Private practice

BPP may have been awarded university college status, but the regulatory system will have to be drastically overhauled if for-profit higher education is to thrive in Britain, says Simon Baker

September 9, 2010

When for-profit UK higher education provider BPP - a subsidiary of global American giant Apollo - announced last month that it had become a university college, it was in many ways not that remarkable. British institutions granted taught degree-awarding powers by the government often go on to successfully apply for the status and many are granted the title simultaneously. In fact, BPP is entitled to question why it had to wait almost three years.

What is significant, however, is the signal sent to the international higher education community - that a profit-motivated institution is now able to offer that much-sought-after qualification: a British degree.

Politically and ideologically it is a watershed moment in a country dominated by universities that depend on public funding for survival.

BPP's chief executive Carl Lygo is therefore under no illusions about the huge challenge that awaits him and the scrutiny his organisation will now receive.

"We are carrying the torch for the whole of that sector," he admits. "We are all conscious of the fact that it is up to us to ensure that there is a great reputation for the private for-profit sector in the UK."

But just as this watershed has arrived on one side of the Atlantic, in the US for-profit providers - who have been blazing an increasingly lucrative trail over the past decade - are suddenly firmly under the microscope.

A Democrat administration already keen to address market failure in healthcare has turned its attention to higher education, where it fears poor students are being exploited by unscrupulous providers.

It provides a fascinating parallel as Britain and other countries tackle the inescapable impact of global free trade and movement on universities, a commercial pressure that in the UK is likely to be actively embraced by the new coalition government.

How different countries learn lessons from the US, particularly with regard to regulation, may be a key factor in determining whether the increasing commodification of higher education benefits us all.

What academics and other experts appear to agree on is that current regulations on private provision contain messy inconsistencies - due in no small part to the murky definitions of what constitutes the public and the private.

According to definitions used in statistics for the Organisation for Economic Cooperation and Development, a university is public or private depending on whether the government or another public authority controls and manages the institution either directly, through an agency, or by appointing most members of its governing body.

However, it also cites sources of funding as an important distinction, with institutions receiving more than 50 per cent of their core income from public sources defined as "government dependent".

Most UK higher education institutions come under this category despite being classed as "private" because of their autonomy. Conversely, according to an OECD report in 2009, more than 70 per cent of enrolments in the US in 2006 were at "public" institutions, despite such institutions receiving a large proportion of their income from private sources.

The debate is further confused by the different forms of what have traditionally been known as private institutions in the UK - higher education providers that do not receive government funding for teaching or research.

Many, like ifs School of Finance and The College of Law, are registered charities and therefore not profit-motivated, while others such as BPP are commercial for-profit entities.

The icing on this semantic cake is that even such institutions - classed as independent private institutions by the OECD as they are not government-dependent - can in theory receive public money if their students are able to draw on government-subsidised loans to pay their fees.

All these complexities make regulation and quality assurance a potential minefield, and the UK system already has discrepancies, owing to the problems in categorising institutions.

For example, a major inconsistency cited by UK private providers is that their degree-awarding powers are reviewed by the Quality Assurance Agency every six years, whereas publicly funded universities keep their powers indefinitely.

Geoffrey Alderman, professor of politics and contemporary history at the private University of Buckingham, says the present situation is "completely ludicrous".

"My view is no university in this country - no British degree-granting institutions - should have those powers given to them in perpetuity. I have never seen a compelling defence of this system."

Not surprisingly, leaders of private institutions agree. Gavin Shreeve, principal at ifs School of Finance, says it is an "unfair and utterly arbitrary" rule. "There is no justification for it whatsoever."

He argues that independent providers in the UK are required to jump through hoops to gain recognition.

"Whenever some elements of the higher education sector feel threatened by change and progress, out come the two bogeymen: 'quality' and 'academic freedom', as if only the public sector has the holy grail for their security and advancement," Shreeve says.

However, as Alderman points out, the lack of a level playing field can work in the opposite direction too - for instance in terms of government-backed student support for any undergraduate studying at a private institution.

