Education: It pays to keep students on course: Funding of sixth-form and further education colleges may soon be based on success rates. Donald MacLeod reports

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ALARMED at high dropout rates among 16- to 19-year-olds, ministers are considering a new form of payment by results. However, the suggestion that further education and sixth-form colleges should receive funding according to their students' results are likely to raise fears that borderline candidates would be excluded or placed on easier courses, or that teachers would come under pressure to lower assessment standards.

Nevertheless, something has to be done. Schools and colleges are not, at present, paid to teach students; they are paid to enrol them. That does not matter in a school where pupils are legally obliged to remain until they are 16, but the system has come seriously unstuck when it comes to students in sixth form or further education.

More than a third of 16- to 19- year-olds drop out of their courses or fail to gain the qualifications they seek, according to the Audit Commission and school inspectors. The commission noted in Unfinished Business, its recent report, that colleges have an incentive to recruit students but not necessarily to match students to the right courses, or to keep them after they have been enrolled. The low success rate contributes to an avoidable waste of pounds 330m a year, the report argued.

John Patten, Secretary of State for Education, wants to stop this haemorrhage of talent and resources that threatens his ambitious plans to expand the numbers of students in further education by 25 per cent in three years.

Tim Boswell, minister for further and higher education, has commended proposals from the new Further Education Funding Council that would give colleges financial incentives to keep students on courses after enrolment. They could also reward colleges for students who qualify.

One possible system being canvassed by the funding council would convert college courses into standard units according to an agreed tariff. A full- time course lasting a year would rate more units than a part-time course, for instance, but the college would simply be paid by the funding council to deliver a given total of units. But the proposal, developed by Roger McClure, the council's finance director, goes further by dividing courses into three elements: entry, programme and exit. For instance, enrolment to a full-time construction course might rate 8 units, the programme itself 40 units and a successful exit (which might be into a job rather than a formal qualification in some cases) would count as a further 8 units.

Entry and exit to a part-time course in construction would involve the college in approximately the same amount of work but the programme would 'cost' fewer units. In that case the college might be funded for 8 units for each student enrolled, 15 units for each one on the programme and 8 units if they qualified.

Mr McClure, who is credited with designing the funding system for polytechnics that resulted in a substantial expansion in student numbers, thinks the tariff can work without burdening teachers with bureaucracy. He is well aware of the risks of an undiluted system of payment by results. Funding Learning, the council's report listing options for future further education funding, says: 'While superficially attractive, closer examination shows that approach to have some major risks. If

too much depends on students' achievements, providers might come under pressure to place students on easier programmes, exclude lower achieving students or lower assessment standards. This could be controlled, however, by gradually increasing the proportion of achievement-based funding from an initially low level to an optimum level in the light of experience.'

The funding council suggests that the entry and exit values might even be zero to start with, while the tariff was being established and colleges accustomed themselves to the new system. The council has also decided that the pounds 750 per student that colleges receive as part of their recurrent grant should be paid in three termly instalments, so giving at least some incentive to keep students on courses.

Mr McClure's tariff was devised not as a means of delivering payment by results but as a way of solving the conundrum: how can you have a simple funding system for a necessarily complex sector?

Funding schools is relatively simple; pupils do more or less the same thing for the same length of time, so it is easy enough to work out the cost per head and how to distribute the money. The arguments are over how much to give them. The same goes for universities, give or take additional costs for subjects such as engineering that need laboratories.

On the other hand, how to distribute a limited budget equitably between sixth-form and technical colleges is quite another matter. Not only do courses in further education colleges range from agriculture to A-levels, but some students are there full time, some part time, some on a course for a few weeks and some taught and assessed in the workplace.

It is small wonder then that the budgets which the Further Education Funding Council is sending out to the 470 colleges in England are complicated. Given that on 1 April the council is taking over responsibility for these disparate colleges from more than 100 local authorities, each of which used a different system to fund them, the appearance of any coherent budgets at all is a minor miracle.

Next year things will be different. Mr McClure's tariff may well be in place. With the new prominence of further education, until now the poor relation of British education, the radical ideas being discussed among college principals are bound to have an impact on the way school and university budgets are organised.

'Funding Learning', from the Further Education Funding Council, Sheriff's Orchard, Greyfriars Road, Coventry CV1 3PJ.