Welcome to our consumers

In a rare moment of political solidarity, the Government and the Opposition agree on one thing: it is time for students to become more demanding and for universities to deliver what they demand.

Lord Mandelson, the First Secretary, has told students they must become more "picky" and force universities to accommodate them. "Students who go into higher education pay more, expect more and are entitled to receive more," he said. The framework for higher education that was published by the Government at the beginning of this month repeated these calls.

Meanwhile, David Willetts, the Shadow Universities Secretary, has spoken of his desire for universities to provide more detailed information about their courses, including the salaries that graduates of each course earn, to help prospective students make an informed decision about where and what to study.

In short, the political consensus is that students are now consumers. They pay their money and expect results. Until now, many universities have competed largely on their reputation and their research base, but this is beginning to change. The student experience, and student support, is now a key battleground - none more so than when it comes to competing with private-sector providers.

As consumers, students have a choice. This now includes a growing number of private-sector institutions, many of which already compete on the student-support ticket.

As an example, Kaplan Open Learning provides an unrivalled level of assistance for its online undergraduate students, who are supported with every strike of the keyboard. The institution has employed ten online advisers, young graduates who offer students assistance, with more to be appointed as undergraduate student numbers grow. "We can see what our students are doing online at any time during the day," says Alan Jenkins, its managing director. "If they're not performing as we expect or they need any help, then we're on the phone to them."

For Kaplan Open Learning, the online branch of the American private educator, this high level of student support has paid off. The company is enrolling 100 new UK students a month to study its online degrees in business, finance and criminal justice. In the US, its rise has been spectacular: in 2001, just 34 students were registered; today it boasts an online student population of 55,000. The UK arm of the institution has similar growth plans and aims to achieve taught degree awarding powers.

Given this remarkable trajectory, exactly what kind of threat does the private higher education sector pose to the UK academy?

Understanding the place of private higher education in this country today is no simple task. There is no single source of comprehensive data on the exact number of private operators in the UK and their enrolments. Robin Middlehurst, professor of higher education at Kingston University, is conducting research into the role and size of private providers on behalf of Universities UK. She has found it difficult to quantify the size and shape of the private sector.

Yet there are some crude figures for the number of accredited institutions in the UK that give an idea of the sector's scope. The British Accreditation Council (BAC) and the Accreditation Service for Independent Colleges (ASIC) accredit private higher education and further education institutions in the UK. The two are responsible for monitoring the performance of 680 higher education providers.

The BAC, the largest of the two, has been operating since 1984. It accredits 419 organisations, including large ones such as BPP. Gina Hobson, chief executive of the BAC, estimates that a further 100 providers are going through the application and inspection process to join the regulator's ranks.

A recent survey within BAC-accredited institutions established that there were 91,895 full-time students registered at these colleges for the 2008-09 academic year. Hobson also claims that three quarters of these institutions charge a tuition fee for undergraduate education that is similar to that of publicly funded universities in the UK - £3,325 a year.

Attempts to get a handle on the sector are further frustrated by the nebulous nature of exactly what constitutes a "private provider", a singular term for a very diverse sector. Private does not always mean profit-making. Although organisations such as BPP are for-profit, many are registered charities, and are private only in the sense that they do not receive funding from the public purse (see box, page 37). And while some define themselves as separate from the mainstream sector, others, including Holborn College and Regent's College, are signed up as members of the campaigning group GuildHE.

The last UUK report into private higher education, in August 2008, Private Universities and Public Funding: Models and Business Plans, says that the newest private providers operate with commercial business models, depending on tuition fees for their income. Most focus on undergraduate teaching and training. Few have endowments; even fewer undertake research. "This is unlikely to change," the report concludes.

Academic staff have limited control over content in the for-profit institutions, the report states. Assessment is standardised, and governance is dominated by corporate board decisions. The rate of growth of this sector, it said, would be determined by the reach of government regulation.

UUK perceives a difficult future for the UK academy in the wake of the political acceptance that students are consumers. "Policies that expand students' purchasing power enhance not only the rewards of selective prestigious private universities ... but also improve the profit climate for those for-profit providers who target lower-income students," the report says. "Public providers may get caught in the middle, trying to compete on costs while maintaining or even raising standards."

