Enigma variations

David Willetts wants more of them, but how much is really known about the UK's private providers? John Morgan uncovers a melange of institutions in a diverse and diversifying sector unbound by caps and largely operating outside QAA oversight

March 1, 2012

When it comes to the nature of the UK's private higher education sector and the profile of the students who study in it, the civil servants responsible for universities are clueless. And don't ask David Willetts, the universities and science minister, who is championing the expansion of private provision, because he's pretty hazy about the whole thing, too.

Or so you might be forgiven for thinking if you read a recent communique from the Department for Business, Innovation and Skills inviting expressions of interest to conduct a research project on the UK sector's private sphere.

The detail of the project tender - aimed at gaining a "comprehensive picture of higher education provision by private and alternative suppliers" - suggests that BIS' mandarins and ministers do not feel that they have reliable information on private providers' student numbers, courses and fees, nor the social profile of their students and their satisfaction levels and study experiences.

The absence of reliable data about the private sector has also been noted by Universities UK - a 2010 report, The Growth of Private and For-Profit Higher Education Providers in the UK, said that "data on providers' staff, students and finances [are] needed for policy purposes". However, it is possible to piece together information from a variety of sources, including statistics on student loans income and the accounts of private providers - and by speaking to the observers closest to it.

A picture emerges of a diverse sector, made up of not-for-profit institutions with charitable status and for-profits; a sector where "amazing" attention to the student experience can reportedly outshine publicly funded universities, but where concerns about quality remain; a sphere with both small institutions, and large providers operating from more than 20 locations across the UK.

Aaron Porter, who was president of the National Union of Students until June last year, encountered private providers in that role and has also worked with a number of them since establishing a higher education consultancy.

"Lumping them together doesn't really get under the skin of how different the provision is," he says. "I've been really quite astounded and amazed by the attention to detail that some of the private providers have gone to in researching the student experience and conducting proper market research on how to deliver on that experience."

Such attention to detail is superior to that of some public institutions, he believes. But Porter has also found other private bodies "almost purely driven by profit" that pay "little attention to delivering on experience".

Executive salaries have been generating heat at the highest level of politics recently - so how much are the heads of private higher education institutions paid?

To provide a comparison, at the UK's publicly funded universities the average spend on vice-chancellors' pay, benefits and pensions was £213,813 in 2009-10. The University of Oxford's vice-chancellor, Andrew Hamilton, was the highest-paid Russell Group vice-chancellor in 2010-11, with a total package worth £424,000.

Some salaries for heads in the private sector are below the publicly funded average, according to figures listed in 2009-10 institutional accounts, including those for Terence Kealey of the University of Buckingham (£150,691, including employer pension contributions), Aldwyn Cooper of Regent's College (£170,000-£179,000) and Gavin Shreeve of the ifs School of Finance (£202,000).

Others were paid above that average, including Nigel Savage of the College of Law (£430,000-£440,000). Higher still was the amount received by Carl Lygo, chief executive officer and principal of BPP University College: £738,000 in 2009-10, according to the most recent company accounts available.

In 2009, BPP was bought by US for-profit giant Apollo Group for £368 million via Apollo Global, its joint venture with the Carlyle Group, a private equity firm.

Lygo says the £738,000 payment was "exceptional" and "is not typical of my income". It included the purchase of shares he owned and "one-off incentives at a time when Apollo acquired BPP". These one-off payments accounted for around 75 per cent of the £738,000, he adds.

Since Apollo took over BPP, there have been "no share incentive schemes for BPP employees", Lygo says, and salary levels are "considerably less than when BPP was a listed company on the London Stock Exchange".

Apollo Group details its "compensation" awards for executives in information for shareholders filed with the US Securities and Exchange Commission. For 2011, Apollo Group's co-chief executive officer, Gregory Cappelli, is shown to have received compensation of $25 million. Included in that sum was Cappelli's salary of $620,000 and a bonus of $1 million.

