Monday, 27 June 2011

A Conversation with Andrew McGettigan

Andrew McGettigan published a valuable article on the Government’s proposals for new providers here, and a specific blog post on regulation here. In the blog post he quoted an article by Roger Brown, one of many in which Brown has cast doubt on the possibility of an efficient market functioning in the HE sector.

Andrew and I then exchanged some long comments in his blog. This post is intended to continue that conversation at greater length, and maybe with greater care than some of my previous blog posts because there are a number of issues in play between us. I call it ‘conversation’ rather than ‘argument’ not because we agree about everything but because ‘arguments’ on the web sometimes get out of hand. I don’t mean to imply that Andrew and I have actually met and talked, or that we are ever likely to. 

Andrew identifies two key points of contention between us. One might be called political, in that when he looks at the old dispensation in UK HE he sees something relating to the post-war British welfare state which is worthy of preservation whereas when I look at the old dispensation, certainly in Undergraduate education, I see a bulwark of the British class system which is ripe for destruction. This means he is frankly opposed to the new dispensation, whereas I am ambivalent. I think that in many ways it is unlikely to be worse than what we have now. Having noted this, I propose to take it no further. I think I can easily demonstrate what I mean if (very improbably!) anyone disagrees with me on the point of fact that UK HE is a bulwark of the class system. If anyone disagrees with me on the point of value, they are welcome to do so. It isn’t my intention to use this blog to persuade people to share my politics.

So the second outstanding issue relates to regulation, which is something this blog is about. In essence Andrew sees degree awarding powers as playing a key role in the regulation of the sector, and specifically relaxing the criteria for the award of such powers as a key plank in the government’s reforms. I think David Willetts may well agree with Andrew, but in my view they are both wrong. This matters deeply if you happen to share Andrew’s politics because if you fight this battle, you will lose the war and David Willetts will find (perhaps to his surprise) that he can deliver all the change he wants to deliver with the DAP regulations as they already exist. It also matters even if you don’t share Andrew’s politics, because a focus on the DAP issue leads you to look in the wrong direction and attend to some of the wrong competitors.

It’s taken me 465 words to clear my throat, which establishes that I’m still not exactly a digital native. Let’s try to simplify the regulatory picture with a table. This summarises the situation as it applied (a) in the ‘old days’, by which I mean oh about the year 2007 (b) now and (c) in the post White-Paper period. Even simplified, its still pretty complex.
Private providers
In the old days
Whose award?
There are many options: an overseas award (e.g. Regents), the University of London International programme (no agreement with University of London is needed) or pay a University to validate your own programme design
All these options still exist, and a few providers (such as BPP) have gained their own DAPs under more restrictive rules than the public providers
All these options will still exist, plus there may be a ‘level playing field’ for DAPs and Edexcel may gain DAPs
Who funds?
Some FE colleges (with lots of provision) directly funded by HEFCE
Most FE colleges and a few private providers funded indirectly via their validating university partner
Many private providers wholly unfunded.
FE colleges and a small number of private providers can access SLC loans up to £3,375 for FT Undergraduate students
Unchanged. However capping student numbers and cutting budgets has encouraged many universities to repatriate any funding they were passing on to indirectly-funded FE and private partners. Because HEFCE funding comes in a block grant, they can do so more or less at will.
Direct and indirect funding for FE colleges will be sharply reduced
The process for private providers to secure SLC loans up to £6,000 may become much more transparent
Who regulates?
Your validating University monitors use of its DAPs
LSC regulates FECs
Private providers are regulated by Charities Commission if they are charities
Validating universities still monitor, but some private providers have direct relationship with QAA
LSC replaced by successor bodies
UKBA regulates all private providers with Overseas recruitment
Almost all private providers will need a direct relationship with QAA for UKBA purposes
To meet QAA requirements, they will need to submit data to HESA
UKBA will continue to regulate
The HE ‘superquango’ may have powers to supervise private providers if it is created
 No caps
Direct-funded FE Colleges have their own caps
Indirect funded are counted in the validating university’s cap
Private providers with direct SLC support are totally uncapped
Powers to control private providers may be brought in, but the current intention seems to be no cap at £6k or below

Looking across the table, what is most striking is the immense increase in regulation for private providers, and the shift from regulation by Universities exercising oversight over their partners to Government regulating directly through its own quangos. Previously private providers chose a university partner and then paid it for the privilege of being regulated, creating clear conflicts of interest which have often been exploited in the past. By contrast UKBA has no brief to keep any particular private provider open, and is even incentivised to see a good number fail.

The second key change is in funding, where the level of loan available has nearly doubled, and the availability of SLC funding to private providers has also clearly increased. At the moment, the criteria and process for accessing this funding is still sufficiently murky that investors may get cold feet if their business model relies on it, but the White Paper could clear that up quickly. So new entrants face a much more attractive funding proposition. On the other hand existing  providers indirectly funded via universities (primarily FE colleges, but there are a few private providers like this) face having their funds withdrawn because the universities want the funding, and even more the capped places, for themselves. 

The third change area is DAPs, which Andrew sees as the most important, but I see as the least. We can already see that BPP, with DAPS, is smaller than Kaplan without DAPs. Judging by their websites, Kaplan has the more ambitious expansion plans. ifs (DAPs) is far behind either, at least in terms of its revealed ambition to grow FT UG numbers. In the same way Regents (no DAPs) is already bigger than Buckingham (DAPs). A university of your choice, financially incentivised to be nice to you, and (perhaps) with a brand you can leverage can reasonably seem a more attractive prospect than the QAA. Moreover (at least under current rules) to get your own DAPs you need a ‘well-founded, cohesive and self-critical academic community’. I can’t myself see how this can fail to add cost to your organisation compared to the option of just hiring the teachers you need and putting them in the classroom. Being cohesive as a community, never mind self-critical, will take up a fair bit of staff time. I know the well-founded and critical academic community in my university cost a lot more per hour in the classroom than the sessional lecturers.

