An Incomplete Global History of ‘For-Profit’ Education

Early History

While the growth and prominence of For Profit institutions, particularly of degree granting variety, is a relatively recent phenomenon, For-Profit education has a long history on both sides of the Atlantic. Reigner (1959) traces back the origins of For-Profit instruction to 1494 and the development of double-entry book-keeping in Italy. A popular book-keeping textbook was published by Hugh Oldcastle, who ‘taught the booke’ in London (Reigner, 1959). Hayes and Jackson (1935) traces the history of early business schools to the practice of one-on-one instruction on book-keeping, which evolved into the English Grammar Schools in the early Eighteenth century, which promoted a practical education for students who were not interested in classical training common in schools then.

In 1617, a college at Henrico was proposed to raise money for cash-strapped Virginia Colony (Land, 1938, quoted in Kinser, 2006), and capital was raised for the same: However, the capital for what would have been the first college, and a corporate one, in America, was diverted to other purposes and the project never saw the light of the day.  Herrick (1904) reports the advertisement for a New York school operated by James Gordon Bennett in 1824, which intended to be ‘an English classical and mathematical school for the instruction of young gentlemen intended for mercantile pursuits’. Benjamin Franklin Foster in 1827 taught ‘penmanship, book-keeping and arithmetic’ in Boston (Hayes and Jackson, 1935) and this combination became the ‘core curriculum of the nineteenth century business college’ (Reigner, 1959).

By the middle of the Nineteenth century, For-Profit colleges were a common phenomenon in America, offering instructions on a range of ‘practical’ subjects including business, secretarial and technical skills. In 1873, The US Bureau of Education stated, “the rapid growth of the [private business] schools and the large number of pupils seeking the special training afforded by them sufficiently attest that they meet a want which is supplied by no other school in an equal degree… Hence, it would seem that there could be no question of their utility and importance nor of their title to recognition and encouragement” (Knepper, 1941). From a modest 20-odd colleges estimated in 1850, there were at least 250 For-Profit business colleges enrolling 81,000 students by 1890 (Knepper, op cit), as opposed to 157,000 students in about one thousand traditional colleges and universities around the same time (Snyder, 1993). However, in the early twentieth century, with the expansion public secondary schools and land grant colleges offering vocational education, the survival of For Profit colleges were in doubt (James, 1900, cited in Kinser, 2006). Kinser (2006) cites the passage of Smith-Hughes Act of 1917 as an important turning point, which firmly established the publicly supported vocational education in the United States, and enrollments in federally subsidized vocational training programmes doubled in three years (Venn, 1964). After 1923 passage of compulsory school attendance laws, the nineteenth century For-Profit business college model was in decline. (Kinser, 2006)

Also, at the turn of the Twentieth century, there was significant For-Profit activity in medical training. Flexner (1910), in his path-breaking report on American Medical Education reports ‘the foundation early in the nineteenth century at Baltimore of a proprietary school, the so-called medical department of the so-called university of Maryland’; he reports the rapid proliferation of these schools, and ‘one hundred fifty-five survive today’, writing in 1910.  Indeed, Flexner’s report, recommending a shift away from ‘didactic training’ practiced in these For-Profit schools, helped initiate a long era of state control and funding of medical education, and this eventually led to a decline of For-Profit medical schools in the United States.

Growth of For-Profit Higher Education in the US

After the Great War, the US Congress passed World War Adjusted Act of 1924, commonly known as Bonus Act, which attempted to provide for the returning servicemen based on years served. When, in the middle great depression, most veterans found it difficult to find work, the Congress revised the act again: However, this did not stop veterans staging a march on Washington in 1932 that ended in a bitter stand-off with US troops, something that some historians called ‘one of the greatest periods of unrest our nation's capital had ever known’. (Born of Controversy: The GI Bill of Rights)

Determined not to repeat the mistake again at the end of Second World War, in 1944, the Congress worked on Servicemen’s Readjustment Act, commonly known as the GI Bill, which, among other things, ‘allowed veterans to attend college tuition-free and to receive monthly living allowances during their period of study – thereby staging the returning soldiers’ reintroduction into the workforce until the economy is ready to absorb them’. (Rosen, 2011)

The first drafts of GI Bill didn’t include For-Profit institutions, but ‘as the mantra of veterans’ choice dominated the congress, all institutional restrictions were lifted’. (Kinser, 2002; 2006) Lee and Merisotis (1990) cite the passage of GI bill and For-Profit participation in the Federal Student Aid programme as a start of a new era. This marks a significant change of fortune, as Petrello (1987) reports how various lobbying efforts on behalf of For-Profit schools in 1920s and 1930s to gain legitimacy and equal footing with public institutions came to nothing and even the wartime effort to train clerical personnel, a forte of For-Profit schools, was contracted instead to public institutions.

The GI Bill led to an era of rapid expansion of For-Profits, scandals, abuse and fraud were persistent in the For-Profits’ usage of federal aid, and this led to increased regulation and requirements for accreditation (Miller and Hamilton, 1964). Several major For-Profit players of the time were hit by investigations of loan fraud, which proved to be their undoing: Careercom was investigated in 1988 and then 1995, and had to close; United Education and Software was investigated in 1989, and despite hiring lobbyists, the company filed for bankruptcy by 1990; NEC, the largest among the early players, was accused of misrepresenting their financial position and had to exit the education business, a fate similar to the Phillips Colleges (Kinser, 2006, pp 39 – 45). 