Mark Brenner, senior vice-president of external affairs at Apollo Group, says that Cappelli's compensation "is composed largely of multi-year equity grants that are meant to cover the whole term of his contract with the company, which runs from April 2011 through August 2014. Of the $25 million...$23.5 million represents the accounting value of the option and share grants made under this multi-year contract."

Apollo Group's report to shareholders refers to a new "entrepreneurial component" of pay in the form of share awards. This component is "appropriate" for Cappelli "because of his significant involvement with our Apollo Global and AES subsidiaries and the particular leadership and direction he will provide those entities", the report says.

"Accordingly, we believe that it was important for him to have a more direct equity interest in those subsidiaries that would tie a portion of his compensation to the success of those entities."

So the greater the success of Apollo Global's ventures in India and the UK (in the shape of BPP), the more Cappelli gets paid.

With the delay of the government's higher education bill, private providers will continue to be able to recruit as many students as they wish, and there will be no limit on the number of their students able to access taxpayer-backed student loans of up to £6,000 - a potential advantage over publicly funded universities.

Sally Hunt, the general secretary of the University and College Union, says: "It cannot be right that the government is cutting places for universities and colleges while allowing unrestrained, unregulated expansion in a private sector increasingly dominated by the same for-profit companies that have created a public scandal in the US.

"Unless this loophole is closed, every year will see more public money being siphoned off to feed shareholder profit and obscene remuneration packages for their CEOs, replicating the very worst aspects of the US for-profit sector."

Lygo rejects any suggestion that state-backed loans in the UK could feed into the salaries of Apollo Group executives - or indeed his own pay packet.

"The way in which BPP University College has been set up as a company prevents distribution of any surplus to the US. Any surpluses have to be reinvested into BPP University College."

But he adds: "We are a for-profit company in totality. There are things supplied to the university college from which profit can be derived - for example, services on accommodation."

State-backed loans are an important source of income for private providers in the US, but what about in the UK? A breakdown of Student Loans Company lending to students at private providers was released in December last year in response to a written parliamentary question from Paul Blomfield, the Labour MP for Sheffield Central, who has asked Willetts a series of questions on private provision.

Students at seven private institutions received more than £1 million in fees and maintenance loans from the SLC in 2010-11. Greenwich School of Management topped the list at £4.9 million, followed by the Brighton Institute of Modern Music (£4.5 million), the Academy of Contemporary Music (£4.4 million), BPP (£2 million), the London School of Science and Technology (£1.9 million), the London College, UCK (£1.6 million) and Buckingham (£1.2 million).

Greenwich School of Management is majority owned by private equity firm Sovereign Capital, which is also an investor in the second-largest private destination for SLC loans, the Brighton Institute of Modern Music.

With no immediate prospect of legislation that might bring private providers under the student numbers cap to which publicly funded institutions are subject, the trend for increasing sums of SLC funding to go to private provision could continue. In 2010-11, £33.5 million in fee and maintenance loans was lent by the SLC to students at private institutions, up from about £22 million the year before.

In the US, which has a long tradition of private higher education, much emphasis is placed on the distinction between for-profit and not-for-profit private providers.

This difference in status currently distinguishes two of the UK's biggest private players: BPP, which is a for-profit institution, and the not-for-profit College of Law. But not-for-profits may not always remain so - particularly if they possess coveted degree-awarding powers.

Bidding to take over the College of Law, which has such powers, is now under way - with FTSE 100 company Pearson reportedly the front-runner in a field otherwise comprising private equity companies. Degree-awarding powers are not limited to specific subject areas, so this makes the college even more attractive, as a for-profit buyer could expand its offerings into other areas. Informed estimates put the value of the college at up to £250 million. Lawyers believe that the college could become for-profit, despite its charitable status. If it were sold to a private sector buyer and turned into a profit-making enterprise, the value of the charity could be converted into a cash sum that could be used to pursue the charity's objects.

Just five private providers currently have UK degree-awarding powers: Buckingham, the College of Law, the ifs School of Finance, Ashridge Business School and BPP.