This year, Middlehurst is examining for-profit provision in the UK and its relationship to publicly funded higher education - mainstream universities. The next UUK report, on which other consultants will also work, has been delayed until March, although universities are already asking questions about the potential threat they face from these new competitors.

In her research so far, Middlehurst has found that as politicians throw their weight behind the idea of students as consumers, what defines and constitutes the private sector is becoming harder to pin down. "It's difficult to talk about the private sector as a whole. There is a blurring of lines between what's private and what's public in the UK," she says.

Middlehurst admits that change is on its way. "Internationally, there has been enormous growth in the private sector globally in terms of its evolution in the delivery of higher education," she explains. "(The growth of the private sector) depends quite a bit on the market conditions. In the States, the for-profit providers now have about 10 per cent of the undergraduate and masters market. But until recently, they have not thought the UK a lucrative or useful market. It's quite small and it's well populated by publicly funded higher education. There has been very limited opportunity for the big conglomerates."

But that has begun to change. In October, BPP Business School opened in the heart of the City of London, charging its students up to £13,000 a year to gain a postgraduate degree in business or finance. The new school is the latest venture for the degree-awarding private provider, which was recently acquired by Apollo Group, the world's largest private education company and owner of the profitable but controversial University of Phoenix. The £368 million takeover deal, finalised in August, puts BPP in an excellent position to capitalise on the growing market for private higher education in the UK.

BPP has big plans. The takeover is the start of a new push in the UK for Apollo, which already operates in 12 European countries and has a degree-awarding body in three. Potential areas for its development are Apollo's US strongholds of teacher training, dentistry and subjects allied to medicine.

Carl Lygo, chief executive of BPP Education, is excited about the possibilities opened up by Apollo's investment. "Although it may not seem remarkable from the outside, from an educational perspective if you can find an investor who's not demanding immediate return on their investment, it's remarkable.

"We've got somebody who understands education and they've got experience because they've been around for 30-odd years, and they've got fabulous capabilities. Think about the infrastructure that's required to support 450,000 students studying in higher education all over the world - it's really impressive," he says. "It's transforming BPP. We've gone from a small publicly listed company on our own on the UK stock market to being run by one of the world's largest private education companies with masses of experience ... which is talking to us in terms of 10- and 15-year time horizons. That's really exciting because you can't grow a quality education business in a short space of time."

Although BPP is still a niche provider of law and accountancy qualifications, its plans for growth may set off alarm bells across the state higher education sector. Importantly, it is not alone. At Kaplan, Jenkins affirms that the focus is on building student numbers by improving the student experience - as Lord Mandelson has demanded, giving students exactly what they want.

"We have taken the (Kaplan) US model - their methodology, how they support their students - and put that into the UK context. I can say that we are investing a lot of time and money into growing that in the coming years. I don't think we'll get as far as the US, but maybe we'll get to 5 or 10 per cent of the market. I think that's a realistic place to be."

As large providers such as Kaplan and Apollo gain a foothold, the rules are starting to change. "What we're likely to see in the UK, with the private sector coming in, is a loosening of the legislation governing publicly funded universities" so that they compete by offering some "private" provision themselves, Middlehurst explains. "It's going to happen under the Conservatives or Labour."

Willetts confirms that the Tories would liberalise who and what may be described as a university. "I certainly believe in trying to open up the supply side," he says.

Currently, university status and degree-awarding powers are two separate things. Willetts would like to see that change. "If BPP is accredited to give higher education degrees, if it has maybe 4,000 students, it's very weird that it's not even allowed to call itself a university. The term 'university' is rightly protected, but it seems to me that there is a problem here."

Terence Kealey, vice-chancellor of the private but not-for-profit University of Buckingham, already sees this "loosening" of the sector taking place.

Though private, Buckingham could become state funded at any time. "We're a charity; like any other university, we have a royal charter, we have a board of trustees; we're indistinguishable from any other university except that we haven't signed a financial memorandum with the Higher Education Funding Council for England. There's nothing to stop us doing it, and I can see some circumstances in which we might want to do so."