However, despite these setbacks and increased regulation, For-Profit institutions continued to grow, buoyed by growth of population and particularly of middle class jobs. The For-Profit institutions also became more integrated into the public policy, first as business enterprises, but particularly after the reauthorization of the Higher Education Act in 1972 as a part of the Higher Education system. (Kinser, 2006) The expansion was also accompanied by the growth of several share-holder owned chains, as opposed to proprietary institutions, which expanded beyond local area by establishing new branches or acquiring other smaller chains. In the face of rapid expansion of shareholder-owned networks of colleges, commentators predicted that a return of locally focused proprietary institutions was imminent (Petrello, 1987).  However, as Ortmann (2001) explained, the For-Profit chains found favour with Wall Street, which liked the growth-orientated model that delivered economies of scale and backed institutions where students remained eligible for federal student aid. With the initial public offering of DeVry Inc in 1991 and of Apollo Group (the owners of the University of Phoenix) in 1994, the ‘Wall Street era’ of For-Profit Higher Education began in earnest.

According to US National Centre of Education Statistics reports in 2005, there were about 800 degree granting For-Profit institutions in the United States and about 3500 non-degree granting institutions, generating $6.2 billion in revenue primarily through fee payments from approximately 800,000 students (Kinser, 2006). A list of key For-Profit institutions contained in Table 1 represent a picture of the scale of operation of these institutions/ companies. While this represents only a fraction of student numbers studying for a degree in the United States, the rapid growth (though from a small base), the outsized market valuation of some of the large ‘supersystems’ (as Kinser, 2006, calls them) and the strength and international reach of a few major players (like Apollo and Laureate, which own several institutions outside US), make For-Profit a significant phenomenon.

However, this rapid growth in the Wall Street era came with allegations of mis-selling, complains about low graduation rates (less than 20% across the board) and exceptionally high levels of default for students from the For-Profit schools. As the US Student Debt has surpassed $1 Trillion mark and is currently larger than total Credit Card debt, there is a growing opinion, led by people like ‘Steve Eisman, a hedge-fund manager who made a lot of money during the financial crisis by shorting bank shares’, that ‘the for-profit education business was as destructive as the subprime mortgage industry’. (Economist, 2010) In April 2010, the Health, Education, Labour and Pensions Committee of the United States Senate, constituted a ‘oversight investigation into proprietary sector of higher education’, with Senator Tom Harkin (D-Iowa) as the Chairman. The committee published its report on 30^th July, 2012, with observations such as:

·      “Many for-profit colleges fail to make the necessary investments in student support services that have been shown to help students succeed in school and afterwards, a deficiency that undoubtedly contributes to high withdrawal rates. In 2010, the for-profit colleges examined employed 35,202 recruiters compared with 3,512 career services staff and 12,452 support services staff, more than two and a half recruiters for each support services employee.

·      This may help to explain why more than half a million students who enrolled in 2008-9 left without a degree or Certificate by mid-2010. Among 2-year Associate degree-seekers, 63 percent of students departed without a degree.

·      The vast majority of the students left with student loan debt that may follow them throughout their lives, and can create a financial burden that is extremely difficult, and sometimes impossible, to escape.

·      During the same period, the companies examined spent $4.2 billion on marketing and recruiting, or 22.7 percent of all revenue. Publicly traded companies operating for-profit colleges had an average profit margin of 19.7 percent, generated a total of $3.2 billion in pre-tax profit and paid an average of $7.3 million to their chief executive officers in 2009.” (Harkin Report, 30^th July 2012)

During the senate investigation and particularly after the publication of Harkin report, the For-Profit education companies significantly lost market value. This may not, however, indicate a loss of confidence of the investors in the light of the disclosure of unethical practices even within the largest of the companies, as Kinser (2006) notes, markets usually tend to value growth, but do not put a premium on compliance or ethical practices, as the relatively low valuation of DeVry Inc.,  which has a better compliance record than most of its peers, indicate. The fall in valuation of For-Profit companies may more accurately be construed as an expectation of tighter government regulation, which are likely to constrain growth and reduce profitability.

Table 1: Major For-Profit Higher Education Companies in United States (2006 figures)

Owner	Founded	Went Public	Market Value $ Million	Number of Locations	Enrollment
Apollo Group	1973	1994	14,968	227	267,900
CEC	1994	1998	4,125	82	97,300
Concorde Career Colleges	1986	1988	109	12	7,700
Corinthian	1995	1999	1,638	151	64,800
DeVry	1931	1991	1,161	76	55,000
EMC	1962	1996	2,338	67	58,800
EVCI	1997	1999	115	5	2,800
ITT	1963	1994	2,134	77	42,200
Kaplan	1940	1996	NA	70	45,000
Laureate	1979	1993	2,165	43	155,000
Strayer	1892	1996	1,683	30	23,000
Universal Technical Inst.	1965	2003	996	29	13,000

(Reproduced from Kinser, 2006, P. 40)

Growth of For-Profit Schools in the UK

Historians of adult education in Britain tended to ignore the growth and development of private instruction, with some notable exceptions, such as the reports published by Calouste Gulbenkian Foundation (1965, 1975, 1978) on the training of Professional Musicians and Stage Professionals, which surveyed the sector as a whole including the private companies offering instruction. However, as estimated by the pioneering study of the sector Gareth Williams and Maureen Woodhall (1979), there were at least 565 private sector institutions offering instructions (Williams and Woodhall, 1979, Page 23) with at least 466,000 students studying in these institutions by autumn term of 1975 (Op Cit, Page 24). The biggest schools in the sector were the Correspondence Schools, 33 schools accredited by Accreditation of Correspondence Colleges offering instruction to, by one estimate, ‘300,000 to 500,000 students’ (Young, 1970); Secretarial and Commercial Schools, 100 schools with at least 49,000 students; 14 Accountancy and Law schools servicing 10,000 students; and 7 Management schools with 15,000 Full Time students (Rose, 1970). There were also at least 180 language schools, with 10,000 students. (Williams and Woodhall, 1979)

Correspondence education, in which the private sector had a near monopoly, was popular among students studying for accountancy, secretarial and language examinations, (Williams and Woodhall, 1979). Williams and Woodhall also reports that “The Robbins Committee surveyed 51 professional associations in 1962 and estimated that there were about 150,000 people studying outside the regular education system for membership of professional associations, in the field of law, commerce, accountancy, banking, architecture, building and surveying. Of these, about 65,000 were studying by correspondence only.”