What about the students who study at private providers? What courses are they taking, what is their socio-economic profile and what is the student experience like? There were 37,738 students studying at the higher education level with 65 private providers in the UK in 2009-10, according to data gathered by the Higher Education Statistics Agency. (The data were not updated in 2010-11, with no equivalent survey planned for this year either.)

Just 791 students at private providers were registered on laboratory-based courses, according to Hesa. Another 2,613 were studying subjects "with a studio, laboratory or fieldwork element".

But ,896 were studying business, management or law. There were 6,438 in "other subjects".

There were nine private higher education institutions with more than 1,000 students at the higher level, of which the top five were the College of Law (7,131), BPP (4,921), Regent's College (4,035), Kaplan UK, an offshoot of one of the largest US for-profits (3,9), and the British Institute of Technology and E-Commerce (2,383).

In Porter's experience, private providers are especially active in fashion and the creative industries, as well as in the expected fields of business, accountancy and law. They are "more closely aligned with their relevant industries" than their public peers, he notes, and better at enabling their students to gain industry experience.

But on the negative side, he believes, students do not have a strong voice in these institutions. "Formal students' unions, or student union representation, seem to be quite lacking in most of the private providers I've encountered," he says.

As for the social profile of the students, "My suspicion is that they are generally drawn from a narrower socio-economic background than most of the public universities," says Porter. But there are no Hesa data on their social profiles to provide evidence for this argument, he notes - in contrast to the social monitoring Hesa undertakes for students in the state-funded sector.

He adds: "One of the reasons we've managed to see the enormous improvements in widening access over the past 10 to 15 years (in the publicly funded sector) is because the government has had a lever over these institutions to encourage them to improve."

To look at the big private providers is merely to scratch the surface of the sector, however, and it also ignores the extent of collaboration between public and private institutions.

John Fielden, director of CHEMS Consulting, was co-author of both UUK's report on the growth of private provision and the Higher Education Policy Institute's 2011 report, Private Providers in UK Higher Education: Some Policy Options.

His particular current interest is how private colleges, many of which once focused predominantly on recruiting international students, are now tailoring "their pricing and marketing to UK students".

Greenwich School of Management - the students of which are the top recipients of SLC funding in the private sector - is among the institutions that have switched to targeting home students, Fielden says. Another "fascinating" example he cites is EThames Graduate School, which "was 100 per cent international students" but is now "marketing itself in the Evening Standard to UK students".

The school is a for-profit owned by an Indian family, says Fielden, with sites in Canary Wharf and Gants Hill in London - and Hyderabad, too.

With its courses accredited by the universities of Bradford, Greenwich and Sunderland, the institution's pricing is very competitive, says Fielden: it offers an MBA at "just under £8,000 for international students and £5,500 for UK students".

Fielden thinks it is "extraordinary" that university accreditors appear happy effectively undercutting their own degrees. But, he says, private colleges tailored to UK students "will undoubtedly become a more significant trend", offering a limited amount of capacity to "mop up" students who are unable to find a place in the publicly funded sector because of the numbers cap to which it is subject.

He does not think that the distinction between not-for-profits and for-profits "is that important if there is serious quality" - but this is an area where he believes that there should be more regulation.

Fielden questions whether the Quality Assurance Agency's "educational oversight" of private colleges - required of those wishing to recruit overseas students - is sufficiently rigorous. And where publicly funded universities accredit degrees at private colleges, or where private courses are eligible for state-backed loans, he suggests that there "should be some form of regulation".

"Potential students want to know a lot more about these people," he says.

The QAA has only 11 private providers on its list of subscriber institutions subject to full institutional review: Ashridge, BPP, Buckingham, ifs School of Finance, the College of Law (all with degree-awarding powers), plus the Anglo-European College of Chiropractic, Greenwich School of Management, Kensington College of Business, Regent's College, the Institute of Contemporary Music Performance, and Richmond, The American International University in London.

However, the government is sanguine about the auditor's limited oversight.

Nick Hillman, special adviser to Willetts, says that among other criteria, "all [designated] courses must be validated by a recognised UK awarding body such as a university. This provides quality assurance as only designated courses attract SLC loans."