He cites the examples of Heythrop College and the Guildhall School of Speech and Drama, both formerly private institutions that signed up for government cash and the red tape that goes with it. "The important thing is that there's nothing to stop any other university signing the memorandum," Kealey says.

As the higher education sector becomes more flexible, more and more universities will go the "Buckingham way", he believes.

"There's a huge gulf between the charitable sector and the for-profit sector, and we're very much part of the charitable sector. If you look at the way the world is moving, the charitable sector is going to move more and more in the Buckingham direction. The share of government funding is undoubtedly going to continue to decrease because the Government is running out of money, and also there's a perception of a world of mass higher education but still only a minority are going to university. The busman shouldn't be paying for the QC, so there's going to be increasing belief that students should pay increasingly towards their fees."

Yet if there is an appetite for becoming self-sustaining, there is also an appetite to take on the for-profits. "The mainstream universities, once freed from the shackles of excessive regulation, such as a limitation on fees or a limitation on expansion, they're going to give BPP a run for its money," Kealey concludes.

Student satisfaction will be the key arena. It can be no surprise that the focus on student-centred learning and the introduction of the National Student Survey have coincided with the rise of private providers that dedicate more time and resources to supporting students.

It is this careful coaching that private-sector students are willing to pay for. Aldwyn Cooper, chief executive of Regent's College, claims that half of his students are from Europe but elect to pay up to £12,000 a year for undergraduate tuition rather than go to a state institution. "The reason is that they're getting a different learning experience," he says. "Here, staff-student ratios are better and there is a high level of employability."

The college has 2,300 full-time students based at its London campus. Although it also intends to expand, and has ambitions to become a degree-awarding institution, it will cap its size at about 3,400 to protect the student experience. "We wouldn't want to get any bigger than that," Cooper says.

International students, Cooper says, have become disillusioned with top universities that have come to see them as a cash cow and ignore their needs. Now, a new market, particularly for private postgraduates, has opened, in the classroom and, perhaps more importantly, online.

"There will be additional players seeking to move into the top of the market ... I think it's going to be interesting. People like the Apollo Group are looking to move into the distance and online sector. They will be big players in online. They have a very high service level to students."

Research universities are divided over how to respond to this challenge. One pro vice-chancellor of a Russell Group university says that there are now debates over the "appropriate" type of feedback and support that undergraduates should receive. But he says that changing student feedback to mirror that offered by private institutions would not be a sensible solution. "We wish students to develop skills in how to learn and how to critically analyse information, and this is likely to require a different approach to institutions who may be adopting methods where recollection of knowledge is tested."

Yet Paul Marshall, executive director of the 1994 Group, says that increased competition from the private sector will drive up standards across the sector, including within the research-intensives. "This poses a challenge to our universities to continue to enhance their student experience. This challenge is good for students and a good way to enhance quality and standards."

Despite internal debates, the Russell Group believes it has nothing to fear. Its director-general, Wendy Piatt, says world-class research still attracts undergraduate students. "The combination of teaching and research excellence means students are taught by staff who are experts in their field, have opportunities to engage in research and access to first-rate libraries and facilities," she says. "This research-informed teaching and environment is not available at private institutions. Nor can they offer the breadth of courses in science and engineering, as well as in the arts and humanities."

The Russell Group is more concerned about competition from private universities in the US, which are offering stipends to attract leading postgraduate researchers from the UK and are also proving attractive to UK undergraduates.

Whatever threat they are considered to pose, the reputation of for-profit private providers (as opposed to those with charitable aims) is mixed. Though the US has a much larger and more mature private sector, questions about quality and mission are still raised. The University of Phoenix is North America's largest private institution, with more than 200,000 students. It is the biggest recipient of US federal student aid funds. Yet its dropout rate is high. In 2007, The New York Times cited a 16 per cent graduation rate (although this figure was based on data from a small proportion of the student populus). The university has claimed to graduate between 50 and 60 per cent of its students.