Indeed, the correspondence colleges have always raised eyebrows the way they operated and regulated. Graham Greene’s portrayal of ‘St Ambrose’s College, Oxford’ (Greene, 1941), which offered solutions when ‘war conditions prevented (one) from going to Oxford’ and offered ‘degree-diplomas…. at the end of three terms instead of the usual three years’. Greene’s take on its teaching and assessments reflected the contemporary concerns:

"'Priskett here is the science tutor. I take history and classics. I thought that you, my dear, might tackle - economics?'
'I don't know anything about them.'

'The examinations, of course, have to be rather simple - within the capacity of the tutors. (There is an excellent public library here.)  And another thing - the fees are returnable if the diploma-degree not granted.'

'You mean...'

'Nobody will ever fail', Mr Priskett brought breathlessly out with scared excitement."  

In 1963, Michael Young and Christine Farrell, surveyed British Correspondence Education for the journal Where and concluded that the sector is likely to grow and the government should regulate the industry.  In the same year, the Consumers Association also carried out a survey and called for inspections in these schools. The increasing prominence of Correspondence Education, and calls such as the above to regulate the trade, spurred the Association of British Correspondence Colleges, an industry association, into setting up a committee, which under an independent chairman produced a report in 1966 (known as ‘Gurr Report’) and following its recommendation, the Council for the Accreditation of Correspondence Colleges (CACC) was set up in 1968. (Williams and Woodhall, 1979, pp 16 – 17)

However, it was For-Profit Accountancy and Law Schools, rather than correspondence colleges, which would lead the growth of For-Profit Higher Education in the UK through 1980s and 1990s. Economist (2004) reported the growth of BPP, which started off as a publisher of textbooks, “it teaches some 20,000 students in 32 centres in Britain, in subjects such as accounting and law”.

In the same story, the journal reports:

“Until recently, BPP did not award degrees: that is the privilege of officially recognised universities. Now things are changing, chiefly in the booming business of legal training. From September, it will be offering a postgraduate law degree, including the courses needed to become a solicitor. It won't, technically, be a degree from BPP: the firm is renting that right for an undisclosed sum from the University of Central Lancashire, which is “validating” the course.

That's an odd deal. To get round regulation, the stronger party seeks endorsement from the weaker one. The Lancastrian courses, at £3,000, are only a third the price of the BPP ones. Whereas BPP's law teaching is one of only five outfits rated “excellent” by the Law Society, the solicitor's self-regulating body, Lancashire's is in the average category of “very good” (anything less than “good” is disastrous).” (Economist, 2004)

The BPP Law School CEO, Carl Lygo, projected that once in 2008, the government’s rules of teaching only universities are in place, the organization will apply to grant their own degrees. (Economist, 2004) BPP College of Professional Studies achieved this status by June 2010 (Baker, 2010). In a noteworthy development, Apollo Group (along with Carlyle Private Equity), the US-based For-Profit company discussed earlier in this essay, bought out BPP, just before it was given the degree-awarding powers.

The quick proliferation of accounting schools, who set up branches all over UK, meant more and more people attended classes, rather than taking up correspondence courses. Williams and Woodhall (1979) report that while more than 50% students studying a professional accountancy course were doing so through correspondence at the time of Robbins committee (1962), less were doing so in fifteen years’ time.

Among the successful accountancy training companies at the time was Emile Woolf College of Accountancy, which was set up in Manchester in 1970s. It quickly expanded through branches throughout the UK, and was the dominant accountancy training organization through the 1980s and 1990s. Emily Woolf also proved to be popular among international students, attracting a large number of Malaysian, Indian and other students coming to UK to study for British accountancy qualifications, which happened since the 1980s. Kaplan Inc., a Washington Post subsidiary and a prominent For-Profit education company in the United States, acquired Emile Woolf colleges in 2003.  Over time, however, Kaplan has diversified beyond Professional Accountancy training and started offering Undergraduate degree programmes franchised from University of West of England. (Source: www.kaplan.co.uk)

The 2004 Economist story also mentioned The College of Law, which started in 1962 through an amalgamation of Law Society’s own law school and Gibson and Weldon, a tutorial college. By 2004, it was already the country’s biggest law school (Economist, 2004), offering firm-specific LPC programmes for the country’s three largest law firms – Allen and Overy, Clifford Chance and Linklaters. In 2006, the college became first independent institution to get degree-awarding powers, though the college, it must be noted, was a not-for-profit entity at the time. As discussed earlier in this essay, the college was bought out by private equity, and is now being rechristened as the University of Law, though the College of Law title will be maintained by a not-for-profit foundation, which will be a subsidiary of the For-Profit entity. The college was reported to have 7,400 full-time equivalent students in 2010, which, by its own estimate, represented about 40 per cent of the postgraduate law market in the UK. (Universities UK, 2010) The college currently has around eight centres, and the investors are reported to be planning to open up to 22 centres across the country. (Source: College of Law website)