He adds: "We have also recently introduced due diligence checks on organisations that are applying for specific designation for the first time. These include consideration of management and governance, financial stability and longevity...If the department is satisfied that the course meets...eligibility criteria and that the provider does not pose a risk to the use of public funds, then the course is specifically designated."

Do the delays to the higher education bill and reports of it being shelved mean that the government is backtracking on its plans to encourage more private entrants? Not one bit, says Hillman.

"We inherited a regulatory mess from the previous government, especially on alternative providers," he says. "On the one hand, they can (rightly) get degree-awarding powers and their students can get grants and loans. On the other hand, they do not have to provide information on how they are spending taxpayers' money and are exempt from the fair-access regime.

"Our higher education reforms will introduce a level playing field to enable new providers to enter the system. They can drive improvements, including efficiencies, throughout the whole of higher education, and they clearly offer greater choice for students."

The register of government lobbying may give some indication of who stands to gain the most from such changes in regulation. BIS records of external meetings show that Willetts has been courted more keenly by for-profits than by not-for-profits.

For-profit Pearson tops the list, having met Willetts six times since May 2010 (the company did not respond to requests by Times Higher Education for an interview), followed by BPP (for-profit, four meetings), the College of Law (presently not-for-profit but possibly not for long, four meetings), Laureate (US for-profit, three meetings), ifs School of Finance (not-for-profit, two meetings), Warburg Pincus (US private equity firm and the majority owner of US for-profit Bridgepoint Education, two meetings), Kaplan Europe (for-profit, one meeting) and Buckingham (not-for-profit, one meeting). Two other big US for-profits, Education Management Corporation and Apollo Group, BPP's owner, have had one meeting each.

Martin Hall, vice-chancellor of the University of Salford and a prominent critic of for-profit provision, says he objects to state subsidies for higher education provided by organisations whose "major purpose is to derive profit for their owners, whether that is private individuals or shareholders". He argues that profits can be derived only by reducing costs on student support and by focusing on profitable subjects such as business studies, while "keeping away" from high-cost lab-based subjects in science, technology, mathematics and engineering. Increased for-profit provision will thus have an impact on the sector's quality and subject scope, Hall believes.

But BPP's Lygo cautions against "seeing the whole of the for-profit sector as the same". BPP University College is required to "reinvest all its surpluses back into the university college operation" under a "unique" model, he says. A "leaner" operation, under which staff do not conduct research, means BPP costs less than a university such as Salford and is more able to design curricula that respond to "what employers want".

These conflicting ideas are sure to clash in the future, because it seems that Willetts is determined to change the landscape of private higher education provision in the UK. The question is, will greater knowledge of private institutions support or undermine his case?

Four tops: Breakdown of the UK's biggest private players

University of Buckingham

Status: Registered charity with degree-awarding powers

Total income: £14.6 million

Surplus (as percentage of total income): £183,000 (1.3 per cent)

Student Loans Company fee loans to students: £376,300

Annual home/European Union undergraduate fee (for two-year degrees): £11,250

Annual overseas undergraduate fee (for two-year degrees): £15,360

Students: 1,335

Staff: 245 (106 academic/research)

Vice-chancellor's salary (including employer pension contributions): Terence Kealey, £150,691

College of Law

Status: Registered charity with degree-awarding powers

Total group income: £73.1 million

Surplus (as percentage of total income): £10.1 million (13.8 per cent)

SLC fee loans to students: n/a, entering undergraduate market this autumn

Annual fee (for bachelor's of laws, two-year): £9,000

Students: 7,131

Staff: 868 (388 academic)

Chief executive's salary (not including pension costs): Nigel Savage, £430,000- £440,000

BPP University College

Status: For-profit with degree-awarding powers

Total income: £49 million

Operating profit (as percentage of total income): £4.7 million (9.5 per cent)

SLC fee loans to students: £128,400

Annual home/EU-student fee (for bachelor's of laws): £5,000 (three-year), £6,000 (two-year)

Annual overseas student fee (for bachelor's of laws): £7,000 (three-year), £10,500 (two-year)

