Higher education is not for profit

Left, shot of EDMC website; right, David Willetts

Talking: EDMC and Universities and Science minister David Willetts (right)

In May this year, David Willetts revealed in a written answer to a Parliamentary question, that he had held talks with representatives of Education Management Corporation, the USA’s second biggest for-profit higher education company.

In August, the Times Higher reported that Education Management Corporation was being sued for $11 billion for defrauding the US taxpayer. What links these events is a drive by powerful Wall Street-backed US for-profit companies to open up the UK higher education market, with the active connivance of the Coalition government, at a time when for-profit companies are in crisis in their own backyard, the USA.

Following the publication of the White Paper, with its tortured attempts to gerrymander a market out of the higher education sector, among the happier people were the CEOs of some of the biggest names in the US for-profit industry. In March this year, Greg Capelli, the Chief Executive of Apollo, which owns the University of Phoenix and BPP University College, soothed investors by assuring them that ‘the UK Government is encouraging private sector growth in the UK post-secondary education market. They’re looking for innovative cost-effective solutions to help meet the growing demand for higher education in the UK. And BPP, with Apollo’s support, we think is well-placed as a leader in the sector.’

David Willetts came into government promising to remove the barriers to entry and growth for private companies and he’s certainly delivered on his promise. The Coalition’s White Paper offers up a growing portion of the HE market to alternative providers, including for-profit companies. BPP Law School signThey will be able to bid for 20,000 places from 2013, providing they can offer them for less than £7500, and every year, this share is set to be increased.  The most likely for-profit bidders will be BPP University College, which has set its fees – for now – at £5000, Kaplan UK and Resource Development International (RDI), which is currently in the process of applying for degree awarding powers. With the White Paper offering to make it faster and easier for such companies to obtain degree awarding powers and university title, it may not be long before Kaplan and Pearson join them. BPP will undoubtedly be seeking to upgrade themselves to university status, a move that it has been claimed would bring attract an extra 30-35% more students.

But the US for-profit companies themselves have been active agents in this process.

The White Paper has been singularly tortuous in its emergence and the for-profit industry was not idle in this period. As well as indirectly lobbying through think tanks like Policy Exchange and commercial law firm Eversheds, they, have been meeting with David Willetts regularly. In fact, since March 2010, David Willetts has met with representatives of the British and US for-profit industry on at least 12 occasions. By contrast, Million+, which lobbies for post-92 widening participation universities, has secured his attention on only five occasions.

The US for-profit companies have also been busy acquiring assets in the UK. In May 2009, Apollo bought BPP, while in August this year, RDI was bought by Capella, with a bonus to be paid to the British company if it was awarded degree-awarding powers. Kaplan UK has been concentrating on establishing partnerships, while keeping open its options regarding degree-awarding powers, but it would surely be tempted if the White Paper becomes legislative reality. In the meantime, Chief Executive Peter Houillon has said that the company would be ‘interested in acquiring the running of an institution that was struggling.’

This overseas expansion is backed by some of the biggest names in the Anglo-American finance sector and major publishing conglomerates. Education Management Corporation is owned by two private equity funds, including Goldman Sachs Capital Partners, an arm of Goldman Sachs Investment bank, and Providence Equity, which also recently purchased Study Group International and the education software company Blackboard. BPP is owned by Apollo Global, a $1bn joint venture formed by Apollo Group and the Carlyle Group private equity firm. Bridgepoint Education, another major US for-profit company is owned by Warburg Pincus, who also recently held meetings with Willetts. Kaplan UK is a subsidiary of Kaplan inc., part of the Washington Post Company, while Edexcel, widely tipped to apply for degree-awarding powers, is part of Pearson’s growing educational empire.
What we’re seeing is the sharpest end of a wide range of developments bringing the UK higher education sector , along with public services in general, ever more closely under the control of the private sector, driven by and acting in the ultimate interests of the financial sector -what some have called the ‘financialisation’ of public services.

In the higher education sector, this financialisation embraces the various forms of PFI-style infrastructural investment, the cuts to direct teaching funding, the plans to monetize the student loan book and the possibility of universities transforming their corporate form entirely to become for-profit entities able to borrow on the capital markets. However, the growth of a stand-alone, equity-funded for-profit sector is surely the most dangerous. Such institutions have no academic traditions, practices or institutions (‘baggage’ as they might say) to act as brakes upon their pursuit of profit. They have a primary obligation to their shareholders and, as the US experience shows, they are virtually impervious to union influence.

So what’s in store for us if this strategy succeeds?

We can see by looking at what has happened in the US. Clearly it’s impossible to map this experience simply across to the UK. However, since the for-profits’ strategy is to replicate in this country the same conditions that allowed for their astronomical growth in the US, the comparison is still valid.
For-profit HE in the US grew on a model premised on light-touch regulation, access to publicly subsidised loans and budget cuts that locked poorer students out of access to publicly regulated higher education. For-profit companies targeted poorer communities of students using aggressive marketing conducted from call-centres. Recruiters were given quotas of calls and admissions targets, selling the graduate premium through the promise of fixing the students up with loans. This was coupled with a low-cost production model – faculty were hired part-time and in many cases they were not from an academic background. The companies offered a high proportion of education online and focused on a narrow range of vocational courses.

