Not for profit

by Martin Hall on December 1, 2011

Should the embryonic for-profit sector of British Higher Education be given the same access to public funds as other universities, and what would happen if they were?  Sally Hunt (Guardian, 31 October) is surely right to take issue with BPP’s Carl Lygo.  But Lygo obscures the real question in order to make the for-profit university appear to be in the public interest, and Hunt misses a trick in not pointing this out.

Lygo conflates for-profit provision with competition, and therefore with student interest.  He writes: “at BPP what we do could help to drive up the quality of teaching standards, provide competition on price, and offer students a genuine alternative. What have the good public universities to fear from healthy competition?”

This, though, is a self-serving category error.  There is plenty of competition between publicly funded universities, and a very wide range of student choice by programme of study, type of institution, geographical location and reputation.  Whatever one thinks of the White Paper and the new system of student funding, it is very evidently introducing student choice by price of qualification as well; from 2012, students will be able to choose programmes of study that will range in price from below £6,000 to £9,000 per year.  There is no inherent need for a large for-profit sector to provide future students with a “genuine alternative”.

Hunt responds to this by referring to last year’s report on for-profit provision in the US, published by Washington’s Education Trust. “What he does not mention”, she writes, “is that his vision of the ‘for-profit’ university has already been tested to destruction in the US and proved a disaster for students and taxpayers alike”. This is certainly important, and its a pity that the Education Trust’s report didn’t come out before the Browne Review completed its work; it would have helped if there was a less effervescent view in general of the virtues of the US higher education system.

But a closer reading of the Education Trust shows that there are key differences between what happens in America, and the way in which a larger for-profit sector would operate in Britain.  This allows advocates of the for-profit university in Britain to argue, in response to Sally Hunt’s position, that they have a different vision of how the private sector could invest extensively in the education sector. Unlike in America, they could say, this would indeed benefit both students and taxpayers.  Indeed, such is the Coalition’s current approach across a broad swathe of policy areas.

The deeper issue, surely, is to what extent there should be any access at all to public funds, or publicly underwritten funding, by for-profit organisations.  As Joel Bakan wrote, provocatively, in ‘The Corporation’: “business is all about taking advantage of circumstances … Corporations have only one duty: to promote their own and their owners’ interests.  They have no capacity, and their executives no authority, to act out of a genuine sense of responsibility to society, to avoid causing harm to people and the environment, or to work to advance the public good in ways that are unrelated to their own self interest”.

But first the report by the Education Trust.  This shows that, over the last decade, the for-profit higher education sector in the US has grown at about five times the rate of the public sector.  The average for-profit institution gets two thirds of its income from public funding to students.  But at the same time, students studying at for-profit institutions still have to take on more personal debt than their counterparts in public institutions, and are much less likely to graduate with four year bachelor’s degrees. Among first-time, full-time, bachelor’s degree-seeking students who enrol at for-profit institutions, only 22 percent earn degrees from those institutions within six years. In contrast, students at public and private non-profit colleges and universities graduate at rates of 55 and 65 percent, respectively.  For some students in the US for-profit sector, there is a high risk of access without success, and with debt:

“As with the collapse of the subprime lending industry, the showdown between for-profit colleges and the government shows how the aspirations of the underserved, when combined with lax regulation, make the rich, richer and the poor, poorer. For-profit colleges provide high cost degree programs that have little chance of leading to high-paying careers, and saddle the most vulnerable students with heavy debt. Instead of providing a solid pathway to the middle class, they pave a path into the subbasement of the American economy”.

But, as the Education Trust’s admirable summary of the evidence shows, there are distinctions between the decade-long track record of for-profit provision in the US, and how for-profit provision could evolve in Britain.

Firstly, US for-profit institutions have much better graduation rates for shorter qualifications.  These are equivalent to our Foundation Degrees and Higher National Diplomas, and relate to the current push to expand access to higher education in Further Education Colleges.  Secondly, the US currently has no cap on fees.  The point of the Education Trust’s critique – and the basis of its analogy to the sub-prime market in property – is this has resulted in the for-profit sector focusing on low-income and marginalised communities and their desperation to enter employment, and taking both public funding and high fee income in return for lower qualifications that may be of dubious value.

Advocates of for-profit provision in Britain will point out that, in contrast, fees here are capped and that, were students in for-profit colleges and universities to have equal access to student loans, the notional terms of their exposure to personal debt and their loan repayments would be the same as for students in public colleges and universities.

This is why the primary question is more important than the wrangle over whether or not the dire consequences of a decade of for-profit expansion in the US is a portent for Britain.  The question is rather whether for-profit colleges and universities should have any access to public funds at all.

Back to Joel Bakan.  Bakan’s point is that, whatever position a company may take on its corporate social responsibility, its primary and legal duty is to look always to the interests of its owners.  The purpose of a for-profit university is to deliver a financial return to its shareholders.  In contrast a non-profit university, whether private or public, reinvests any surplus it makes back into itself.  This distinction holds whether one believes that corporations and shareholdings are good or bad things, or whether or not one thinks that non-profit universities make sensible or foolish investments in themselves.  And this is the distinction that Carl Lygo adroitly disguises when he claims that the issue is about completion, or student choice.

The real issue for public debate is this.

It is currently proposed that, following enabling legislation, for-profit universities will be allocated student places that can be funded by publicly-underwritten loans, and on the same basis that places are allocated to non-profit universities that are regulated as charities.

A very large amount of public money will go into these loans over their thirty year term.  This is because they are only repayable after graduation and when a graduate’s earnings exceed £21,000, because their interest rates are pegged below commercial rates of interest, because there is no collateral against default and because remaining balances are abandoned at the end of the term of the loan.  No commercial bank can lend on this basis and the system is only possible because of the long term allocation of very large amounts of public cash.

Leaving aside some comparatively small (but very important) areas in which block funding will continue, both for-profit and non-profit universities will derive almost all their income from teaching British and other European Union students from these student loans, which will be paid to them up front by the Student Loan Company.

All universities will need to make a surplus of income over expenditure in the teaching they provide in return.  But here the comparison stops.  Non-profit universities will use these surpluses to invest back in themselves – in new facilities for students, buildings, staff improvement, student bursaries and other public benefit opportunities.  For-profit universities will also reinvest in themselves.  But they will also be obliged to provide a return on investment to their private shareholders.  In order to remain competitive on price – Carl Lygo’s mantra – they will inevitably reduce quality through larger class sizes, poorer qualified staff and few, if any, co-curriculum opportunities.

The real issue, then, is not whether or not non-profit universities can become more efficient, or provide genuine choice for students.  They are doing both.  The point for debate is whether or not it is appropriate that for-profit universities convert large amounts of public cash into shareholder dividends via the mechanism of publicly subsidised student loans.

This post originally appeared on Professor Martin Hall’s blog on the University of Salford website and is reproduced here with permission.

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Joel Bakan, 2004. “The Corporation: the Pathological Pursuit of Profit and Power”.  London, Constable. Pages 109, 138

Sally Hunt, “We don’t want for-profit universities – they are a disaster in the US”.  Guardian, 31 October 2011

Carl Lygo, “Universities could cut their fees if they learned to be more businesslike”.  Guardian, 24 October 2011

The Education Trust, 2010. “Subprime Opportunity: The Unfulfilled Promise of For-Profit Colleges and Universities”. Washington

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