Now UKBA requirements are forcing private providers into direct relationships with QAA and HESA, and having your own DAPs gives you certain additional options and maybe a greater level of strategic freedom, so I am not saying that private providers won’t get their own DAPs, only that this is a less critical issue than the other two.

A final reflection about scale and change. HE in FE has been in long-term decline and, outside a few mixed-economy colleges with substantial HE numbers, is mostly pretty small change. Since no-one really knows what is happening to their core FE business at the moment, few will have much attention (or capital) to spare to expand their HE provision except at that margin. Most current private providers are very small and have a single-site delivery model much like any other HEI. Most are oriented towards an Overseas market. The disruptive change facing these small organisations as their regulation is dramatically remodelled and their existing markets are restricted (or closed) will overwhelm many, and hamper the rest as they seek to engage with the new home/EU opportunities opening up. Many are charities or private businesses, which limits their access to capital compared to the big, listed corporations. Only a few (I think two) combine an existing orientation to the UK market, access to capital and a non-campus business model which is really capable of explosive growth. The real threat to existing universities – certainly outside London – is from wholly new entrants willing to risk substantial capital in setting up from scratch. DAPs will not feature in their business plans earlier than the medium term – it is SLC finance in unlimited quantities that they will need to see to tempt them in. If the White Paper cannot offer then that, then we are looking at evolutionary change from what we have already, which is so small in comparison to the public sector as to mean very little threat to any but the weakest universities – and even then only in London.

So Andrew (because I hope you at least have read this far), focus on the loans issue not the DAPs issue. You can use the American experience to make your case that access to SLC funding needs to be carefully restricted. If loan funding is restricted and the UKBA continues on its current course, then private providers in England will be decimated, not multiplied, regardless of the future criteria for DAPs.


  1. Hi Andrew

    Thanks for taking the time to set this out.

    If we were to concoct a system that would dismantle the role Oxbridge plays in reproducing the class system (and the production of academics), I would be on board. But I think we'd both agree that the White Paper will not do this.

    I would want to overhaul the system so that it is committed to reducing the perceived and actual stratification of degree 'quality'. That is, undergraduate degrees ought not to be a 'positional good' - here, I would oppose the notion of 'social mobility' (which is interpreted through a lens of meritocracy as identifying talent and slotting in to its appropriate tier). Ok, a long-term project rather than creative destruction.

    As to the points about DAP, my concerns were always primarily around BTEC degrees (Edexcel/Pearson) and operators like Apollo.

    With the first, BTEC degrees, these would have two advantages from Willetts's perspective: reversing the decline of HE in FE to create a cheaper tier of provision which would be expanded relatively rapidly to drive down overall costs; avoiding the 'feudal' (directly political) relation between validating bodies and the FE college. Teaching to such an external degree would have relatively little compliance costs (as far as I can see) and would not have the UKBA issues as it would be primarily aimed at UK-based students.

    The risks from such deep-pocketed enterprises as Apollo (and Kaplan) are largely from direct private takeover of somewhere like LondonMet (does anyone doubt the pre-emptive rationalising for this scenario?). And in this case maintaining the existing DAP rather than having to apply from scratch is an important asset. I found the WP references on renewal of DAP extremely vague and contrary to the thrust of the single regulatory framework proposed.

    And with respect to the latter, aren't DAP now the condition for qualifying in the 3-tier model for the more of the loans? (and even the remaining central grants, since the reference is pointedly to 'not-for-profits' and that encompasses some of the 'new providers')

    Otherwise, I think your analysis of the conditions for the other kinds of providers is spot on - esp. the UKBA issue. We do have a new sector-wide regulatory framework proposed. I wonder what Terence Kealey is making of it?

  2. Three unrelated points:

    1. talent is to the meritocracy what nobility was to the aristocracy.

    2. If I were Apollo/Kaplan or any other private provider I would much rather start up from scratch than take over a large failing provider. Why would I take on that existing cost base? There would need to be overwhelming regulatory advantages. Taking over a very small existing provider as a way to burnish the brand might be worthwhile, and this has been done in the US.

    3. I don't think para 6.13 of the WP is intended to be read as hierarchical, so 'institutions designated for student support' are not a subset of 'bodies holding TDAP'. There might even be not-for-profits with TDAP in receipt of grant but not designated for loans (Regents, for instance, is seeking TDAP and currently charges higher fees than the loan amount)

  3. Hi Andrew

    1. I don't like either.

    2. See the PBS Documentary COllege Inc.
    Ch 1: 'Meet Michael Clifford. He takes failing universities and injects them with lots of capital. When they go public [on the stock market], he can make big money.'

    I'd say it's a judgment about numbers and location - London-based is most attractive.

    3. Regents would only get Tier 1 status on the proposed model if it goes over 9K (DAP + QAA agreement + independet dispute resolution of some king). Private Institutions that took their steer from the April announcement on access to loans of up to 6K regardless of fee level will have to revise their plans as the government has made concessions to concerns about private providers. They have to come into the fold into the regulatory framework and comply with 6K and 9K caps. Buckingham has an interesting decision for this reason - it can only maintain its independent stance if it eschews loans which its students currently access.

    See the box under 6.13 on Grants: 'Must comply with:
    ● Any conditions specific to the grant over and above conditions of designation for student support." Ie to qualify for grants have to also meet conditions for loans.