Subprime education? Lessons from the USA

The coalition government seems increasingly determined to commodify higher education and has recently shown enthusiasm for private providers to enter the field – UCU believes this could prove a dangerous road to go down.

The union has published a new report, highlighting a series of scandals in the USA which has led to a major Senate inquiry, and planned legislation by the Obama administration to tackle some of the worst abuses.

‘Internationally, for-profit higher education providers are becoming more significant. They are a natural response to the global hunger for higher education and better qualifications. Unencumbered by the weight of history, these providers can grow quickly and change fast. They offer a salutary challenge and new approaches to delivering higher education efficiently – and, in turn, cheaply for students. The acid test for HE providers is whether they offer excellent teaching and a high-quality experience for students. If they can do that, at a fair price, then it doesn’t matter whether they are old universities or new ones; for-profit or not for-profit. They have something to contribute and should have the chance to do so. That is the case for a more open market.’

This extract, from a speech by universities minister David Willetts to Universities UK Conference in September 2010, leaves us in no doubt the coalition government is considering radically changing the landscape of British higher education by welcoming private providers into the fold.BPP Law School sign

In the context of a £2.9bn cut to the higher education  Comprehensive Spending Review, and a confirmed figure of 209,000 applicants turned away from university this summer, Mr Willett’s words have even more resonance. The Browne review, if implemented, would make the creation of a marketplace in higher education a reality – manna from heaven for private providers.

But UCU warns going down this path is a major risk that could have dire consequences for UK higher education. A UCU report, Subprime Education?, highlighting some very negative experiences in the US, proves the union’s concerns are well-founded.

Currently in the UK, for-profit education providers face significant barriers to entering higher education. The first and most significant is accessing public funding through the Higher Education Funding Council for England (HEFCE). To date, if a private provider has wanted to access HEFCE funding it has had to accept the £3,290 cap on tuition fees, along with HEFCE’s standards and practices of accountability. In most cases, the limited potential earnings have not been worth the higher levels of public accountability. But that looks set to change dramatically in the light of Lord Browne’s review. Although the coalition government has rejected Browne’s recommendation to lift the cap on fees completely, and set fees at a maximum of £9,000.

The second barrier has been access to publicly funded student loans. To date, private companies have had to seek the Secretary of State’s support for individual courses to be ‘designated’ as eligible. Also, the majority of students studying through private companies are part-time and to date, they not been allowed access to the student loan system so have had to pay thousands in tuition fees upfront. However, Browne recommended that part-time students should be able to access the student loan system for fee loans. This would be a major boon for private providers.

Finally, private companies have faced barriers with status. One of the most prominent private education companies operating in Britain, BPP, has been lobbying for university status and in the summer of 2010 was given permission by David Willetts to use the title ‘university college’ – the first time this has been awarded in more than 30 years. To gain the full title, any private provider has to go to the Privy Council and meet stringent criteria, including having taught degree-awarding powers and having at least 4,000 full-time equivalent students on roll – 3,000 of whom are on degree-level courses.

In America, the key factor behind the development of for-profit education companies has been that they have been able to access the state student loan system. The US government provides loans to all students regardless of income but provides specific grants and loans to lower income students. These loans go directly to institutions. Figures from the US Senate show for-profit providers rely on these state funds for between 80 and 90% of their revenue. Their business model is to offer flexible, vocational courses to lower-income students charging relatively high fees, and getting this state subsidy in the form of student grants. They are also dependent on Wall Street finance which puts great pressure on them to enroll. Many of the US scandals have been about recruitment as companies have resorted to foul play to get their numbers and so income up.

There are many examples highlighted in the report but amongst them was Kaplan in the US, which suspended enrolments at campuses in Florida and California after investigators posing as applicants found admission officers, ‘lied about the college’s accreditation and admission-test proctors who coached the investigators on the answers. The investigation also encountered recruiters who scolded and mocked them for being hesitant to take out government subsidised loans to pay the tuition’.

Non-completion is another major problem. A recent Senate report estimated that almost as many students dropped out of for-profit colleges over the year as enrolled at the beginning of the year. The same report found the rate of default on student loans for graduates of for-profit institutions is almost twice as high as at public institutions.

Amongst the examples is Apollo’s University of Phoenix which according to a report in 2007, has a graduation rate of 16% compared to 55% in the sector as a whole. At one Phoenix Campus, Southern California, the graduation rate fell to an incredibly lowly 4%

In December 2005, the Southern Association of Colleges and Schools placed Career Education’s American Intercontinental University on probation for two years after it failed to meet 14 standards. The concerns raised included integrity of student records, accuracy of recruitment materials, questions around its governance, information given to consumers, and student complaint procedures.

The situation has got so bad that in June this year, the US Department for Education proposed 14 new rules aimed at tackling abuses in US for-profit education. The department is seeking to protect taxpayers from loan defaults, and to prevent students from taking on debt for programmes that don’t lead to higher incomes. The department will get greater powers to act against institutions engaging in deceptive advertising, marketing and sales practices.

A separate Independent Senate inquiry was commissioned and found that drop-out rates were very high, and that public money was financing these institutions but few tools were in place to guage how well that money was being spent. It also found some schools devoted huge sums of money to recruitment. Worryingly, while relying on public money for 80% of their funding, they were reporting profits of 20% and higher to investors.

The report concluded: ‘The publicly available date, in tandem with mounting reports of questionable practices and poor student outcome, yields a mixed portrait of the for-profit education sector that calls into question the taxpayers’ return on their multi-billion dollar investment.’

The US experience has raised major concerns for UCU in addition to its longstanding concerns: inferior treatment of staff, the absence of academic freedom, lack of transparency and accountability, and prioritising of shareholder concerns.