Private Providers – market creation out of control

The Guardian’s revelations this evening underscore why I called my book The Great University Gamble.

The government exploited the existing ‘designation’ process to allow students at over one hundred private higher education providers to access student support on terms equivalent to those enjoyed by students at established universities, with the exception that since 2012/13 those students have been only able to borrow up to £6 000 per year towards tuition fees (up from £3 375 in 2011/12).

Because of that near doubling in fee loans and the government’s encouragement of ‘alternative providers’, I expected the continued expansion of the private student support budget (which also includes maintenance grants). In 2009/10, it was roughly £30m, the following year £40m, then in 2011/12, on the back of the government’s revisions to policy, the budget increased to £100m.

I thought £200m was likely for 2012/13 – with official figures for that year expected on 28 November from the Student Loan Company.

The Guardian has revealed that the 2012/13 figure was not just in excess of £200m, but £80m over budget. With 30 000 students registered that year for the HNC and HND qualifications offered by Pearson-Edexcel through private colleges (the equivalent of one or two years of undergraduate study), that represents an 150 per cent increase in such students on the previous year. Government surveys estimate that 40 000 have enrolled for those courses this year.

So concerned is the department for Business, Innovation and Skills that it has written to 23 designated private provider asking for restraint in recruitment for 2014. It is hoping to focus funding back towards ‘degree level qualifications’.

It has no other obvious path to control recruitment and runaway financial outlay. Unlike established universities, who agree a financial memorandum with the Higher Education Funding Council for England (and as a result agree to core numbers controls), designated private providers are independent and will not be subject to any numbers controls until 2014/15 (the year after this current admissions cycle). Many colleges are clearly  expanding in advance of those constraints.

Private providers can currently recruit how they like and, once designated, their Home and EU students have the right to access the publicly backed student loans (EU students can apply for tuition fee loans only). ‘De-designation’ has only previously been used after evidence of fraud and student complaints. There is no agreed process and proposals are currently ‘out’ to sector consultation.

Why does this matter?

The loan scheme is subsidised – only 65p in the pound is expected back. Public money is therefore involved.

Many private HE providers are commercial, for-profit operations – some like, Greenwich School of Management or University of Law are owned by private equity – so public money subsidises private fees and potentially profits. Some of the ‘alternative providers’ are charities but they are not in the majority. The projections show annual support to these students heading towards £1bn in the next few years. As we saw in the USA, the private sector expands rapidly when backed by public money. Where will this money end up?

Further, we have no understanding of the performance of graduates from private institutions – they may end up paying back much less and so be subsidised to a greater degree. Not only are numbers at private providers uncontrolled, but you should be asking questions about the quality at many: BIS was turning around applications in 3-4 days back in 2011/12 on the basis of paperwork only; private colleges teach towards the Pearson qualification.

It also transpires that in order to introduce some control to the budget, the public teaching budget will have to be reduced by £20m  – this is likely to come out of the budgets of widening participation initiatives. And £25m goes from the Access to Learning hardship fund.  That is, students at established universities will suffer as a result.

If you thought this was only about higher tuition fees, you had it dead wrong. The government aimed to roll out cheap, mass provision to undercut established higher education provision. Is this then a success? In one sense, but clearly mismanaged. According to the Guardian:

 a BIS spokesperson said: “Planned recruitment at some [private] providers was unaffordable.”

One insider added: “We’re only realising now the size the blank cheque we’ve written to private providers.”

For more background see Chapter 7 of The Great University Gamble and pages 98-102 in particular.