Better By Degrees
Published Monday 04 July 2005
By John Paton, Business Development Manager of The Lewis Group.
Student debt. Two words that sit together as comfortably - or uncomfortably, depending on which side of the fence you are sitting - as 'foregone' and 'conclusion'. But aside from the often hysterical coverage meted out on the subject by certain quarters of the media, many credit managers within the tertiary education sector are well advanced in their dealings with the problem, and in working with external collections agencies to maximise the return of monies that would otherwise be lost in the system.
Debts incurred by students, or at least those that concern the universities or colleges to which they belong, tend to focus around two main areas: accommodation fees, and tuition fees. To these are then added what might be termed 'sundry debts', for example payment for field trips, library fines etc. The potential for debt is considerable; even if only a small percentage of tuition fees, for example, is not recovered, it can amount to several millions of pounds 'lost' to that university.
Most universities and colleges share common concerns, and indeed common solutions. The issue that Manchester Metropolitan University (MMU) has - in keeping with other educational establishments - is that the debt is cyclical. It tends to peak at the start of the academic year as Tim Wood, the accountant responsible for the credit control team at MMU explains:
"Collecting debts is not so much an issue of competence, more a matter of resource," Tim explains, "and it is simply not practical to have a big team chasing debt all year 'round when it tends to be concentrated at particular times. We tend to use a third party collections agency when a student is not responding to our own overtures, or when our own approaches are no longer appropriate."
MMU has no greater problem with debt than any other university. But the amounts that can be outstanding are still of significant proportions. Given that the average tuition fee is c£2,000 (including overseas students who pay a higher premium than their UK/EU counterparts), with 35,000 new students each year that amounts to c£70 million to be collected.
Even taking a modest figure of 10% of these students failing to pay in the first instance, the initial debt could be as high as £7 million. Without recourse to an external collections agency, there could be several millions of pounds 'lost' to the university. "It's money we would rather see invested in attaining academic excellence," Tim says.
Accommodation fees are also an issue. As Tim says: "It's amazing how many students don't seem to be able to pay for their Halls of Residence but don't seem to have the same problem in the second year paying an external landlord. In these cases in particular, the pressure that can be exerted by an external commercial resource may be more appropriate."
It helps that most debts are cut and dried, but there are of course the odd occasions where a debt should not have been enforced. "If a student formally withdraws, for example, then he only pays pro rata for his accommodation. But I don't mean he wakes up one morning and decides he'd rather be in California and not tell anyone! Validating the debt is therefore important, but this can take time, and if you're not careful the next cycle of debt commences before you've had a chance to clear the first.
"Communication is therefore key. If the student, the academic and the finance function are all talking to one another, then there's little that cannot get sorted," he adds.
Russell Smith, Credit Controller at Queen Margaret University College in Edinburgh agrees. One of the biggest headaches he faces is when a student decides to 'opt out' without telling anyone. "Students embark on the first Semester, change courses, and then somehow think they don't have to pay for the education they have received up to that point. It is when students don't formally withdraw that the problems start."
Like MMU and Tim Wood, Russell doesn't think there is much that cannot be sorted without careful communication. "We work closely with out Student Services," he says," and give our students various options to pay. For those in genuine hardship, there is a hardship fund and access to student counsellors to work through their problems and find a resolution."
Howard Bolton, Head of Student Finance at the University of Huddersfield, finds that the majority of their debt issues come soon after the September enrolment, and students either don't pay, or default on their payment plans. "We take the first steps," he says, "contacting students with letters and reminders. We will also send them e-mails and telephone - anything to get them to talk to us. If we can get them to come in and discuss why there is a problem, we can often help them. It's not in anyone's interest to lose a student, so we try and be as accommodating as we can.
"Once we have exhausted our own collection activities, then we look to use an external agency."
Howard wouldn't want to guess at how little money is collected in fees in the first instance, when the initial reminders are despatched, but believes that by the time an external agency becomes involved, there are still c5% of debts outstanding. With 18,000 students, and an undergraduate fee of £1150, even taking into account that some of this fee comes form the Student Loan Company that can still mean more than half a million pounds to collect.
Debts from overseas students presents a further set of issues. Fees are considerably higher - sometimes as much as £8,000 per annum, and non-recovery a very real risk. Having had their fingers burned in the past, many universities have considerably tightened the procedures in respect to overseas students and how their fees are collected and - at least in the case of Huddersfield - the issue of non-payment is improving. Russell Smith finds one of the answers in offering overseas students (or any students with fees in excess of £5,000) a discount for paying upfront. "If an overseas student is having difficulty paying, their debt tends to be more difficult to collect," he says. "Conversely, because of the discounts we offer, it tends not to be such a problem."
All of the universities/colleges appear to agree that most debts can be collected through their own endeavours; none of them, however, deny that debt is still an issue, and agree that employing an external agency, even in the last resort, is a useful option - certainly for those within the 'won't pay' rather than 'can't pay' camp.
"No-one is going to persecute a student in genuine trouble," Russell says, "but there are those in the 'won't pay' bracket where a 'softly softly' approach doesn't work. In those cases, a letter or an approach from an external debt collection agency elevates the situation such that it becomes - in their minds at least - something more serious that they cannot ignore. Perhaps there are occasions when we are all guilty of not being tough enough."
Amongst the sundry debts, perhaps the area of greatest common concern is the library. Library debts, through fines alone, can run into many hundreds of pounds. With books costing typically £20 - £25, a student with 10 books who not only doesn't pay the fine but then walks off with them will owe in excess of £250. Not only does this financially penalise the university, but it also disadvantages other students.
Consistency is also a problem. As Tim Wood says: "Some students you'll talk to and think there won't be a problem and there is, whilst others you think will be a problem end up settling without dispute."
Howard agrees: "Distinguishing between the genuine cases and the non genuine ones - the can't pays versus the won't pays - is as much of a concern to us as a university as it is in the commercial world.
"The most important thing about selecting a third party collection agency is that you understand what they can do and what skills they have, and that they understand what you need and the parameters in which you work. We tend to work with several agencies, and benchmark and compare their services and share good practice, monitoring their performance on a monthly basis."
Russell concurs. "It is essential in my view that the third party agency has experience of our sector. They need to be sympathetic to, and have a clear understanding of, students and student debt, and the specialist techniques to deploy to get a result."