"The Higher Education Funding Council for England can cap the numbers at taxpayer-funded universities, but the government has no control on numbers at for-profit institutions or not-for-profits like Buckingham.

"Buckingham could recruit as many UK students as it likes and the UK students would be eligible for a mixture of grants and loans."

It may be only a relatively small number of students at private UK institutions who are currently eligible for government support, but in the US it is exactly this regulatory headache that is grabbing the headlines in relation to the for-profit providers.

According to the Senate Committee on Health, Education, Labor, and Pensions, which is investigating the sector, student numbers at for-profits have jumped from 600,000 to 2 million in the past 10 years.

Much of this explosion has been online, led by the huge University of Phoenix, owned by Apollo Group, whose subsidiary Apollo Global bought BPP for £368 million last year.

Other major players in the US market include Kaplan, Career Education Corporation, Laureate, ITT Educational Services, Corinthian Colleges, DeVry and Strayer Education.

Scrutiny of the for-profits stems from the vast amount of income they derive from federal financial aid to students, including government loans. Rates of default on those loans remain stubbornly high.

The Senate committee says this "Title IV" federal aid for students at for-profits has grown from $4.6 billion (£2.9 billion) a decade ago to more than $23 billion now.

Concerns over how this money is being spent have already led the Obama administration to propose new powers to tie a course's eligibility for financial aid to debt repayment rates and graduate salaries - known as the "gainful employment" plans.

The Senate committee's hearings are also making waves. Its chair, Democrat Tom Harkin, recently said that evidence from an undercover investigation on recruitment tactics pointed to a "systemic" problem in the for-profit industry because of "a recruitment process specifically designed to do whatever it takes to drive up enrolment numbers, more often than not to the disadvantage of students".

The general impact on the sector is hard to gauge. Stock prices for some of the major corporations have been falling, but they rallied when the Department of Education's gainful employment plans were less strict than feared.

Richard Garrett, a managing director at US higher education consultancy firm Eduventures, says that in many ways the for-profits are victims of their own incredible expansion, and there are concerns that the "emotive" discourse surrounding the current debate and uncertainty about the future of government policy could prick their bubble.

"It is not helpful from these companies' points of view to have this kind of discussion in public with the kind of emotive evidence that is being heard about alleged abuse of public funds," says Garrett, former deputy director of the UK's Observatory on Borderless Higher Education.

However, he believes that there may be no lasting damage, as the proposed gainful employment laws could be watered down because of their current complexity and likely administrative costs.

Anya Kamenetz, author of DIY U: Edupunks, Edupreneurs, and the Coming Transformation of Higher Education, says that regulation of the for-profits is long overdue, but non-profit colleges need the same treatment.

"It's entirely appropriate to put some strings on that money and the US has been too timid about this until recently," says Kamenetz, a staff writer at Fast Company magazine in New York.

"Student loan repayment rates and average loan burdens are a great proxy to determine whether students are truly getting the bang for their buck. I only wish that the 'gainful employment' standard were extended to non-profit colleges as well so that we could have an uncomfortable discussion about which conventional liberal arts programmes are actually preparing students for life."

Steven Goodman, an educational consultant and co-author of College Admissions Together: It Takes a Family, also believes that the debate is skewed.

"The most egregious examples of questionable recruiting by for-profit programmes no doubt affect the poorest members of society the most, but hundreds of thousands of middle-class students in the US take out significant loans for academic programmes that bear little to no nexus to the world of gainful employment," he says.

Alderman, who has worked on both sides of the Atlantic, agrees that there is an "unfair spotlight" on for-profits in the US.

"If you look back at the press cuttings you will find that plenty of not-for-profits have been found guilty of malpractice in this regard," he says, adding that oversight is needed wherever public money is involved.

"Once you go down the route of national government providing monies by way of grants or loans, or a mixture of the two, you have got to put in place a series of measures to prevent malpractice."

