Scandal at for-profit colleges

Source: Jo Turner (CC BY-SA 2.0)

A BBC Panorama investigation – which will air tonight at 7:30pm on BBC One – has found evidence of fraud at one of the UK’s largest ‘alternative providers’, the Greenwich School of Management (GSM).

Only the latest in a series of scandals related to higher education reform – the subject of this blog – the Tory utopia of a market in HE seems to be slowly crumbling along with its general credibility in UK Parliament.

Risks attached to the introduction of alternative providers, which David Willetts once called “the rising tide that lifts all boats”, have been pointed to by many critics of HE reform over the years. Andrew McGettigan wrote four years ago that there was huge potential “for a large-scale problem” to appear with what he called “sub-prime” degrees.

The BBC documentary, which shows dodgy education agents at such publicly-subsidised providers offering to get “bogus students” admitted into a government-approved private so they could “fraudulently claim student loans” for a £200 fee, as well as offering to “fake attendance records and to provide all their coursework” for another £1,500, seems to confirm these fears.


How big is the problem?

According to the funding body for higher education – the Higher Education Funding Council for England (Hefce) –  as of 13 March 2017 there were 115 alternative providers with specific course designation, which means students at these providers can access support through the Student Loans Company (SLC).

Student loans represent not only an investment by individual students, often supported by family, but also on the part of the public who will have to bear the cost of up to 45% of these loans due to non-repayment (see HE Marketisation, 29 October 2017)

Between 2010/11 and 2014/15, maintenance loans paid to students at alternative providers grew from £58 million to £207 million, the Higher Education Policy Institute (HEPI) reported, peaking at £292 million in 2013.

Loans for tuition fees grew from £36 million to £175 million, during the same period, peaking at £236 million in 2013. According to BBC figures, “about £400m-a-year is received by 112 private colleges through the student loan system”.

Including other alternative providers that do not have access to SLC funding, the Higher Education Statistics Agency (HESA) estimated earlier this year that there currently over 700 alternative providers in England.

HEPI summarised the wide range of business models that such providers are based on: “‘catch-up’ for profit; sub-degree colleges; generalist colleges, serving both undergraduates and postgraduates; small specialist, not-for-profit colleges; exclusively postgraduate small specialists; for-profit providers focusing on international students; for-profit distance learning; and campuses overseas”.

“Alternative providers are hard to classify because they have different legal forms, different objectives and different target audiences,” HEPI commented. “They provide a diverse range of academic offers and have a variety of organisational arrangements.”

“They have also been subjected to extensive external pressures in recent years,” it added. “Many have closed or merged, while some have grown dramatically, fueled by the availability of more student loan finance for their students.”

Commenting on the latest HESA figures, Sally Hunt, University and College Union general secretary, said:  ‘The sheer scale of what is unknown highlights how the government is basing major decisions on the future of higher education on very limited information.”

Hunt is here referencing the new Higher Education and Research Act (HERA), which makes it easier for such alternative providers to become designated providers with access student loans, or in some cases become fully-fledged universities – a title protected by the Queen.

‘We do not believe that plans to increase the number of alternative providers can go ahead until we can quantify the risk to public finances and our universities’ global reputation from a rapid expansion of private for-profit education,” Hunt added.

Hunt also pointed to a history of “scandals with for-profit companies in US higher education, like Trump University”, which were not taken into account by Tory HE reformers, but “must surely serve as a warning to our government”.


Problems in the US

In a two-year investigation by the Senate Committee on Health, Education, Labor, and Pensions into for-profit universities in the US higher education system, known as the Harkin Report, it was reported that:

Federal taxpayers are investing billions of dollars a year, $32 billion in the most recent year, in companies that operate for-profit colleges. Yet, more than half of the students who enrolled in in those colleges in 2008-9 left without a degree or diploma within a median of 4 months.

Many for-profit colleges fail to make the necessary investments in student support services that have been shown to help students succeed in school and afterwards, a deficiency that undoubtedly contributes to high withdrawal rates. In 2010, the for-profit colleges examined employed 35,202 recruiters compared with 3,512 career services staff and 12,452 support services staff, more than two and a half recruiters for each support services employee.

This may help to explain why more than half a million students who enrolled in 2008-9 left without a degree or Certificate by mid-2010. Among 2-year Associate degree-seekers, 63 percent of students departed without a degree … During the same period, the companies examined spent $4.2 billion on marketing and recruiting, or 22.7 percent of all revenue.