A number of proprietor-owned Business, Accountancy and Law colleges started in the late 60s due to the demand for Professional Education, and unlike the colleges in the United States fifty years before them, they were able to withstand the expansion of the public education system into these areas. One primary reason for this was the growing international demand for UK professional and Higher Education, and increasing affluence and extension of middle class consumption to some of the world’s most populous countries, including China and India, since the late 70s. In 1975, Williams and Woodhall (1979) estimates, 46% of students in For-Profit institutions came from overseas, against 10% in public sector Further Education. This estimate pre-dated both the rapid growth of international students coming to UK to study for Professional Accountancy qualifications (in 1975, only 2% of students in Accountancy and Law schools were international) and the removal of subsidies for International students in 1980, which, over time, became the key reason why International students came to For-Profit colleges, which did not require them to subsidize teaching of ‘home’ students, and could therefore, offer a lower fee. In fact, the withdrawal of public subsidies for International students at public universities, and increasing willingness on part of the lesser known universities to attract as large a market as possible for themselves by franchising or validating degree programmes to be delivered at For-Profit institutions, essentially helped create the For-Profit Higher Education phenomenon in Britain.

Growth and Decline of Proprietary For-Profit Higher Education in the UK

At the time of writing this essay, the For-Profit Higher Education in the UK is going through a period of seismic shifts. The two key drivers for this change are the government’s approach to international students and the changes in Higher Education funding. This has led to significant changes in the structure and ownership of the For-Profit institutions, consolidating the relatively smaller entities into bigger institutions backed by private capital, often from the large US education companies, like Apollo and Laureate Inc. The public policy shifts and the changes in ownership structure are likely to transform the sector and shift its focus and character.

The author’s personal experience in a Private For-profit institution, around the time these shifts were taking place, may help provide a background to this part of the narrative. The author, who had a previous experience in a private sector IT Education company in Asia and have had managed global training and recruitment operations for a number of years, was offered a Senior Management job in a mid-sized For-Profit institution in the City of London, in early 2010.  

By the time the author joined the institution, it was in operation for about six years, growing from a small accountancy school to a ‘college’, one that offered undergraduate and postgraduate degree courses in Business, Accountancy, Healthcare and Hospitality. The school was founded by its charismatic owner, who was a well-known accountancy tutor in the City, with several years of track record of successfully preparing students for the Association of Chartered Certified Accountants (ACCA) certification examinations. The school owed its initial success on the name recognition of its owner, and the competent accountancy teaching team he assembled, and drew mostly professional students, paid for by their employers, to join its Accountancy training courses. The school also attracted a number of overseas students, just like the previous generation of commercial schools witnessed by Williams and Woodhall, though the nature of the demand was shifting from the very day the institution was founded in 2004, and its owner wanted to take advantage of this shifting trend.

There were three key changes in the student profile and demand that drove the transformation of For Profit schools in Britain early in the new millennium: First, post 9/11, access to American institutions became increasingly restricted, particularly for Asian and African students with limited means. The popularity of Britain and Australia as alternative education destinations quickly grew, while the number of international students going to America declined in relative terms. International students coming to UK almost doubled between 1997/8 and 2007/8. (BBC, 2009)

 Second, apart from the dramatic growth in the number of overseas students coming to the UK from 2004, the overseas student fees at the UK public universities played a significant part in shifting demand patterns of the overseas students. Since Margaret Thatcher’s government introduced full cost fees for overseas students in 1980 (UKCISA, 2008), the overseas student fees have gradually risen above inflation as the public universities used the unrestricted overseas student revenue stream to fund projects and growth. For example, in 2009/10, the overseas student fees at British universities went up by 5% and ranged from £8,500 to £32,000 a year, far higher than the fees Home and European students would have paid. (Eason, 2010) This opened up an opportunity for UK For-Profit colleges, which, with a significantly lower overhead and different operational structures, offered courses at a significantly lower price.

Finally, as evident from the available data on Overseas students above, the students studying overseas significantly grew in the first decade of the new millennium, partly in response to globalization, but also, more specifically, driven by the growth and prosperity of the middle classes in China, India and other emerging economies. The student numbers going to university in these countries grew rapidly (India’s college going population doubling between 2006 and 2010) and the demand for overseas higher education surged as a result of this growth. UK For Profit colleges benefitted directly from the growth of the Indian middle classes and the students coming from India (and other South Asian countries such as Bangladesh, Pakistan and Nepal) expanded rapidly among the For Profit institutions.

The college, where the author went to work, was a direct beneficiary of these changing trends. The student numbers grew from 34 in January 2005 to over 1500 by end of 2008. Over 70% of its students came from South Asia, crowding out its original, City-based professional students. The course offerings of the institution underwent a change, its highly popular part time courses for Chartered Institute of Management Accountants (CIMA) and Association of Accounting Technicians (AAT) declined, whereas the full-time accountancy training provision, much favoured by international students, expanded rapidly. Further, the college expanded into Degree course provisions, helped by the expansion of partnership provision to For Profit colleges by British universities. The college started offering an MBA degree, validated by a Welsh university, and a number of undergraduate degrees in accountancy, business, hospitality and healthcare, franchised from an university in Northern England, which wanted to have a London presence to address overseas students who preferred to live in London. The college also started offering English language courses, as the new body of students required and demanded it. The demands for new infrastructure provisions, such as new Cafeteria and Prayer Rooms, were being driven by the changing, multi-faith, full-time student body.

Then, the For-Profit colleges in the UK as a whole went through a period of dramatic change in about six months in 2009, and the college stood to be one of its key beneficiaries.

