Scotland's colleges have seen improved attainment in the past year but face several financial challenges, and potential difficulties from a declining student population.
Audit Scotland's annual review of the college sector shows that its financial health is relatively stable, but has deteriorated. Overall income to colleges has reduced, the underlying deficit has increased to £8 million and colleges hold £11 million less cash than in 2014-15.
The Scottish Government's funding to colleges will increase in 2017/18, but the sector still has several financial challenges to address. In particular, Colleges Scotland has estimated that implementing national bargaining, to harmonise pay and conditions for all college employees, could cost around £80 million over three years.
Colleges still need to develop longer-term financial planning to support financial decision-making that takes account of both immediate and future cost pressures.
Student numbers decreased slightly in 2015-16 and when measured by full-time equivalent, the student population is its lowest level since 2006-07. Most of the reductions were in the 16-24 years old age group. As overall demand for college places is still not recorded at national level, it's not possible to say whether this decrease is due to a fall in demand.
Since 2012-13, the Scottish Government has set a national target for the college sector to deliver a specific volume of learning. The sector has exceeded this target every year and continued to do so in 2015-16, but its performance has declined since 2013-14.
The Scottish Government prioritises full-time courses for younger learners. The number of young people in Scotland is reducing and school leavers are increasingly entering employment or university. These factors are likely to make it harder for the sector to continue achieving the national target.
Student attainment improved in 2015-16. The percentage of full-time students successfully completing their course increased in 2015-16, and at least 83 per cent of students who achieve a qualification go on to a positive destination, such as further study or employment.
Caroline Gardner, Auditor General for Scotland, said:
"There is a growing risk to colleges' ability to keep delivering what the Scottish Government requires from the sector, as a result of major financial challenges and a declining student population.
"Colleges need to plan ahead so their future budgets can withstand the impact of cost pressures. Demand for college courses and the effects of demographic shifts also need to be assessed so educational provision can be designed around these."