Should we bail out universities?

In all sorts of ways, HEPI’s recent polling produces some of what must be the least unexpected results ever released in the history of higher education policy.

Most students are confident that their own institution is in a strong financial position”.

Of course they are, given the sector’s continued resistance to communicating financial information in a meaningful and accessible way to students.

Three-quarters of students believe government should step in if their university were threatened with closure”.

Of course they do – students (like the public) regard universities as public institutions and anyway, what on earth is in the mind of the students who don’t think that this should happen?

The majority of students (89%) don’t know what Student Protection Plans are, and even more have not seen their own university’s Plan (93%)”.

Of course they don’t, given that, the last time I looked, just under a third of providers hasn’t even put theirs online.

Incompatible expectations

Two of the questions that HEPI asked are particularly interesting given the apparent contradiction they represent. Nearly all students (97%) want to know if their university is in financial difficulty – again, hardly a surprise. But most students (84%) say they would have been less likely to have applied to their university if they had known it was in financial difficulty.

The policy dilemma here is a familiar one. If it becomes widely known that a university is in financial trouble and applications fall as a result, theory goes that it becomes less likely that that university will be able to recover. Hence back in the halcyon HEFCE days – a simpler time where student number controls meant more gentle expansion (and contraction) – bridging loans and such forth could be made available to ease a university through trouble, and financial health ratings were kept decidedly confidential.

You cannot be serious

Today things are different. Last November Office for Students Chair Michael Barber couldn’t have been clearer when he announced to Wonkfest that the regulator would not bail out providers in financial difficulty. “Should a university or other higher education provider find themselves at risk of closure, our role will be to protect students’ interests”, he said, adding “we will not step in to prop up a failing provider.”

At the time, much speculation surrounded the question of whether he was serious – and whether, if it came to it, there really wouldn’t be a bailout. At government level, Sam Gyimah – speaking very much off the cuff at wonkfest – had a go at suggesting that financial troubles caused by poor decision making were one thing, but that those caused by Government policy (ie the reduction in PT students) might get assistance, although drawing the line will be tough. It’s not immediately clear that the government would escape blame if the rampant marketisation of the sector, the removal of all controls on competitive recruitment, or indeed changes that might come with Augar, were an obvious contributory cause.

It’s at the level of the regulator where things get interesting. First of all, it turns out that OfS doesn’t appear to be legally prevented from offering financial assistance in the event of a problem – this in fact looks like a policy decision, where OfS has decided that it would not be in students’ interests to do so. Saying that OfS would act “in the student interest” was fine as a bit of positional distancing from HEFCE, but if it turns out that that means that these days your university could be allowed to collapse, it looks like students would collectively disagree with that judgment. Maybe OfS should consult its student panel.

I saw the sign

Then there’s the question of mixed messaging. To make it onto the register without a formal condition of registration being imposed, OfS judges that there is “no reason to suppose the provider is at material risk of insolvency” within three years, and that it has the “necessary financial resources to provide and fully deliver the higher education courses as it has advertised” for five years. As I write, 317 providers are on the register, including every university in England. No conditions imposed. So when iNews says that three universities are on the brink of bankruptcy, or when HEPI says that current OfS practice is to “hide financial problems from students”, they must be wrong. Right?

But on the other hand, the signs are there. Michael Barber won’t have launched his shot across the bows for nothing. There are plenty of universities publically planning redundancy programmes, and a number that we know are doing so privately. And the rumour is that our risk-based regulator has imposed “enhanced monitoring” on a number of providers (stopping short of a full on registration condition), particularly where shaky looking projections on student number growth underpin their viability plans.

This is a theory of change that says an applicant’s “right to know” about risks is neutralised, because a Michael Barber op-ed and a stiff letter to the Chair of Governors will always prevent a risk leading to collapse by nudging Governors into action. But what if that doesn’t work? The press, the parents and the local MP – let alone the learners – are more likely to be demanding to know why they weren’t told than they are to be agreeing with the precise character of risk-based regulation.

A whole new world

This isn’t an issue that is unique or exclusive to the higher education sector. In the water industry OFWAT publishes a clutch of public financial performance indicators – but there’s less of a possibility of a “run on the bank” there, as customers are generally stuck with the provider they have. Over in energy, given some providers have hit the wall, OFGEM is reviewing its approach to supplier licensing to ensure that more appropriate protections are in place against financial instability. These will include “raising the standard of risk management”, enhancing their “visibility of, and ability to monitor, financial instability”, and promoting a “responsible approach to growth”. Still, in the event of a failure, it’s relatively straightforward for OFGEM to appoint a new supplier of last resort to keep the power on. It’s not so easy to do the equivalent in higher education.

Perhaps we should look closer to home. Over in Further Education right now there are a clutch of providers with a public “Financial health notice” issued by the Education and Skills Funding Agency. Yet, bafflingly, some of those with a notice then appear on the OfS register without a public condition of registration! Some would argue again that colleges are less sensitive to a “run on the bank” situation, but we might ask how it it possible that an FE funding council can go public, but an HE regulator can’t. Alternatively, in the the context of a tertiary funding review, we might ask how long we can last with an FE funding council and an HE regulator seemingly making different judgements about a single providers’ financial health.

Most observers rightly point to the system’s overall design as the culprit here. OfS has a tough job insofar as it’s being asked to operate as a market regulator in a sector where markets don’t work. Unsurprisingly, there don’t appear to be any other quasi-public sectors with sufficiently similar characteristics where practice can be reused.

But that doesn’t mean that there aren’t questions for OfS to answer and things for it to consider. Delivering on its promise to publish an assessment of the sector’s future financial health would help – heavily delayed since last November and no revised date forthcoming. The much maligned HEFCE was able to manage this on an annual basis. What’s going on?

We really do need to see its wash up of the registration process to get a sense of how many providers that it’s keeping a close eye on. And if it is to commend public or student confidence, a much deeper consideration of what really is in the “student interest” when it comes to information, warnings, bailouts and thresholds is probably before – not after – a provider goes under. In other words, OfS might usefully view HEPI’s survey as “enhanced monitoring, at risk of breach, must improve”.