Unregulated expansion of higher education costing millions

Left unregulated. Students and teacher via Africa Studio/Shutterstock

Whatever the sector, regulation generally takes a while to catch up with markets. This is particularly the case when markets are dynamic and fast-moving – regulators always appear one step behind nimble-footed and innovative entrepreneurs. The publication of a new report by the House of Commons Committee of Public Accounts (PAC) into financial support for students at alternative higher education providers, underlines this disconnect. MPs have been scathing in their criticism of the Department for Business, Innovation and Skills (BIS) in providing public support for students at the new so-called “alternative providers” – without much in the way of risk assessment and control.

There are now around 140 alternative, private higher education providers, run both as charities and companies, who operate differently from the traditional, grant-funded universities and don’t receive direct public money. The major allegation from MPs is that BIS permitted an expansion of financial support for students at these institutions which was too large and too rapid. Between 2010-11 and 2013-14, the amount of public money paid in grants and loans to students at these institutions rose from £50m to around £675m. The department also allowed £3.84m of taxpayers’ funds to be given to ineligible EU students. MPs said the department has been:

Unable to quantify how much money has been lost when it has funded students who have failed to attend, or failed to complete courses, or were not proficient in the English language, or were not entered for qualifications, or where courses themselves were poorly taught.

Although the PAC concedes that BIS has now tightened up on its controls, it says progress has been snail-paced. Nor does the department appear to have the kind of effective collective memory that suggests that it could learn from its mistakes. Past policies such as the introduction of Individual Learning Accounts, which suffered similarly from poor controls, appear not to have led to a better departmental performance this time around.

Reforms but no bill to monitor them

The PAC’s scathing treatment of civil servants in this report may be over the top, for the real culprit is the coalition government. It introduced major funding reforms – not least to encourage alternative providers as a means of generating competition for traditional universities and colleges – without willing the regulatory means into being. An expected higher education bill to provide the regulatory architecture and controls to complement market-boosting ministerial decisions never materialised. The sector in England still waits, in limbo, for such a bill and hopes for early legislative moves after the general election.

The government has acknowledged there is a problem and, in late January, the higher education minister, Greg Clark, made a statement to parliament, outlining steps to improve regulation of alternative providers. This included stipulating that they will need to be re-designated every year rather than just indefinitely.

Yet a major consequence of this absence of primary legislation is the failure to establish a regulator for higher education that could both enhance and yet control competition. The Higher Education Funding Council for England (HEFCE) has exercised regulatory powers over universities and colleges since its inception. But this has been on the basis of it being a funding agency, with the ability to attach conditions to its financial allocations to institutions.

As the financing of higher education institutions moves sharply away from recurrent operational taxpayer-funded grants from HEFCE towards a system based on student tuition fees, so HEFCE’s regulatory powers have become debilitated. Nor does it have the wherewithal it used to enjoy to rescue failing providers.

HEFCE needs to be able to operate with explicit, regulatory authority, not just as a funder, and with the capacity to consider the suspension or otherwise of student loans and grants. This may be hard on students attending institutions that fall into poor standing, but ultimately should be in their interests. A suggested financial compensation scheme and levy for students in failed providers, backed by a national regulator, would help.

The Higher Education Commission and Universities UK have both called for primary legislation to establish HEFCE as a national regulator.

What next for alternative providers?

Challenge to the status quo. Chris Ison/PA Wire

Having an empowered national regulator and framework will not answer all the questions about alternative providers. These include debates on whether they should be regulated in exactly the same way as other colleges and universities, not least to provide a level regulatory “playing field”. The alternative is that they should receive special regulatory attention, at least for quite a while longer, on the grounds that they represent most risk to the system and to students.

The PAC report does not refer to the long history of “alternative providers” nearly always needing access for their students to public loans and grants. In the US, for example, federal student finance known as “Title IV” grants for accredited for-profit and other similar private providers has become these colleges’ primary source of funds. Private competitive challenge to established institutions nearly always requires public funding of some kind, usually channelled directly to the student as consumer. Exercising proper regulatory oversight of this expenditure is not easy, but is still achievable.

There is little doubt that higher education, in England and other countries, is undergoing a transformation. In part this is inspired by technology, through digital and similar online innovation. But it is also the consequence of new providers challenging the status quo by seeking markets in places where traditional institutions have been reluctant to go and creating business models based on convenience and cost that challenge the priorities of incumbent universities. Working adults have been particularly well-served by such new providers.

The key issue, not addressed by the PAC, is how do we encourage innovation and competition – and aid the expansion of higher education to all who can take advantage of it – but with adequate regulatory oversight. HEFCE’s current review of quality assurance might provide one clue. Regulatory pluralism in which several or more quality assurance and accreditation agencies, albeit monitored centrally, serve different higher education markets, nearly always allows insurgent new providers to gain the regulatory start that they need.