In terms of growth and profitability, this was a hugely successful model. The industry grew from recruiting 2.4% of students in 1986 to enrolling more than 10% of a far higher total in 2008. More than 1.8 million US students are enrolled at for-profit institutions. The market became consolidated around 12-15 big companies, including Apollo, Career Education Corporation, Education management Corporation and Kaplan, Bridgepoint and Capella. Rates of profit and stock prices outperformed the big names of US capitalism, attracting the institutional investors. They claim that they have delivered opportunity to millions of students locked out of traditional education. But there have always been questions about the quality of their ‘product’ and now it’s clear that the model itself is in crisis.

In its shocking report, ‘Subprime Opportunity’, the US Educational Trust has documented what appears to be a story of massive educational failure. The report shows that it costs more than twice as much to enrol at a for-profit college as it does to in a public institution. Federal loans do not cover these costs, so students are saddled with private debt, arranged for them by the colleges with the banks at high levels of interest. 46% of students at for-profit colleges had to take out such private loans, compared with 14% at public institutions. Median debt at graduation for such students is more than $30,000, compared with just under $8000 at public institutions.

What they get for taking on this debt is often nothing at all.

Only 22% of students at for-profit colleges ever graduate from a four year course, compared with 55% at public institutions. As Department of Education figures published in September this year showed, the rate of loan default among those who do complete, is rising. 15% of the students who do graduate default on their loans, usually through unemployment, within two years of completing and 20% default within three years.

For years, the US press has run a depressing series of stories of individual misery and litigation against these companies. Now, with the US taxpayer pouring more than $24 billion into the for-profit companies’ pockets, the government has finally been forced to step in. The last year has seen an intense political battle. Ranged on one side has been a coalition of unions, community organisations, educational charities and Democrat politicians – on the other, the powerful for-profit lobbyists with their generally Republican advocates. The Obama administration has struggled to balance the need to more closely regulate the industry against its fear of triggering the collapse of big companies enrolling tens and hundreds of thousands of students. As the stunning Frontline documentary ‘College Inc’, points out, the for-profit companies, like the banks, have become too big to fail.

Kaplan logoMany consider that the Obama administration missed a historic opportunity when it watered down it planned regulations aimed at tightening up for-profits’ access to federal loans. Nonetheless, the administration’s new regulations are causing problems. Kaplan’s falling stock price, for example, has been attributed directly to the new regulations, while all the companies are having to spend money adjusting their operations. Perhaps this is another reason why overseas expansion looks attractive.

Yet here, in spite of political encouragement from the Coalition government, extensive lobbying and a burgeoning PR operation, the for-profit companies are not having it all their way.

Last year, UCU launched a campaign to highlight and lobby against this threat – Education is not for Profit.

The aim of our campaign is simple: to do whatever we can to prevent the growth of the for-profit industry as in the USA, in the interests of staff, students and taxpayers alike. Clearly, this is no easy time at a time when the government is so committed to opening up public services to privatisation and financialisation. Yet as we’ve also seen, the Coalition has weak points and is not immune to retreats and compromises.

UCU has been at the forefront of work to build a coalition of opposition to for-profits within the HE sector. Our poll of professors revealed that 85% of those responding thought that private companies would damage the UK’s global reputation for HE. Universities have begun to publicly recognise the threat. The most strident opponents have been the Vice Chancellors of Salford University and University of East London, but even Universities UK director Nicola Dandridge warned that private providers could ‘cherry pick’ the most lucrative courses, making it unsustainable for universities to run less lucrative but more socially valuable ones. And as a recent Observer article demonstrated, HEFCE, now the government’s lead regulator, shares some of these concerns.

We’ve also worked to raise the profile of the issue in the wider public, uncovering the connections between private companies in the UK and their US owners, highlighting their records and exposing their lobbying agenda. Increasingly, we’re seeing success. Recent months have seen a steady stream of stories on the antics of the for-profit industry. Highlights have included an Observer article that revealed HEFCE’s warnings about the risks posed by for-profit universities, and a Daily Mirror expose of Ministerial meetings with US companies.

Now we are pushing to give political expression to this growing opposition. UCU has worked closely with Labour MP Paul Blomfield, including promoting his campaign around Early Day Motion 1999 which warns of the dangers of for-profit universities. At the time of going to press, 131 MPs had signed this including 22 Liberal Democrats, more than rebelled over tuition fees. In November, UCU is also hosting a screening of PBS’s documentary ‘College Inc.’ in Parliament and as the legislation approaches, we will be escalating our campaign further.

It’s at least arguable that we’ve already had an effect on the White Paper. The admission that new providers will need more regulation and should be treated as higher risk opens up an opportunity for us to insist that for-profits are a special case, not just high risk, but toxic. We will be arguing that there can be no fast tracks to university title or degree awarding powers and there must be more and closer regulation. Indeed, we would argue, they should have no access to public subsidies at all.

The stakes are high. On such seemingly marginal issues in the legislation will turn the fate of the for-profit industry in the UK. But if we are to have a chance, we will need members to show the same campaigning energy they have demonstrated hitherto. More than this, we need to spread the word and widen the campaign. You can help by raising the issue in your branch or your professional associations now. We have a chance to prevent the growth of this industry in what would appear to be the least opportune circumstances imaginable. In doing so, we would be sparing tens of thousands of students the misery suffered by young people in the US. That would be quite an achievement.

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