Privates on Parade: for-profit HE in the firing line

Paul Temple
For-profit higher education has been in the news on both sides of the Atlantic in the past year or so.
In the US, the for-profit sector was eviscerated by the Harkin report (PDF). Senator Harkin, Chairman of the Senate Health, Education, Labor and Pensions Committee, told The New York Times in July that his report had produced “overwhelming documentation of exorbitant tuition [fees], aggressive recruiting practices, abysmal student outcomes, taxpayer dollars spent on marketing and pocketed as profit, and regulatory evasion and manipulation”.
Meanwhile, over here, the Government’s 2011 White Paper, Higher Education – Students at the Heart of the System (PDF), appeared set on encouraging the arrangements shown to produce both appalling value for the American taxpayer, and damage to the students caught up in profit-driven higher education. The White Paper aimed to “make it easier for [new providers of higher education] to attract private investment”. The unstated implication here must be that these new providers will be for-profit organisations, as non-profit institutions are unlikely to be attractive to private investors (as opposed to philanthropists). And for-profit organisations have indeed moved in – BPP, owned by the US-based Apollo group is the best known; what is now the University of Law (formerly the College of Law) has been bought by a private equity firm; and Pearson, “the world’s leading learning company”, is looking for opportunities.
There are two difficulties with for-profit higher education, one about economics and one about effective public administration.
First, the economics. The notion of profit is usually seen as having theoretical benefits by signalling the existence of opportunities for new investment, and for indicating where innovation may generate high returns, both potentially leading to increased wealth for the economy in question. So why should profitability not have a role in providing higher education? (The argument that education is “too important” to be left to the vagaries of the profit motive is not compelling: there seems to be little controversy in most countries about the supply of food being largely determined by judgements of profitability by food producers, distributors and retailers.)
But there are several reasons why profitability is a difficulty in education, and in particular in higher education. One is to do with externalities (or spillover effects): the benefits of education are felt well beyond the parties directly involved in the educational activity. This argument applies most strongly to basic education, as the returns to society of universal literacy and numeracy are huge, but it also applies to higher education, as the benefits of high skills are also widely felt. But if the supply of education depended on the profitability of individual enterprises, it is likely that provision would be less than optimal for society as a whole, as these externalities would not figure in calculations of profitability.
Supply could be increased through public subsidies to students and/or institutions, but, as Senator Harkin showed, this creates a set of perverse incentives that are hard to manage in an educational setting. Running a profit-making enterprise is problematic when your customers are both your raw material and your finished product: as with most other enterprises, you want to maximise the quantities of both.
There are, actually, a large number of private institutions providing higher education in the UK – certainly over 1,000 of them, nobody knows for sure. Most are very small, typically teaching international students, often for non-UK awards. The business model of many of these institutions is puzzling, as they seem to have no distinctive academic or professional expertise.
This brings us to the second difficulty. The new English student fee regime means that UK/EU students at private colleges are able to apply for student loans on courses designated by BIS. The number of students at private colleges receiving taxpayer support more than doubled in 2011/12 over the previous year, involving £100m in loans. So big money is already involved – and the kind of abuses which the Harkin report identified look set to develop here.
In a recent case, Guildhall College, in London (not to be confused with the long-established Guildhall School of Music and Drama), was found to be registering students on courses designated for student support, when in fact the students concerned wished to study on courses that were not so designated. The College benefitted by some £750,000 before designation was withdrawn. It is difficult to see how practices of this kind can be prevented in a systematic way, if there are hundreds of such colleges, each with relatively small numbers of students, in a system which is constantly in flux. The scene is set for bad public administration and worse higher education.