In Australia in 2009, a number of incidents of robbery and violence took place against Indian students, which the Australian media reported as ‘racially motivated’. This led to a protest by 4,000 Indian students on the Federation Square in Melbourne, which quickly snowballed into a full-scale diplomatic row between the two countries. The Indian Prime Minister called his Australian counterpart on 1^st June to express his concerns and made a statement in the Indian Parliament on the 9^th June 2009 condemning the violence; ‘some of which is racist in nature’, he said. The Indian student organizations lobbied the government to declare Australia ‘unsafe for Indian students’: The media frenzy in India reached its peak when India’s most famous movie star turned down an honorary doctorate degree award from Queensland Institute of Technology. As a consequence, the applications from India to study in Australia dropped by 46% between July to October 2009 (Harrison, 2010).

These incidents coincided with a period when the UK student visa system was undergoing a profound change, with a new Points-based System being put in place since March 2009, presumably to make it easier for foreign students to come to study in the UK. However, this system was introduced, as it would be criticized with hindsight, without adequate control mechanisms, making it easy for students to come to UK if they could show they had 28 days worth of maintenance money and if their sponsoring institutions could certify that they had adequate English proficiency or coming to UK to study an appropriate English language course. For most UK For Profit providers, this undefined visa system and the massive shift of preference away from Australia was too good a commercial opportunity to miss. In the six months between July and December 2009, the For-Profit institution in question recruited nearly 2000 new students, more than doubling its size. Indeed, such unconstrained recruitment showed poor planning and appreciation of risks associated, but this is not uncommon in entrepreneurial businesses in other sectors. This behaviour also highlights a fundamental feature of the For-Profit model: That For-Profit companies regard lack of students and admission as the gravest risk to their existence, and are willing to take the opportunity to admit students as long as it is permissible. The ‘reputational risk’, which underpins thinking in Public and Not-for-profit institutions, are only secondary to this existential risk of not having enough students for most of the entrepreneurial For-Profits.

By January 2010, with almost 4000 students (up from 1500 a year earlier), £10 million in turnover (up from £2 million a year earlier), 3 campuses in the City of London (up from a few floors of a single building) and over 100 employees (up from 20 six months earlier), the college was a transformed entity: At the same time, it was chaotic, unmanageable and soon to be on wrong side of the UK Border Agency, who wanted to restrain student migration with the changed political climate, and of the accrediting universities, who were concerned about the expansion. The author was initially employed to address the concerns of the accrediting universities, who demanded expansion of management team and proper provision for the much-expanded body of students.

The UK For-Profit sector as a whole, and not just this one institution, experienced massive growth in 2009, and many institutions doubled their size within a short span of time. The quick shift of preference away from Australia to UK, particularly in Indian in particular and South Asia in general, was one of the primary causes behind this expansion; so was the UK’s Points-based Visa System and its somewhat botched execution. But, underlying this narrative of global competition for students, there were some trends of more enduring significance: The aggressive recruitment by For-Profits, the partnerships between Public Universities and For-Profit institutions which allowed the latter to offer degree programmes and the arrival of a new kind of students in British Higher Education, who sought to attend a foreign institution without being part of the elite at home.

Growth Factors: Agent-driven Student Recruitment

The recruitment practices of For-Profits are already the subject of much debate globally. The Harkin Commission in the United States highlighted many potential problems in For-Profit recruitment practices, mostly finding the incentives for student recruitment to be the root cause of aggressive recruitment (Harkin Report, 2012). The incentivised recruitment was always a common practice in British For-Profit institutions: They used Education Agents in different countries to keep the cost of marketing low. The British regulators or accrediting bodies never saw a problem with recruiting through agents, as many non-Russell Group British universities and public FE colleges employ agents to recruit students regularly.

However, some observers argue that the recruitment through agents is essentially flawed as it offers incentives for successful applications, while making the agent responsible for scrutinizing the veracity of the application in country (Choudaha, 2012b).  Agents were known to have made loans to applicants to enable them to show adequate bank balances, as well as help them produce fraudulent English proficiency certificates. Some of the common For-Profit practices, including the offer of volume based commission (the agents got paid a higher commission for recruiting a larger number of students) and high commission rates (as high as 30% of an year’s fee in some cases), encouraged abuse, particularly that of appointment of sub-agents. While the appointed agents were contractually barred from using sub-agents, the author found the practice to be extremely common across the sector, and volume-based commission and high commission rates designed to keep the elaborate multi-level agency system in place. Also, most For-Profit institutions appointed Admission Officers with close links with International Agents, apparently to promote better coordination and communication. However, this often means that the successful agents get a say on the appointment of Admission Officers, and would successfully install someone they favour in the role. Collusion and conflict of interests are quite common in this environment, and potentially led to abuse of the admissions system.

For an entrepreneurial angle of the For-Profit institutions, where sales is the lifeblood of the business, an extreme sales orientation is common. However, in the context of education, it creates a deep moral dilemma and indeed, a regulatory problem. 

However, the regulatory approach in the UK haven’t yet fully addressed the issues related to the use of recruitment agent, other than making the assumption that as long as the college makes enough information available to its agents, the system is expected to work normally. A sample review of recent Quality Assurance Agency (QAA) Review of Education Oversight (REO) reports show that in most cases, the reviewers did not concern themselves with the practices of educational agents, and there is no reference to the agency operation altogether. In some of the cases, where this was reviewed, the following comments were made:

“Recruitment agents are required to submit proposals for advertisements and promotional material to LSBF's Business Development Manager for approval two weeks before they are to be used. Clear and well presented templates are provided for this purpose. LSBF provides extensive advertising and promotional materials and high levels of support to recruitment agents, including regular visits to the countries where they are based.