Whatever the eventual form of the US "gainful employment" regulation, it is clear that for-profits are now under intense scrutiny in Washington and this may push them to explore further opportunities abroad.

Several of the big US for-profit companies already have major international operations, but they have varying approaches when tapping into foreign markets.

Laureate in particular has a particularly distinct strategy. Over the past decade, it has built a large physical network of universities around the world by taking control of existing institutions - some of which were failing - using various methods.

It then oversees their operations at arm's length, through a regional management structure, but each university retains its own brand and control of academic standards.

"What attracted me to the Laureate model is the fact that each physical university in its overseas network functions as an autonomous institution, and they work under local regulation to give locally recognised degrees," says Sir Drummond Bone, former vice-chancellor of the University of Liverpool, who now advises Laureate.

"There is no parachuting in some sort of 'model' that has no academic or local cultural appropriateness. But on the other hand, if individual institutions want to access expertise across the international network they can."

The firm, which was partly set up with an endowment from Harvard University and is reported to have famous benefactors, is not publicly listed on the stock market and so not subject to short-term financial pressures.

In the UK, it provides online degrees through a partnership with Liverpool but has yet to establish a physical presence - a strong indication of how difficult it is for commercial firms to take over British universities.

There are numerous reasons for this: the legal form of existing universities makes acquisition difficult; what may be seen as costly pensions and staff contracts need to be honoured under UK and European law; and the institutions "on offer" may not be commercially viable.

However, another factor - the lack of political will in opening up the market - has changed with the arrival of the UK's Conservative-Liberal Democrat coalition, and this is the ace in the pack: with political will, all other barriers can be removed.

Even without legislative change, Laureate has shown that there are various ways to gain control of an institution depending on the local circumstances and regulations.

A key example is the College of Santa Fe in New Mexico, a creative arts institution with a history dating back to the 19th century that fell into dire financial straits.

Laureate first entered into talks about acquiring the college in 2008, but they fell through and the college faced closure the following year. In stepped the city's public authority, which bought its assets, took on its debt and then leased the institution to Laureate.

It is a model that can be, and has been, applied elsewhere and allows a private company to manage an institution - and reap the rewards if it is successful - without ownership leaving the public sphere.

Bone is careful not to predict the same plan for the UK, but adds: "Doug Becker, Laureate's founder, has a vision of maximising access to higher education in appropriate ways for individual countries' circumstances."

Other companies with international ambitions are also exploring numerous strategies to increase their influence.

Arguably the largest obstruction to for-profits gaining a foothold outside the US is accreditation for degrees that meet the quality assurance criteria of a particular country.

Often the easiest way to tackle this - as Laureate has - is by buying into universities that already have accreditation, but some firms have chosen a different approach by "exporting" accredited degrees from one country to another.

The pitfalls and advantages of this approach can be seen in the experience of the American InterContinental University, which is owned by the US giant Career Education Corporation.

It has a campus in London offering degrees accredited by the Higher Learning Commission, a member of one of the six regional accreditation organisations recognised by the US Department of Education.

Its courses are also vetted in the UK by the QAA and, in 2005, the institution fell foul of scrutiny by the latter when a routine audit inspection found "alarmingly low" standards of student achievement and "misleading" marketing claims.

The university has since upped its game, and the QAA signed off the audit failure in 2008 with a follow-up report that again expressed confidence in the institution.

Randolf Cooper, the university's vice-president of academic affairs, says the institution has no regrets about subscribing to the QAA.

"We are a better organisation for being an American institution based in the UK because it means we are subject to the QAA and HLC," he asserts.

Providing accredited degrees outside their country of origin is still a less favoured method by for-profit corporations, and the relatively small physical size of AIU - it has around 1,000 students enrolled in London - shows it is not necessarily a route to expansion.

Others have instead followed the tried and tested route of partnerships with existing well-established providers, similar to the Laureate agreement with Liverpool.

Kaplan, a major US for-profit player owned by the Washington Post Company, offers degrees accredited by the University of Essex, but supplements this with other approaches.