In 1998, the price of Apollo Group shares fell by 20 per cent after a negative review by US Department of Education inspectors. They found "systematic non-compliance" with regulations, poor record-keeping and delays in refunds of student aid to the department when students withdrew.

These issues have had a knock-on impact on attitudes within the UK. When Apollo took over BPP this year, questions were raised about whether its degree-awarding powers should be reviewed (although there is no immediate requirement for this to happen).

"There should have been further scrutiny because clearly the viability and intentions of the new owner will have a bearing on BPP's ability to fulfil the obligations it took on when it got its degree-awarding powers," says Roger Brown, professor of higher education at Liverpool Hope University. "There must in any case be a suspicion that Apollo is using BPP as a back door into the UK market."

For some, the pressure to meet shareholders' demands for growth and profit seems to sit uncomfortably alongside aspirations for better education and widening access to higher-level study.

But building a positive reputation remains the key if the private sector wants to break into the mainstream. "Students don't care about the teaching and the research, they care about the labelling that the university can give them," says Kai Peters, chief executive of the private but not-for-profit Ashridge Business School. "Can the for-profits develop a market position that lifts them above the great unwashed, which is certainly the perception in the eyes of universities? If the for-profits can figure out a way of being Harvard it will get really exciting."

So are private providers likely to knock the leading public universities in the UK off their pedestal? Although they may not pose a lethal threat, they certainly pose a challenge. They benefit from the state sector, often using its tutors and course materials. They can cherry-pick the most profitable disciplines within higher education - accounting, business and finance - and do not have to expend resources on research. They are not encumbered by third-stream activity and demonstrating their own public benefit.

For universities strong in in-demand courses, there must be a potential threat. "(Private providers) certainly will be of increased importance in some of these professional areas," Middlehurst admits. BPP's Lygo also says the threat lies with "any university that delivers significant teaching online".

So what is to be done? Universities are already partnering with private charitable and for-profit institutions, validating their qualifications, removing the sense of direct competition between the two sectors. Universities might also look for industry certification of their vocational courses to maintain their reputation for professional education. Farming out some courses to the better resourced private sector may also be an option. "A lot of universities will be looking to use the private sector, and they may feel more comfortable using them for very career-focused awards," says Jenkins.

Lygo says that state universities could pose a threat to the for-profit sector if they developed a strong online distance learning presence. However, he rejects any suggestion that this will be possible in the short term: "I know how incredibly difficult it is for the management to make any kind of meaningful change in a public-sector university, and that has got to be one of the big inhibitors."

Whatever response individual institutions make, the broader picture is unlikely to change. If private providers are here to stay, what does this mean for the future of higher education? At Buckingham, Kealey welcomes the change. "I think it's wholly good thing for British people, for British students and for Britain as a nation. I think the rise of the for-profit sector, if it flourishes - and I believe it will flourish - will meet a huge gap in need in Britain generally," he says.

Heading up BPP, Lygo has obvious reasons to be positive about the future, but his vision for a future warranting a much broader understanding of higher education is convincing and fits neatly into government priorities of widening participation while cutting public spending.

"Organisations like BPP are paying taxes and are not taking money from them to deliver student learning. That's something I think will be interesting for any incoming government," Lygo says. "What I expect is that some of the public universities are going to end up becoming private in the next five to ten years, I just can't see how the current state-funded system is going to survive. It's not in the best interests of the UK university sector, so it wouldn't surprise me if I'm suddenly joined by quite a few colleagues from the traditional public sector that become private universities."

Unlike universities, BPP cuts a streamlined figure, "unencumbered" by the fixed costs of the traditional sector. If the focus is on widening participation and student support, that's an attractive proposition.

In fact, despite concerns about the cost of private higher education, Trends in Global Higher Education, a report for the United Nations Educational, Scientific and Cultural Organisation, also demonstrated that an increasing number of private providers can assist the widening-participation agenda. "In general, the private sector is 'demand-absorbing'," it says, "offering access to students who might not be qualified for public institutions or who cannot be accommodated by other universities because of overcrowding ... in general it serves a mass clientele."