Students: 4,921

Staff: 415 (234 academic)

Total payments to principal: Carl Lygo, £738,000

Regent's College

Status: Registered charity with no degree-awarding powers (although it is applying)

Total income: £33.6 million

Surplus (as percentage of total income): £1.2 million (3.6 per cent)

SLC fee loans to students: £37,100

Annual undergraduate fee (for three-year degree in London School of Film, Media and Performance, with no difference in fees for home and overseas students): £13,580

Students: 4,2

Staff: 384 (206 academic)

Chief executive's salary (not including pension costs): Aldwyn Cooper, £170,000-£179,000

Note: Fees data relate to courses commencing September 2012. All other data are for 2009-10. SLC data were released to Times Higher Education under the Freedom of Information Act

Motley crew: private case studies

Greenwich School of Management

Founded in 1973, private equity-owned Greenwich School of Management specialises in "programmes leading to qualifications in business management, finance and accounting, law, travel and tourism, IT, HR, health services management and cognate areas, as well as awards of various professional bodies". The institution had 1,218 students in 2009-10. Validation partners listed on its website include the University of Plymouth, the University of Wales and Northwood University, an American institution. "By day, the school has a mix of international and home students [while] the evening classes attract local City of London-based managers," the institution says. "The weekend and executive students are high flyers or fast trackers destined for top management posts." In the past two years, more Student Loans Company money has gone to students of this institution than any other private provider in the UK.

American Intercontinental University

AIU's US marketing team aims to turn its lack of some traditional student essentials into a virtue. The self-styled "Serious U" promises "none of the superfluous craziness of traditional campus life. No all-night keggers. No loveable mascot. Not even a football team." The international for-profit institution, established in 1970 and owned by Career Education Corporation, bills itself as offering "industry-focused British and American bachelor degree programmes", with campuses in London, Florida, Georgia and Texas, plus an online campus. AIU's entry on the Universities and Colleges Admissions Service website notes that its bachelor's degrees in design are validated by the University for the Creative Arts while its undergraduate business degrees are validated by Bucks New University. The institution had 764 students in 2009-10. In 2006, the Quality Assurance Agency published a "no confidence" judgement in AIU's management, finding "alarmingly low" standards of student achievement and "misleading" marketing claims. In 2010-11, AIU students received a small amount of SLC funding: just £75,000 in fee and maintenance loans went to them.

New College of the Humanities

When he announced plans to establish the New College of the Humanities, philosopher A.C. Grayling found himself at the centre of a media storm - as well as smoke-bombed by protesters defending "public education". The for-profit college is backed by £10 million in private equity funding. For an annual fee of £18,000, from September it promises a "more personal approach to learning, including one-to-one tutorials and a high level of contact hours" at its home in Bloomsbury, central London. High-profile academics such as Richard Dawkins and Niall Ferguson are pencilled in to deliver lectures. The institution has no degree-awarding powers, and instead will offer University of London degrees and examinations. The college could fall foul of UK Border Agency rules requiring institutions to admit home students before attaining highly trusted sponsor status, meaning that initially it may be unable to recruit from outside the European Union. It also remains unclear whether its students will be able to access up to £6,000 in annual fee loans from the SLC.

SAE Institute

The institute, formerly known as the School of Audio Engineering, was set up in October 1976 by Tom Misner, a recording engineer and producer. "At this point in time there were no other colleges anywhere in the world offering practical audio education," its website proclaims. The institution says it offers courses in audio engineering, electronic music production, music business and digital film-making. Students have the option to progress to degree programmes validated by Middlesex University. There are now 54 SAE outposts in 26 countries around the world. In the UK, the institution has campuses in London, Liverpool and Glasgow, and last month opened its "world headquarters" - and its largest campus to date - in Oxford. In 2011, the SAE Institute was bought by Navitas, an Australia-based for-profit. Although the institute is one of the smaller private providers in the UK, its students scored relatively highly as recipients of SLC funding, drawing £948,000 in fee and maintenance loans in 2010-11.

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