These include partnerships with several UK institutions to provide preparatory courses for international students; acquiring teaching institutions such as Holborn College; and, in its latest move, offering tuition for University of London external degrees through its business school in the capital.

Like Laureate, however, a physical university presence in Britain has eluded Kaplan, although its UK chief executive Peter Houillon does not disguise the fact that this is its ultimate goal.

"The longer-term strategy of Kaplan in the UK is likely to involve looking into having a university presence - we already have a substantial bricks-and-mortar presence," he says.

Houillon accepts that Kaplan's strategy has also attracted many more international than local students - but this is understandable for a for-profit company, given the problems of competing with the cap on tuition fees for UK students at publicly funded universities.

BPP, however, has matched those capped fees, and offers undergraduate degree courses to UK students for less than £10,000 - but what sets it apart from other for-profits is that it has UK taught degree-awarding powers.

This makes it unique in the sector - it is no surprise it was snapped up by Apollo Global, given that the purchase afforded a direct route to obtaining an accredited provider in another country.

But institutions in BPP's position are rare, and the precedent set by its degree-awarding powers, university college status and purchase by Apollo, has prompted concern from experts.

The main area of disquiet surrounds the ability of a huge multinational such as Apollo to effectively gain UK degree-awarding powers by proxy via the acquisition of BPP, without regulatory review from government.

Alderman, who is no enemy of private institutions given his role at Buckingham and former job as AIU London's senior vice-president, says there need to be clear rules governing such situations.

"David Willetts (the UK's universities and science minister) and his advisers need to review the conditions under which BPP was granted taught degree-awarding powers," he said.

"It is rumoured that there are a number of American universities - for-profit and not-for-profit - that are interested in gaining taught degree-awarding powers, and the precedent has now been set by BPP."

He also suggests that there needs to be tighter government regulation to prevent a company's ownership impacting academic standards.

"If more institutions in the private sector are to be given British degree-awarding powers then the officers of the Privy Council must be much more proactive in ensuring an absolutely impenetrable firewall between legal owners and academic decision-making," he says.

Alderman said that in the US, regional accreditation bodies require institutions - whether for-profit or not-for-profit - to have this firewall in place.

But BPP's Carl Lygo, who has never shied away from addressing these points in public and has debated the issue openly with Alderman, says that the controls are already in place.

He notes that BPP's academic council - which has a majority of independent members - has the "final say" on its degree standards and also scrutinises much of its budget.

When purchasing the company, Apollo undertook not to interfere with this model - a pledge detailed in its offer document to shareholders - and to notify the Privy Council of any changes and expect a QAA inspection as a result.

"I had an exchange with Geoffrey where I gave him all of our constitutional documents so that he could do his research on what our safeguards were," Lygo says.

"BPP University College is the degree-awarding body. It is then a question of who controls that according to our powers.

"It is the faculty through our academic council that control the degree side and you can't really interfere with that without losing the degree-awarding powers - which is the very thing the company taking you over would want to buy."

Lygo says the thoroughness of the UK's quality assurance regime in respect of for-profit providers is evident from the very fact that BPP has set a precedent and only a "small pool of candidates" would meet the same criteria.

"I think it's right that the requirements for getting degree-awarding powers are quite onerous. It has to be high-quality private-sector companies that come through, so, when I hear lots of people say that there are going to be a lot of companies applying for degree-awarding powers, I just don't see that," he says.

"The precedent that BPP has set is not an easy one for a private company to replicate because we have given over a tremendous amount of power to our independent academic council. There are not many private companies that would give that power away to an independent body."

This leads to the question of whether tighter regulation in the UK is actually necessary to keep the increasing involvement of the for-profit sector from having a negative impact on quality.

Some argue that Lygo's comments, and the evidence outlined here, suggest only that lighter regulation would enable the UK government to successfully encourage greater engagement with for-profits - especially to the extent of allowing them to provide their own degrees.

However, as with many areas of government policy, the best approach is to use international comparators as a litmus test and look to examples of how the scenario is playing out abroad.

