For-Profits Eye British Market as Government Lays Out Welcome Mat

Classroom at Kaplan Business School, London, UK. (Kaplan)
August 31, 2011

Among the many seismic shifts taking place in British higher education today, one of the most significant has been the government's embrace of private and for-profit institutions. In a country with just a single private university, the Cameron government's concerted efforts to create opportunities for private providers—combined with drastic cuts in the public system and imminent, large tuition increases—could profoundly change the nature and shape of higher education. But how likely are for-profits, in particular those from the United States, to plunge into the British market? So far the signals are mixed.

In a recent report on the future of higher education, the government outlined a series of proposed reforms, including measures to expand competition among public institutions and expand the role of the private sector.

A key element of the plan is to transfer government financing of 20,000 student places in England, about 6 percent of the total, from the public system to nontraditional providers, including private institutions. Students at those institutions will, for the first time, be able to access the same kinds of government loans, up to £6,000 ($9,800), as students at public universities. Part-time students are also being included in the government-backed loan system, creating another opening for nontraditional providers. And a new regulatory system would for the first time apply to private providers.

Although adoption of these proposals is not assured, the government's determination to carve out a greater role for for-profit enterprise in higher education is unmistakable.

"The market is effectively being reserved for them," says Matthew Robb, a London-based higher-education expert at the Parthenon Group, a consulting firm with a focus on education. He adds that the 20,000 government-financed places that are now being opened up to private-sector competition represent just a fraction of the approximately 150,000 people each year who wish to pursue higher education but are unable to secure a university place through the national admissions service.

Mr. Robb and his Boston-based colleague, Robert Lytle, who helps lead Parthenon's education practice, say that the government's proposals create opportunities for overseas companies seeking entry to the British higher-education market, but that powerful deterrents remain.

"It's a very expensive market to operate in, and the profitability is not there," says Mr. Lytle, noting that, along with the rest of Europe, Britain is "relatively stagnant" and "just not as attractive" as countries like Malaysia and Singapore, which are experiencing rapid growth. Britain and continental Europe also lag in the development of an online higher-education market, which has been a major growth area for American for-profit companies.

Making Inroads

Leading U.S. education companies are among those paying close attention to the situation. Some for-profits, including Apollo, Kaplan, and Laureate, have already made inroads in Britain through partnerships with public universities. Although the government strictly regulates the use of the term "university" and the authority to grant degrees, it is much looser in how it oversees universities' relationships with private providers. Universities are allowed to use their degree-granting authority to "validate" programs offered by private partner institutions, with the degree coming from the university itself.

The number of students in such arrangements is difficult to gauge, says John Fielden, a higher-education consultant who produced a report last year for the British vice-chancellors' organization on the growth of private and for-profit providers. A recent attempt by the national higher-education-statistics agency to pin down the numbers was hampered by a low response rate from providers, he said, adding that enrollments in private programs are often dominated by international students. 

 Kaplan's offerings in Britain include degree programs in collaboration with a handful of universities. Julie Noone, director of higher education for Kaplan in Britain, says that these partnerships will remain central to the company's approach. She calls the government's report a welcome "positive step" but says that it "doesn't change anything for Kaplan. ... We have always taken this strategic approach to partnering with universities and awarding their degrees, and this is still how we want to proceed."

Public-private partnerships may be receiving more scrutiny, however. The University of Wales, one of Britain's most prolific providers of such degrees, with about half of its 40,000 students enrolled at affiliated overseas institutions, was recently criticized by the national quality-assurance agency for not adequately vetting its partners. And the University of Portsmouth's relationship with the London College of Traditional Acupuncture collapsed after the college filed for bankruptcy last year, leaving the more than 200 students it had enrolled with limited options for continuing their studies.

While Kaplan is awaiting greater clarity from the government before it seeks degree-granting authority of its own, other for-profit providers have taken the plunge.

In 2009, Apollo acquired BPP, which in 2007 became the first for-profit education company to be granted degree-awarding power in Britain and last year became the first British for-profit institution to be awarded the title of university college. BPP operates 14 regional centers around Britain and enrolls some 6,500 students in its undergraduate and master's-degree courses in business and law. It also offers a wide range of professional training courses in such areas as accounting and taxation.

Carl Lygo, BPP's chief executive, attends informal regular meetings of so-called alternative providers from the United States and Britain. He says that "the U.S. for-profits are not clear on what the opportunities for them are." Part of the uncertainty stems from the distinct nature of the British system. While the Conservative-led government's enthusiasm for a more open marketplace is apparent, the system remains highly regulated. For example, the government each year sets the number of places available in higher education, and thus the number of students who may qualify for government-backed student loans. Access to loans has been a key driver of growth for the for-profit sector in the United States.

"It's a bit like a socialist system of government, with the numbers controlled by the center," says Mr. Lygo.

Online Opportunities

BPP will continue to expand in Britain, says Mr. Lygo, establishing the company's brand name as quickly as possible. Apollo's acquisition of BPP gives it "almost a free market for the next couple of years, and then there will be much greater competition" once the changes outlined in the government's report are adopted, which might not take place until 2014, he says.

Capella Education, the U.S. company that runs the online Capella University, recently acquired Resource Development International Ltd., a British company focused on online education. The British subsidiary has applied for the same degree-granting authority that BPP has been given. If it succeeds, Capella will have to pay an additional $6.3-million on top of the $14.9-million acquisition price.

"Even as it exists today, with its university partners, it is extremely attractive to us," says Mike Buttry, a Capella spokesman. Resource Development International enrolls about 3,000 students each year, primarily in Commonwealth countries, and has degree-granting partnerships with about a dozen universities, Mr. Buttry says. Because online education is more advanced in the United States, the British subsidiary lags by about a decade in terms of academic quality, he says: "We bring increased financial investment and technological resources" that will allow the British company to "leapfrog" many of the growing pains Capella faced in its initial years of expansion.

Other companies seeking to gain degree-awarding power include Pearson, the publishing giant and parent company of the Financial Times.

Partner or Stand Alone?

Mr. Lytle, of Parthenon, says there are differing views about how important degree-awarding powers will prove to be for companies seeking to expand their presence in Britain. "One school of thought says they are very overvalued," he says, while others contend that having such autonomy is "terrifically important because it means you can't be held hostage by the degree-awarding university."

Ms. Noone, of Kaplan, says that once tuition at public universities is allowed to rise next year to as much as £9,000, or $14,700, from its current cap of about £3,000, pricing pressure from universities may prove to be the greatest barrier to entry into the marketplace for private providers. Most universities "won't want a partner who is offering the same degree at a lower price," she says. Now that students at for-profit institutions will have access to government-backed loans, universities will be facing the prospect of direct competition with partners offering the university's own degrees at potentially significant discounts.

Certainly whether or not American for-profits seek new markets in Britain will be influenced by their struggles at home. The Apollo Group, parent company of the for-profit giant University of Phoenix, saw its U.S. enrollments decline more than 16 percent in the past year, while Kaplan saw U.S. enrollments plummet 30 percent.

Whatever the eventual new contours of the higher-education landscape, opportunities are likely to be created, not just for the for-profit sector but for mainstream American universities seeking new avenues of expansion, says Mr. Lytle. "You could imagine someone like a Johns Hopkins saying, 'We have a terrific brand of health care, there are lots of smart students in the U.K. Let's go get them.'"


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