Funding

College funding in 2025

There have been several changes and complicated decisions on college funding in recent months. Key points

16-18 funding

• 16-19 funding rates. DfE will be increasing course funding rates by 5.4% for the 2025-6 academic year which is an above-inflation increase but which comes after a year (2024-5) in which there was a below inflation 1.9% increase. The headline (band 5) rate rises to £5,105. This is 27.6% higher than it was 5 years ago
• DfE announced funding rates in a March statement which also stated that that the 2025-6 financial year budget would be £400 million higher than 2024-5. This statement implies that DfE found an extra £100 million compared to the money provided in the Autumn budget to cover rising student numbers. In late May, the education secretary accepted the School Teacher Review Body (STRB) recommendation of a 4% pay rise for schoolteachers and allocated a total of £765 million to the school and 16-19 budgets to provide funding to cover pay. DfE is adding £190 million of this extra money to the 16-18 budget which means that, on a year-on-year comparison, there is a £590 million increase compared to 2024-5.
• As well as the headline increase to 16-19 rates, DfE has also announced increases to programme cost weights and that there will increases to the rates relating to English and maths. This complicated approach is a deliberate, policy-driven attempt to shift a higher proportion of the money towards FE colleges though amounts will vary between colleges. For those with substantial adult, apprenticeship, HE fee and other income, the top-up to income may not be sufficient to fund pay rises at the level ministers or unions might want.
• Colleges, schools and post-16 providers enrolled 50,000 more 16-18 year olds in 2025-6 than in 2024-5. 35,000 of these students are in FE colleges. This was more growth than anticipated by DfE and resulted in a change to the exceptional in-year growth formula for 2024-5 (paid using the rules announced in August 2024 but with a one-third reduction). Amounts were confirmed by end of March and paid mainly in May 2025. DFE spent £83 million on this funding in 2025,, half of which is being charged to its 2024-5 financial year
• There are new requirements on English and maths rules (7,500 words, a 40% increase in the volume of guidance)
• There will be a more restrictive set of tolerance rules. The tolerance for English and maths condition of funding tolerance reduces to 2.5% in 2025-6. T level tolerance will be removed in 2025-.
• There is still no news on exceptional in-year growth funding for 2025-6. Our estimate at AoC is that colleges will recruit 25,000 more students than they are funded for

Adult skills funding

By contrast with 16-18 education, there are cash cuts to adult skills.

• DfE-managed adult skills funding totals £450 million in the 2025-6 academic year. This is 1/3rd of the budget; the other 2/3rds is devolved. There will be a 6% reduction to the amount calculated by applying 2024-5 funding rates to 2023-4 activity. The reduction is necessary because activity has recovered (no underspend any more). Colleges have responded to the incentives created by the new formula which increased rates for subjects considered more valuable. The adult skills budget will be cut by 3% in the 2025-6 academic year compared to 2024-5 which means that it is slightly less in cash terms in 2025-6 as it was ten years ago.
• DfE has announced £20 million extra in Free Courses for Jobs (FCJ) allocations to support construction. Two-thirds of this money will be passed to the 13 devolved authorities. The remaining money will be used to top up previously issued allocations (details due in June) with the promise also that DfE will expand the list of eligible qualifications to cover Level 2 construction, engineering and manufacturing qualifications.
• DfE has also confirmed that apprenticeship funding for level 7 standards will be limited to those aged 16 to 21 plus those with Education Health and Care plans. Changes will take effect from 1 January 2026.

Measures to ensure financial sustainability of colleges

DfE has taken various measures to support colleges in face of rising costs to avoid redundancies and loss of valuable courses:

• DfE introduced post-16 National Insurance grant worth £155 million for the 12 months from April 2025 to March 2026. This is being paid to colleges and schools with post-16 students using a formula linked to 16-19 programme funding (2024-5, adjusted for in-year growth) and post-19 education income (2023-4). Amounts will be confirmed in May 2025 and payments made in September 2025. The DfE spreadsheet shows that £117 million will be paid to 16-19 providers (colleges and schools) and £33 million to colleges for 19+ activity. Officials estimated they had money to cover 80% of costs but the use of an income-based formula means that some colleges report 95% of their costs being covered while others just 67%. Although the grant stops in March 2026, it is unlikely that funding will stop absolutely at that point.
• DfE has covered the extra costs of higher Teacher pension employer contributions since 2019. In that year there was a large increase in contributions which was mainly explained by a change in actuarial assumptions. There was a second increase in the contribution rate to 28.68% in 2024. DfE now pays £200 million to colleges via this grant and is making some changes to the Teacher Pension employer contribution grant formula in 2025-6

Julian Gravatt
6 June 2025

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College funding basics

• Courses free at the point of use: Colleges get funding to keep education and training free or low cost for young people (aged under 19) or for adults to overcome some form of disadvantage
• National and formula-based: A national funding formula has been used for colleges for 25 years
• Funding is a tool of policy: Government uses funding to influence behaviour (eg. Funding is uses to ensure colleges enrol right students on the right course at the lowest cost).
• Education activity drives funding: Who students are and what they do, affects income
• Data: Vast data collection systems make everything work.

There are several funding systems in further education and they differ from the systems used to fund schools and universities.

Main funding lines

• 16-to-18 education: The Education and Skills Funding Agency (ESFA) pays colleges based on the numbers of students they are expected to enroll using national funding rates adjusted by a weighted average calculation based on their characteristics. Colleges need to offer study programmes including A-levels. Students without GCSE in English or maths at grade 4 have to resit. National funding rates did not change between 2013 and 2019, were increased by 4.7% in 2020-1 and by 8% in 2022-3 (to pay for extra teaching hours)
• Adult education budget (AEB): ESFA uses a different formula for adults. About half of the adult education budget has been devolved since 2019-20. AEB is used to support courses at lower levels, including English and maths to Level 2, first full level 2 and first full level 3 up to age 23.
• Apprenticeships: ESFA is manages funding for apprenticeships. Levy paying employers get an account and contract directly with approved providers at rates determined by a formula. Colleges and providers have an allocation for non-levy paying employers using the same formula.
• Student loans: The student Loan Company administers tuition fees on behalf of HE and FE students