On this evidence, the US provides a vivid crystal ball for any country seeking to open up higher education to diversity of provision.

It has shown that the style of ownership - whether public, private, for-profit, not-for-profit - is less relevant today than ever before as the boundaries have become so blurred. It may therefore be wrong to get ideologically hung up on this point.

More important is that where public money is involved, checks and balances are needed, whatever the institution.

"Higher education is a public good and therefore it's a good idea for the public to fund it, especially to extend opportunity to the disadvantaged," argues Kamenetz.

"However, maybe there's a way to better align incentives so that colleges measure themselves by the success of their students, not by the size of their physical plant, amount of their spending, or what percentage of applicants they turn away."

Roger Brown, professor of higher education policy at Liverpool Hope University, who discusses the increasingly complex mixture of public and private in his book Higher Education and the Market, says the true yardstick for any system is ultimately the quality of goods produced - the challenge being finding a mechanism to monitor these effectively.

"The issues aren't ultimately legal status or ownership, or even funding or regulation," he argues.

"It is how best to get the range and quality of the public and private goods of higher education. It means looking critically at the claimed benefits of each type of provision and seeing whether the costs - which include any taxes forgone as well as any market distortions - justify them. It is, in other words, a value for money question."

WHO GOES THERE? Data offer only a partial view of private sector numbers

Statistics on private universities are problematic, due in part to the varying definitions on what constitutes public and private institutions.

But according to Daniel Levy, a researcher in the field based at the University at Albany, SUNY, private sector provision has grown globally to around 30 per cent of total enrolments, mostly through non-profit institutions.

For more specific data there are two main sources - the United Nations Educational, Scientific and Cultural Organization and the Organisation for Economic Cooperation and Development.

They use legal control of an institution to classify whether it is public or private, while the latter category is split between those that receive at least 50 per cent public funding (government-dependent) and those that do not (independent).

Based on their latest figures, which do not include most African countries, the systems with the biggest proportion of students studying at "independent" universities are in Asia and Latin America.

"Europe is becoming an exception in terms of the public model. All the growth in private higher education is happening outside the OECD area - in Asia, Africa and Latin America," said Stephan Vincent-Lancrin, project manager for the OECD's Higher Education to 2030 project.

In South Korea, around 2.6 million students were at private institutions in 2008, representing 80 per cent of all those studying, while in Japan the figure was 3.1 million - again about 80 per cent of enrolments.

Brazil had nearly 4.3 million, or 71.9 per cent of its overall enrolments, in independents, and figures from 2007 for Chile show the number was about 470,000 students (61.8 per cent).

Elsewhere there are proportionally far fewer "independent" institutions. The US had 26.1 per cent at independents in 2008 (about 4.8 million students), France 15.3 per cent (330,000) and Australia 4.7 per cent (53,000).

However, there are potential problems with the data. Statistics show no students at independent providers in the UK - and 100 per cent at government-dependent institutions - suggesting that the official UK data include only publicly funded institutions.

Moreover, figures on how many independent institutions worldwide are "for profit" are not available from Unesco and the OECD, but can be traced from other sources for the US.

According to the US Department of Education, in 2008-09 there were 2,800 for-profit providers where students drew on federal aid, almost half of the total number of institutions (6,632). Figures for the previous year show students at US for-profits made up 12 per cent of enrolments.

The growth of the sector among older undergraduates over the last 20 years has been prodigious. According to consultancy Eduventures, in the over-25s market, for-profits recently passed private non-profits in enrolments for four-year programmes and have a 28 per cent market share. This represents a 1,715 per cent rise since 1987, when they had a 2 per cent market share.

Figures provided by JP Morgan to Universities UK in 2009 indicate that Apollo Group, DeVry, ITT Educational Services and Strayer Education are among the biggest players in the US.

Between them they have about 600,000 students, make profits of more than $1.5 billion (£973 million) and up to 82 per cent of their revenue comes through federal student aid.

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