The Business Development Manager and Marketing Department representatives approve material for overseas recruitment activities, with or without conditions, before submission to the Head of Brand and Marketing for final approval. The extensive support and resources provided to recruitment agents to promote overseas development activities is an area of good practice.” (QAA REO Report, 2012a)

In this approach, an ever closer relationship with the agents is indeed seen as Good Practice from this viewpoint (Often this would be a challenge in public universities, with faculties complaining that they must visit the recruitment agents more often to ensure they understand their latest course offerings, and, indeed, the privileges of overseas travel shouldn’t be limited to the international department alone!). However, this represents a somewhat fundamental misunderstanding of the nature of the For-Profit institutions, which, as businesses, are inclined to meet the regulatory requirements, but may not commonly have self-imposed restraints on commercial activity.

On the other hand, the international experience definitely suggests that a closer scrutiny of agent operations and its relationship with the management structure of the company is much warranted. In a popular Higher Education blog, Dr Rahul Choudaha (Choudaha, 2011) urged the American universities not to make the same mistakes as Australia and the UK, which had to eventually crack down on student visa frauds because of the over-reliance on recruitment agents.  He also cites the infamous case of Dickinson State University, brought down by unscrupulous education agents, and cited the recommendations of the ensuing report to avoid education agent route. (Choudaha, 2012d).

The author’s own experience suggests that recruitment through education agents is obviously attractive to the For-Profit colleges, as it reduces the financial risk of marketing in different countries and allow them to recruit from a much wider territory than they could afford if solely dependent on their own resources. Indeed, the college the author worked for could not have attained the dramatic growth (whether this was desirable being another issue altogether) without its extensive agent network. However, the risks of using such a network is all too obvious, and most institutions face these problems. The problem often lies in the incentive structure, high commissions, volume incentives and exclusive territorial rights, and operational issues, such as conflicts of interest of specific role-holders and leniency towards sub-agent usage.

Growth Factors: Legitimacy through Franchise

While there may be some similarities between the trends and trajectories of American and British For-Profit Higher Education sectors, one significant difference is the prevalence of For-Profit degree granting institutions, of which Britain had none till 2012. The growth of British For-Profit Higher Education institutions, which mostly started out as Professional Training institutions, predominantly offering training in Law and Accountancy, crucially depended on partnerships with British Public Institutions with the authority to confer degrees.  The willingness of Public institutions to franchise their curriculum to For-Profit institutions were primarily driven by the intention to access a greater number of international students, which became an important source of revenue for UK Universities since the Full Cost fees were introduced in 1980/1 and quotas were lifted. Many UK universities viewed such expansion as their only available route to growth, as the home student numbers and fees were both tightly regulated.

Franchising as an expansion strategy was well established by the 1990s, as the British universities successfully forged links with institutions abroad to confer their degrees. In fact, such partnerships were spectacularly successful, and out of a total 1,005,905 international students studying for a British qualification in 2012, 570,665 were at an offshore location (including 116,535 pursuing a Distance or Flexible Learning Qualification) as against 435,240 studying at a British Institution. (UKCISA, 2013)

However, while there were a few established examples, franchising of degrees to For-Profit institutions in the UK was not very common till the early years of the new Millennium. The proposition of getting more international students were attractive, but the UK based For-Profit institutions, which essentially drew from the same student pool wanting to come to UK universities for Higher Education, were usually seen as competitive institutions. However, as franchising to Further Education institutions became common under the ‘Widening Participation’ agenda, which was the cornerstone of Post-Dearing Higher Education policy and ‘reflect(ed) a concern to ensure that the opportunities of higher education are available on an equal footing to all, regardless of their characteristics (other than their academic abilities, of course, though arguably that is also now coming under challenge)’ (Tight, 2009).  This provided a philosophical justification to what some universities saw as a competitive opportunity, to pursue growth and expansion without the regulatory restraints. The market opportunity also arose because of the arrival in the UK a new category of students, primarily from the Asian and African middle classes, who were not part of the elite in their own countries and lacked social and financial capital, but could still afford an overseas education through the new expansion of credit or rising income levels from the new economy industries. The British For-Profit institutions, which had a track record of training overseas professionals and often maintained deep links with this newly industrialized countries through the familial connections of the Founder or key staff (the ethnic profile of For-Profit Proprietors and staff became increasingly diverse in the last decade), were suitably placed to attract such students through cheaper fees and tailored delivery models to allow the students to work part time to earn their living costs.

The expansion through franchising to For-Profit institutions brought mixed results for Franchising institutions: Some, like the University of Wales, which expanded rapidly and had more than 138 franchisee institutions with more than twenty partnerships in London alone, failed spectacularly to control the quality and financial risks of the partnerships, and eventually, had to abandon the franchise chain altogether and disband the University of Wales brand altogether. A Concerns Report, resulting out of a QAA review in one of the University of Wales partner colleges, present the following observations:

“The concerns team found that:

·      progression rates and the level of complaints received constitute evidence that  FBT/LSBF had recruited more students than its resource base justified

·      student numbers placed an intolerable burden on physical and human resources

·      in some cases no constructive feedback was given to students, and when feedback was given its quality was inconsistent

·      the admissions process (largely devolved to FBT/LSBF) was insufficiently closely managed, and led to the acceptance of many inappropriate students

·      failures in communication between the University and FBT/LSBF meant that there were on occasion delays of several months between FBT/LSBF registering students and the University matriculating them;

·      accordingly, since only matriculated students could access online library resources, the students concerned were without a learning resource which would have part-compensated for the inadequacy of the campus library for a number of reasons, which are disputed but do not reflect well on either party,

·      unacceptable delays occurred in the marking of some dissertations (an activity reserved by the University) in the absence (until academic year 2011-12) of an FBT/LSBF academic calendar,

·      the lack of a clear assessment schedule and the poor planning, which resulted in the suspension or cancellation of some examination boards, also led to some long delays in marks being returned.” (QAA, 2012b)

Though this makes grim reading, but from the author’s own experience, such problems in franchising were common: While there might have been some specific issues with this institution, issues such as over-recruitment, lack of library facilities, the quality of students admitted, and delays in marking and feedback affected the franchisee partners more often than not. The For-Profit institutions, as previously stated in this essay, essentially perceived risk in terms of lack of demand, and would eschew any quotas, even if this simply reflected installed capacity, in their recruitment practice. As long as the students met the minimum criteria, usually set by UK Border Agency in case of recruitment of an international student, they would tend to receive an offer, the agents often helping them to secure references etc.