Yet to widen participation in an expanded and diverse sector, where public, private and mixed institutions work hand in hand, there need to be certain changes. Lygo calls for the cap on tuition fees to be lifted at the first chance and a "level playing field" to be created on student finance. "We should be giving people a choice where they study, in a state institution or a private institution. The funding for students should be the same, full time or part time, state or private sector."

"I recognise that there is a long way to go on that," Lygo admits. Yet with the general election looming early next year, Conservative and Labour ears are likely to be pricked up, and a blurred higher education sector where private and state become less divided seems closer at hand.

OPEN QUESTION

Future growth in distance and online tuition from private providers presents a threat to all UK universities, but none more so than The Open University, which prides itself on its unique offering and student support.

"We are monitoring what's out there and are very much aware of it. We're not resting on our laurels," says Niall Sclater, director of learning innovation at the OU.

"There are a number of ways in which we can compete. We can continue to develop high-quality content. That's something that we definitely have, along with economies of scale. We're developing all sorts of new types of content and working on iTunesU. We have got some quite interesting ways of assessing students. We're going to have to innovate to stay ahead of the game, there is no doubt about that."

With a network of 8,000 tutors across the UK and in continental Europe, the OU has a "competitive edge" on distance learning, Sclater claims. "They provide a high level of support to students."

But is that enough? Sclater admits that it is very easy for competitors to copy the OU model. "When people are developing a distance-learning course, the first thing they do is get the OU pack for that course and see if they can improve on it."

What the OU has - in common with most publicly funded universities in the UK - is a strong brand. It is difficult for new private providers to build up a good reputation; it takes time and effort. "A university without a brand is worthless," Sclater says.

COULD AN IVY LEAGUE TAKE ROOT IN THE UK?

In May 2009, Sir Roy Anderson, then rector of Imperial College London, argued that the five best universities in Britain should go private and form their own Ivy League.

He said privatisation would allow them to set their own fees and take on more overseas students to improve their international positions. This league would include, he proposed, Imperial, the London School of Economics, University College London and the universities of Oxford and Cambridge.

Then, just two months later, Sir Cyril Taylor, the former government education adviser, called for more private provision in the UK and an end to the cap on student numbers and tuition fees. In a report titled How English Universities Could Learn from the American Higher Education System, he said UK universities were "micromanaged" and should be freed from government control.

He said Richmond, the American International University in London of which he is chancellor, proves that US-style independent institutions are viable in the UK. "It is time to give our universities the freedom they require to thrive in what has become a global market in higher education," he said.

Despite internal discussions throughout the academy, no university has yet come forward to declare an interest in going private. The LSE has been hotly tipped to be the first to take such steps, but a spokesman said: "We have no plans to go private, and there is no process of privatisation under way here."

The outcome of the government review of tuition fees, set to be reported next year, is likely to reignite the debate over a UK Ivy League.

IT'S NOT ALL ABOUT PROFIT

The Unesco report Trends in Global Higher Education says the private higher education sector "is run mostly on a business model, with power and authority concentrated in boards and chief executives. Faculty hold little authority or influence and students are seen as customers".

In the UK, however, this description masks some major differences between institutions. Private providers are simply those higher education institutions that do not receive public funding.

While the term "private" may bring to mind the for-profit models of BPP and Kaplan, many private providers - including the College of Law, the University of Buckingham and Ashridge Business School - are not-for-profit organisations. They are registered charities with educational aims. Universities UK's 2008 report into the private sector identified that not-for-profits operating in the private higher education sector had typically pursued "civil society purposes".

The for-profits are different. They operate on traditional business models, generating profits for shareholders, and they tend to work only in the most profitable areas of higher education. Within the for-profit sector, there are a number of subgroups. Non-degree granting institutions mainly offer short courses. There are also degree-granting institutions such as BPP and corporate universities, which train the employees of sponsoring businesses through tailor-made courses and qualifications. It is the degree-granting institutions that public universities will be watching most closely.

UUK's 2008 report highlighted the fact that there is less student activism in the for-profit sector, where students are deemed to be "pragmatists, who are concerned mostly with career advancement". When student protests occur, they are more likely to be over consumer issues, such as tuition fee rises or the prospect of the institution being sold or closed down.