Publicly traded companies operating for-profit colleges had an average profit margin of 19.7 percent, generated a total of $3.2 billion in pre-tax profit and paid an average of $7.3 million to their chief executive officers in 2009.

Howard Hotson, an Oxford University professor and vocal critic of market reform, also looked at the two universities owned by the Apollo Education Group (a shareholder-owned, for-profit corporation), BPP University in the UK and the University of Phoenix in the US.

He found that, despite having a student body of about 500,000 students, the University of Phoenix only had a completion rate of 9% in 2011. The university was also the subject of a controversial documentary ‘College Inc’, in which three Nursing graduates described their expensive diplomas as “worthless” because the course only “aspired” to professional accreditation, and could not be used to get a job in a hospital

Another US Government report found that the University of Phoenix pressured its staff to meet recruitment targets, encouraging the enrollment of unqualified students as long as they got “asses in classes”.

Despite all these problems, even during the 2008 Financial Crisis the Apollo Education Group turnover increased by 25% during the period 2008 – 2010, with top executives taking home $6m each in 2008, Hotson pointed out.

However, in 2008, the US Federal Court jury found the Apollo Education Group guilty of “knowingly and recklessly misleading its investors” and were forced to pay $280m in reparations, Hotson reported.


Stormy weather ahead for English universities

Image: Wikimedia

In light of the announcement that tuition fees may soon be capped at £9,250 and the student loan repayment threshold raised to £25,000 (HE Marketisation 29 October 2017), the Higher Education Funding Council for England (Hefce) has revised its financial forecasts for the HE sector for the next three years, warning that the ambitious growth plans of many English universities may be unsustainable in the long term.

Overall, in its revised predictions, Hefce said that the sector will see a loss of “£113 million in 2018-19 and £333 million in 2019-20” as a result of the proposals, with sector surpluses down “from 2.1 per cent of income in 2018-19 to 1.8 per cent of income and from 3.4 per cent of income in 2019-20 to 2.4 per cent of income”

At the same time, “borrowing levels are expected to exceed liquidity levels in all forecast years, by £577 million at 31 July 2017, increasing significantly to £5 billion at 31 July 2020.”

“While this does not raise an immediate viability concern,” Hefce adds, “the current trajectory of increasing borrowing and reducing liquidity is unsustainable in the long term.”

Hefce also warns that this increase of debt alongside reduced surpluses to cover these liabilities may cause lenders to “restrict the availability of finance”, putting “significant elements of the sector’s investment programme at risk”.

The Bank of England seems set to raise interest rates for the first time in over 10 years, from 0.25% to 0.5%, which would not only raise the cost of borrowing for universities seeking further expansion, but increase the cost of existing debt, further reducing sector surpluses.

Meanwhile, Hefce has reiterated its previous warnings about stagnating student number growth, despite a rise of 7% in applications for the October deadline compared to the previous year, according to UCAS data.

“The declining population of 18-year-olds, the potential impact of Brexit on student recruitment, and the increasing availability of alternative post-18 educational options such as degree apprenticeships present challenges,” Hefce point out.

“Some higher education institutions [HEIs] may find it difficult to achieve their recruitment projections, and will therefore need to manage the financial risks of any negative variations in their growth ambitions.”

Speaking to HE Marketisation, the representative body for UK vice chancellors,  Universities UK (UUK), said that the forecasts “are predicated upon a number of unknowns and future events, not least the result of the Brexit negotiations and the proposed review of student funding in England”. Therefore, it “would not speculate about the possible impact of these (and other possible unknown factors) on [its] members and liquidity levels”.

Nevertheless, to meet the challenges posed by the Hefce forecasts, its members would “continue to invest in higher education” and “develop their strategies accordingly”, UUK stated.

Furthermore, in order to “thrive” in the “competitive environment” of UK HE, “universities will also have to continue to ensure they are as efficient as possible and that every pound of investment helps maximise their contribution to the UK’s economy and society,” it added.

“Universities are used to managing change and periods of uncertainty and will meet these from a position of strength and resilience,” UUK concluded.

The Russell Group – made up of 24 “leading” UK HEIs, including the Oxford and Cambridge Universities – told HE Marketisation that it has “argued” consistently for “sustainable and stable funding” which would allows its members “plan for the future with confidence” and continue to “deliver world-class education and research”.

Interestingly, Universities Alliance, the mission group for ex-polytechnics and ‘modern’ universities – the HEIs which in many cases have the most aggressive and ambitious growth plans – refused to comment on Hefce’s warnings.