Education Business

Student debt is a subject rarely out of the newspapers. And for good reason. According to figures from John Paton of The Lewis Group, a Member who works closely in this sector, students incur average annual debts of £5,000, and by the time a student graduates the average debt burden is c£20,000.
    
This is worrying enough, says Mr Paton, but the problem is getting worse. “Student debt levels in England, Wales and Northern Ireland have risen sharply in last 12 months, as much as 30 per cent in some areas, and the fear is that level will continue to rise,” he said.
    
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. As well as these fees there are what might be termed ‘sundry debts’, for example payment for field trips, library fines, and so on. 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.

Outsourcing debt collection
Most universities and colleges share common concerns, and indeed common solutions. Debt tends to be cyclical, peaking at the start of the academic year. To that end, collecting debts is not so much an issue of competence, more a matter of resource 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. This is where outsourcing collections to an external agency comes into its own.
    
Taking an ‘average’ university or college charging an ‘average’ tuition fee of c£2,000 with for example 35,000 new students each year, that amounts to c£70 million to be collected. Even taking a modest figure of 10 per cent 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, money everybody would rather see invested in attaining academic excellence.
    
Accommodation fees are also an issue. It is remarkable 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 agency may be more appropriate in recovering a debt.
    
One of the biggest headaches the credit manager 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.

Managing cashflow
For those working in the finance teams within education, it is not just debts relating to their students that cause concern. In keeping with their colleagues in the commercial sector, they too require goods and services that need to be bought and paid for, and managing cash flow becomes a critical factor in their establishment’s survival.
    
Help in terms of managing cashflow is now widely available, with a number of guides recently published by The Institute of Credit Management (the ICM) for the Department of Business, Innovation and Skills. These guides urge a ‘back to basics’ approach to credit management, and in particular the importance of ‘knowing your customer.’ The approach is as valid when the ‘customer’ is a student: a bill cannot be paid unless/until it is received, and won’t be paid if it is in dispute.
    
It also encourages credit departments not to be afraid to ask for payment, to make immediate contact when payment hasn’t arrived, and to be assertive about what you expect and when you expect it. The consequences of non-payment must be made clear, and that might include involving a third party – i.e. a debt collector – to act on your behalf.
    
Most in the education sector believe that debts can be collected through their own endeavours, and will usually take the first steps in recovering a debt, contacting students with letters and reminders. 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, 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.

Library debts
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, and are an increasing problem. 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. 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 a university as it is in the commercial world.
    
The most important thing about selecting a third party collection agency is that they should be members of the Credit Services Association. Members of the CSA are professionals who adhere to a strict code of practice. There are specific procedures and rules that these members follow with teams dedicated to a specific task – and that is recovering debt. Secondly, it is important that you understand what an agency can do and what skills they have, and that they understand what you do. Some establishments like to work with several agencies, and benchmark and compare their services and share good practice.
    
The year ahead will be busy. John Paton, for example, says that debt referrals from its education sector clients have increased by an average 19.9 per cent per month over the last 12 months, and are expected to grow still further. The real problems with debt, however, comes when a university or college hangs on to it for too long, rather than referring it to an agency earlier in the cycle.

For more information
Web: www.csa-uk.com