Two other common concerns raised here merit separate explanations. Lack of library facilities was a common concern across the Private HEI, particularly the proprietary ones which made the transition from professional training. Often, the owners or the management team of these institutions were open to the creation of custom textbooks, which presented a combination of chapters or case studies from the archive of one or other major publishers, to be given out to students, rather than investing and maintaining an academic library. Self-assessment reports submitted by For-Profit HEIs to QAA often referred to ‘Public Libraries nearby’, uncannily repeating the words of the imaginary characters of the Graham Greene short story cited earlier in this essay. The textbook-driven culture of professional accountancy and law training, and its publishers being the owners of two of largest For-Profit HEIs in UK, was deeply embedded in the academic practice of these institutions.

The delay in marking and feedback, a common issue, is related with another aspect of the academic practice of these institutions: Adjunct tutors. Inherited again perhaps from the accountancy training roots of these institutions, many institutions lacked full-time tutors: The college the author went to work for had two full time tutors in their fifty-strong teaching team. The commercial imperatives of running a small business – that of keeping costs variable with capacity (the same impulse that encouraged the primacy of agents for recruitment, and preference of custom textbooks, which could be done in smaller batches and do not require premium space, at the expense of library facilities) – were well served by adjunct tutors. The For-Profit HEIs often employed part time teaching staff moonlighting from Public institutions, or Ph D students doing part time work to cover expenses. While this meant they could have projected a relatively strong academic credentials on paper, the conflicting demands on the tutors’ time were enormous and led to delays in marking and feedback more often than not. It also meant that these For-Profit institutions often lacked a ‘native’ academic culture, their workforce being made up of managers and administrators rather than academic staff. The franchise relationships were often beset by this ‘two culture’ communication gaps, and persistent squabbles about time-tables, division of responsibilities and other issues which needed joint decision-making.

Indeed, there are other examples of more successful partnerships, and other forms of partnerships than franchising of courses. A number of For Profit institutions successfully adapted to the Franchise model, building closer partnerships and delivering the expected level of business to the franchising universities. Some universities eventually bought into their For Profit franchisees, and yet other established close relationships to sponsor the international students on the university visas, allowing them to get the privileges accorded to public university students while paying the lower fees and studying at the For Profit partner college.

Another common form is where the participating university still managed and delivered all the academic processes, while the For-Profit partners financed the infrastructure, maintained the facilities and recruited the students. While different commercially successful ventures of this nature have taken off in the recent months, not least because of the UK Border Agency preference for students sponsored directly by the universities instead of their For-Profit partners, these institutional forms are outside the scope of this narrative.

Apart from the limitations highlighted above, which may indicate poor implementation rather than any categorical difficulty with the franchising model, critics have also raised certain fundamental issues regarding the appropriateness of education facilitated through such arrangements. Exploring mainly the highly successful practice of international franchising by British universities, Phillip Altbach (Altbach, 2012) offers the following view, which seems to be applicable to the institutions operating in the UK as well (because of the differences in operating culture):

“the form but not necessarily the substance of education may be provided by the franchisee. Adequate quality assurance is not easy. Home evaluators may not be aware of conditions overseas; and in any case, the logistics are difficult and often expensive.”

However, despite all the operating difficulties and principled objections, franchising of degrees enhanced the offerings of UK For-Profit institutions and offered them legitimacy critical for growth, which was duly utilized by many successful institutions.

 

 Growth Factors: A Different Kind of Student

The rapid growth of For-Profit Higher Education in the UK in the first decade of the Twenty-first century primarily happened in the context of a bigger social shift, that of the rise of a new aspirational middle class worldwide, and had been facilitated by its agent network and legitimacy derived from franchising universities. Daniel Levy (1986) coined the term ‘Demand-Absorbing’, referring to ‘private higher education’s sponge-like ability to soak up the pool of remaining students who do not otherwise find places in the system.’ (Kinser, 2010)

Brown et al(2011) describes the dynamic of this new ‘demand’ for education succinctly, but somewhat bleakly:

“The empowerment of individuals to take greater responsibility for their own livelihoods was nevertheless reinforced by the rhetoric of the knowledge economy and celebrated as a final victory ending the conflict between individual aspirations for meaningful work and the demands of market efficiency. The outcome was a closer relationship linking education, jobs and rewards as incomes grew in line with the market value of an employee’s human capital…

The opportunity bargain also traded on the idea that the inequalities and strife that surrounded early forms of economic competition could be resolved by developing the human capital of all Americans so that they can benefit from the middle class jobs that the global knowledge economy has to offer. “

While Brown’s analysis relates to America, this reflects a global narrative, which equals college education with opportunity, and hence, resulted in a huge expansion of number of people pursuing Higher Education. In India, for example, on average, about 5000 new students were admitted and 10 new institutions were set up every single day over the last five years. (Agarwal, 2013) Indeed, Indian students contributed greatly in the expansion of For-Profit institutions in London between 2008 and 2010, supplemented by other countries such as Bangladesh, Nepal, Pakistan, Indonesia, Philippines, Nigeria and Kenya (while the Chinese students overwhelming stuck to public universities). The demand absorbing nature of For-Profit institutions were much in evidence as, students from the more socially stable nations, such as Saudi Arabia, Thailand and Kuwait predominantly preferring public universities over For-Profit institutions.

