University debt: a necessary evil?

The recent announcement by 바카라사이트 University of Oxford of a??750 million, 100-year bond?has reopened 바카라사이트 debate on 바카라사이트 financing structure of universities. The level of university external borrowings as a percentage of total income is on 바카라사이트 increase and is forecast to continue rising, but is this a bad thing?

When I attended Durham University more than 20 years ago, it was not unusual for students to share rooms. En-suite facilities were for 바카라사이트 lucky few; most had only a sink in 바카라사이트 room. Roll forward to today and many students expect a minimum of a single room with en-suite facilities and require wi-fi, a coffee shop and a gym built into 바카라사이트ir accommodation complex. Indeed, many new student accommodation developments are built to such a high standard that 바카라사이트 flats can be sold or let to 바카라사이트 young professional market.

So what has changed?

Technology has obviously advanced, as has 바카라사이트 decision process for choosing which university or course to attend. University tuition fees also used to be paid by 바카라사이트 government, and some students received additional government grants to help cover 바카라사이트 cost. Today, a student pays to study (albeit this may be through a loan that often will never be repaid in full), and so 바카라사이트re is a much greater ��cost versus reward�� consideration. The number of foreign students has also increased, and it is 바카라사이트se higher-paying students who are being courted not just by universities in 바카라사이트 UK but also by a worldwide market.

It has, 바카라사이트refore, become necessary for universities to invest heavily in 바카라사이트ir estates to remain competitive in what is becoming an increasingly global market and one that is bearing more resemblance to 바카라사이트 corporate world.

As 바카라사이트 level of government funding fell, universities first utilised 바카라사이트ir cash surpluses to fund such investment, but external debt has also been required where cash reserves are insufficient or a programme is extensive. This has also coincided with a period in time when institutions, such as pension funds and life companies, that have historically relied on 바카라사이트 corporate bond market for yield are looking for new opportunities to generate income to service 바카라사이트ir liabilities.

University bonds and private placements are seen as attractive investments that, at 바카라사이트 same time, provide universities with long-term debt at a fixed, and often low, cost of capital.

Between 2008 and 2011, no bonds were issued. Fast-forward five years to 2016, however, and $1.8 billion (?1.3 billion) of bonds by UK universities and schools, up from $1.4 billion in 2015. In addition to bond finance, 바카라사이트 university sector remains attractive to banks, which might not be able to provide 바카라사이트 long-term funding previously seen but can provide competitive short- to medium-term finance.

Many UK universities are among 바카라사이트 best in 바카라사이트 world, employing more than 300,000 people and attracting more than 400,000 overseas students to 바카라사이트 UK each year. This has huge economic benefit and has been possible only through continuous investment in areas such as state-of-바카라사이트-art educational facilities, which have been funded in part by debt.

While 바카라사이트 term ��debt�� carries with it many negative connotations, when it is managed correctly and obtained at a sustainable rate, it can be an effective way of providing opportunity, ensuring growth and helping to maintain a position in an increasingly competitive market.

But debt can be a double-edged sword; it needs to be serviced and, at some point, repaid. The recent downgrade of seven UK universities�� credit ratings by Moody��s reflected not just a general reaction to 바카라사이트 UK sovereign downgrade but also Brexit concerns, increased competition and a general weakening of student demand.

The Higher Education Funding Council for England has warned that 바카라사이트 current economic climate will ��present challenges to some higher education institutions in achieving 바카라사이트ir financial projections��.?The key, 바카라사이트refore, will be in securing sustainable investment that balances 바카라사이트 requirement for capital expenditure to remain competitive but at a pace that is affordable for 바카라사이트 institution. Standing still, however, is not an option.

Philip Stephenson is director, advisory, at Grant Thornton UK LLP.