) countries³, in limiting non-completion rates and achieving high graduation rates is evidence that the approach has worked.

The flexible study measure and why it is being introduced

5. The points raised in paragraph 4 continue to be valid. However, we are aware that student behaviour has been changing: many students are studying part-time, and students are now more likely to change their study intentions part way through a year. We reached the conclusion, through conversations with the sector, that our approach to non-completions did not fully accommodate some of these patterns of student behaviour, and could even inhibit institutions that wanted to develop flexible study patterns for their students.

6. Following consultation in 2005 and 2007⁴, we decided to change our approach towards non-completing students from 2009-10. We will now count, for funding purposes, the modules completed by all HEFCE-fundable students who complete less than their initial study intentions for the year, as long as they have completed the equivalent of at least one-sixth of a full-time year of study (20 credits). We call these 'partially completing' students. So if, for instance, a student intended to study for 120 credits (1 FTE) during a year but completed modules amounting to 60 credits (0.5 FTE) before withdrawing from the institution, we will take these credits into account when calculating the institution’s grant for the year.

7. This change in policy is called the flexible study measure. It requires institutions to report activity at the module level if they want their partial completions to be counted. Previously, very few institutions had chosen to provide a module record in their Higher Education Statistics Agency (HESA) returns. To introduce the new policy in a way that would be fair for all institutions, we needed to give them all an opportunity to supply, in a forthcoming data return, modular information that could be used for funding purposes. The first opportunity came with the redeveloped HESA student record for 2007-08, which institutions submitted at the end of 2008. This data provides the basis for implementing the flexible study measure.

The funding implications of the new flexible study measure

8. Detailed guidance on how the flexible study measure works was published with the 2009-10 grant tables: see paragraphs 174-185 of the higher education institution technical guidance and paragraphs 138-148 of the further education college technical guidance.

9. In summary, partially completed activity is calculated as a weighting factor that will serve to increase differentially the volume counted for funding purposes at institutions.

10. When we consulted on the flexible study measure in 2007 (HEFCE 2007/02), we noted that any funding would be allocated to institutions as part of their block grant, subject to the tolerance band.

11. The funding associated with the flexible study measure is part of the standard resource calculation within mainstream teaching grant. So the flexible study measure will only affect an institution’s actual grant if it serves to move them outside the ±5 per cent tolerance band. If an institution moves (further) below the tolerance band through the introduction of this measure, we will provide additional funding to bring them back towards their original position. Few institutions will see a change in grant in 2009-10 as a result of the introduction of the flexible study measure. This is partly because of the cushioning effect of the tolerance band but predominantly because any possible funding consequence depends on how much partially completed volume there is to count at an institution compared to all other institutions.

12. We do not normally apply policy retrospectively and will not do so in this case. Our allocations can only be considered fair if institutions report the data that inform them on the same, consistent basis and we apply the same funding methods to all institutions. We announced the timescale for the introduction of the flexible study measure when we published the outcomes to our consultation on the teaching funding method in 2007⁵.

Our policy in relation to data audits

13. Where it is found, either through reconciliations with HESA or Further Education Data Service data or through any data audit, that erroneous data have resulted in institutions receiving incorrect funding allocations, then we adjust their funding accordingly (subject, where appropriate, to an appeals process). To date, all cases of incorrect reporting of non-completions identified through our audit processes have resulted in the overpaid grant being reclaimed in full. If we did otherwise, we would be failing in our responsibility to ensure the proper use of public funds.

14. Where we believe any funding adjustments could impact on the short- or medium-term sustainability of an institution, or we are concerned about the lack of accountability provided, we will consider moving the institution into our 'at higher risk' category. Institutions at higher risk are subject to our support strategy⁶. When we move an institution into our 'at higher risk' category we will inform other relevant public funders such as the Training and Development Agency for Schools, the Learning and Skills Council and the Student Loans Company.

15. The under-reporting of student non-completion could have potentially significant financial consequences for some higher education institutions. However, we believe that, even when the financial consequences are significant, overpaid grant should be reclaimed. The period over which it is reclaimed may require discussion between HEFCE staff and the institution concerned, to ensure it is manageable.

16. The flexible study measure will apply for funding purposes from 2009-10. Our policy on data audits and holdback remains unchanged and as described above.

Yours sincerely

Sir Alan Langlands
Chief Executive

Notes

1. All HEFCE publications are listed by number on our web-site.

2. Source: Richard Blundell, Lorraine Dearden, Alissa Goodman, Howard Read (1997) 'Higher Education, Employment and Earnings in Great Britain' (Institute for Fiscal Studies). Also by the same authors (2000) 'The returns to higher education in Britain: evidence from a British cohort' (Economic Journal 110 F82-F99).

3. Source: 'Staying the course: The retention of students in higher education', National Audit Office (2007).

4. See 'Review of the teaching funding method: Consultation on changes to the method' (HEFCE 2005/41) and 'Review of the teaching funding method: Second consultation on changes to the method' (HEFCE 2007/02).

5. 'Review of the teaching funding method: Outcomes of second consultation on changes to the method from 2008-09' (HEFCE 2007/23).

6. For more information, see Annex D to 'Model Financial Memorandum between HEFCE and institutions' (HEFCE 2008/19).