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Loan crisis stifles college growth

Ian Nash looks at the post-16 colleges unable to raise the funds to repair and extend their premises while a private finance scheme falters. Plans for a broader post-16 curriculum have been put on hold in many colleges because of a crisis over cash for new buildings and repairs.

A Treasury-backed scheme to encourage colleges to raise private cash from banks and industry has run into problems, with many banks refusing to give loans, even though they are sanctioned by the Further Education Funding Council.

Two-thirds of the 20 colleges contacted by The TES reported difficulties raising cash from banks under the Public Finance Initiative (PFI), while others said industry is either unwilling or unable to put up the cash. A similar initiative to put private funds into universities is struggling.

This has major implications for grant-maintained schools, which ministers hope will take advantage of the scheme. Education Secretary Gillian Shephard opened the scheme up to them in the hope of attracting more cash for improvements while boosting the flagging GM schools initiative.

Big high-street banks such as Barclays and NatWest have told colleges either that they are unwilling to loan money for repairs or that they are not confident that the cash value of the land would recoup the debts in the event of a crisis.

Richard Atkins, principal of Yeovil College, said: "We desperately need new buildings and investigated selling the site for Pounds 5-7 million. But we were told the buildings could not be used for anything but educational purposes. We would only get around Pounds 1.5 million."

The banks told another smaller south coast college, "the risk is not worth it as the property is of no value to anybody outside education".

Banks have told some principals privately that they do not want a boom in public-sector building with a general election one or two years off. Banks are also concerned about what will happen to the debts if the colleges go bankrupt.

Sir William Stubbs, chief executive of the FEFC, sought to reassure them when he told a seminar on the PFI last week, headed by Hambros Bank, that the council would take over the debts as well as assets.

Principals were assured that the banks were behind the PFI. But they remained sceptical. One told The TES after the seminar: "Our experience is that the private sector is not behind the PFI. It is not willing to invest in places which cannot make money or are not seen as secure."

Most principals who spoke to The TES about their difficulties said they had to put expansion and curriculum development plans on ice either because they could not raise cash for development or because the repayments diverted substantial sums on mortgages of up to ten years.

Small to medium-sized colleges and those in the worst state of repair appear to be having most difficulties. Many bigger colleges said they welcomed the PSI and the freedom they say it gives them to improve and expand into new areas.

Many who thought they would negotiate loans said the bureaucracy was so complex and time-consuming that they were unlikely to have buildings ready in time for planned expansion this autumn.

Colleges have been told by the FEFC that if they cannot raise cash they should rent suitable property. This avenue was explored by the Weald College in north west London, a grammar school nine years ago and now a tertiary college.

Full-time equivalent student numbers have risen from 900 to 2,200. Longer days, more flexible teaching and the ingenious use of rooms have been exploited to the limit. The college is now seeking a series of loans, starting with Pounds 300,000 to upgrade laboratories.

John Harland, principal, said: "We looked at the renting option but there were immediate drawbacks - for one, there were no suitable buildings to hand. If we went too far it would cause travel problems and destroy the community nature of the college."

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