Many of the students coming to For-profit institutions lacked the financial resources or the social capital to make it to the universities. One must be mindful that even the most expensive For-Profit institutions charged half as much fee as the low ranked public university or Further Education colleges as they did not subsidise the ‘Home’ students by charging extra to the International ones  (with a handful of exceptions, such as Regents College in London, an American-owned entity, which was set up for elite private students from Russia, Saudi Arabia and the like). Additionally, most For Profit institutions were sensitive to the needs of their ‘type’ of students, who would usually need to work part time to cover their living costs, and organized their time-tables with two or three full days’ instruction a week, rather than the leisurely but limiting time-tables of a public university, which may spread their instructions over all days of the week. Many of the For-Profit institutions also employed the students themselves, taking advantage of cheap labour (never paying more than the minimum wage, and not in an inconsiderable number of cases, cash in hand) but also creating loyalties going beyond the usual relationships with Alma Mater.

While part-time working by the students have been a subject of intense debate in the UK, and eventually UK Border Agency removed all work rights from students studying in For-Profit institutions (unless these are classified as degree granting Higher Education institutions, which most of them were not), the landscape looked quite different from within a For-Profit HEI. In the middle of this debate about ‘genuine students’, the author had the following view to offer at the time (Sunday Posts, 2012):

“UKBA seems to think that the British Higher Education is full of bogus students. That is plainly wrong. The policy-makers seem to be operating with one, limited, idea of a student - with impeccable command of English and manners, Middle class parents, and a somewhat clear idea of what they want to do in life - and tolerance range thereabout which allows the inner-city state school students to sneak into the realm of genuineness. However, this idea is based on the demand for education in a matured society, where students are given a proper childhood by their parents and would want to follow their parents' paths to a good life. What is missed is that the British Higher Education is a global industry servicing a very different world, a world where students are allowed to speak in languages other than English, aspire not to follow the parents' footsteps but to do better so that they can offer their parents a comfortable retired life, and where hard work, pragmatism and ambition are the only qualifications that one need to possess. These students were flocking the British Higher Education for the last decade or so: This is exactly where the (global) brand of British Higher Education was built. However odd it may look from the Oxfordshire county view of the world, this is the shape of the new global demand. If the British Higher Education needs to maintain its leadership status among the competing higher education systems, it cannot afford to overlook the shifting demand profile of higher education. “

With the benefit of hindsight, this still represents an accurate portrayal of students coming to study in For-Profit institutions.

 
Decline of Proprietary Institutions & the emergence of The Corporate Form

Since May 2011, when the Coalition Government in the UK started implementing a series of changes in the visa rules directly affecting the students who study in Private Colleges, barring them from part time working, imposing greater fund requirements before they could come to UK and introducing compulsory English language testing. This was designed to encourage the students with low financial and social capital coming to the UK, precisely the segment the Proprietary For Profit institutions  mostly served. The regulatory requirements were changed from light touch regulation to oversight of the Quality Assurance Agency, requiring significant reconfiguration of the operating practices as well as adding a significant cost of operation, which many smaller colleges could not afford. Finally, be design or by default, UK Border Agency (UKBA), the government agency tasked with issuing licenses to For Profit institutions for sponsoring overseas students, were so heavily burdened with the requirements of the new regulatory regime that its response time for even the most basic of the tasks took several months, introducing another cost on smaller For-Profit institutions.

This led to a dramatic reconfiguration of the sector: Many weaker and smaller institutions went out of business, and others sold out or merged with other larger entities. The author estimates that more than 2000 For Profit proprietary institutions closed down between January 2010 and December 2012, as the number of licensed sponsors for overseas students in Britain dropped from 4300 to close to 1800 by the end of the period. Many larger ones got acquired, primarily by US institutions seeking to extend in Europe or by Private Equity organizations, who sensed the impending opportunity in the UK Higher Education market and sought to acquire companies with established university franchises or a prospect of getting their own degree granting rights.

The other major change in the sector was driven by the sweeping funding changes introduced in the UK Higher Education sector following the Browne Review in 2010, which introduced income contingent student loans as the primary means of funding Higher Education. Like the GI Bill, the Higher Education reforms in the UK was based on the mantra of ‘Student Choice’ and meant that the funding will follow the student, who can join any designated institution, which included several For Profit providers with a profitable track record (which most providers, coming out of a period of unparalleled expansion, had). The only limitation placed on the For Profit providers in this regard was a cap on funding up to £6000 a year, as opposed to the £9000 the public universities were allowed to charge. All For Profit providers complied, as £6000 per year was higher than what most of them charged anyway, and were still profitable, as they solely offered high demand low cost subjects such as Finance, Business and Law.

As mentioned elsewhere in this essay, the reforms also made it easier for For-profit providers to start granting their own degrees, and several Private Equity owned larger institutions pursued the course with the objective of attaining own degree granting powers. As the thresholds were lowered and created solely on the basis of student numbers and not research credentials, it was relatively easy for large For profit providers to attain.

All the recent developments point to a complete change in the For Profit landscape, a gradual decline of the Proprietary institutions and their international student clientele, and the rise of the corporate, degree granting institutions competing with public universities for ‘Home’ students and public subsidies. It appears that after a decade of intense international expansion, the real focus of British Higher Education will be on the competitive forces at home, as the sector gets reconfigured with the deliberate policy interventions and influx of Private Equity interest, which treats education as a ‘sunshine’ sector.

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