Covid-19: Is secrecy over university finances in the student interest?

The English HE regulator is responding to Covid-19. David Kernohan and Jim Dickinson look at what universities will have to do if their finances look shaky

New legislation, rushed through the Houses of Parliament before the extended Easter recess, gives the Office for Students specific powers to disregard conditions of registration to support the continued functioning of higher education providers in the public interest.

Paragraph 259 of the Coronavirus Act Impact Assessment reads as follows.

While the Office for Students does have some discretion in the application of its conditions of registration, its ability to completely disregard its own conditions, as set out in the regulatory framework under the Higher Education and Research Act (HERA) 2017, is unclear and untested, especially if there was prolonged disruption. Hence we consider it appropriate to take specific power to enable the OfS to disregard its conditions in these circumstances.”

Despite the heightened risk that many providers will breach registration conditions inadvertently during the current emergency, a letter – sent to accountable officers by OfS’ Director of Competition and Registration – does not take this step. At least not yet.

What does it do?

Instead, the letter and accompanying annex announce changes to the definition of Reportable Events. This controversial component of the regulatory framework requires providers to notify the Office for Students if certain events occur, without ever quite setting out an exhaustive list of what those events may be. Indeed, memorably, even asking if something constitutes a Reportable Event may itself be a Reportable Event – prompting the eternal question: if a tree falls in the forest and there is nobody there to hear it, is it a Reportable Event?

The measures taken by OfS make some events that are currently reportable non-reportable, and add some new categories of Reportable Events. The new ones are:

  • short-term financial risk (where liquidity will drop below 30 days, in most cases. Examples given focus on the likelihood of a reduction in recruitment and other income)
  • cessation or suspension of the delivery of higher education, including the inability to award qualifications or credit (this includes stuff like losing PSRB validation, having to close a course without offering an alternative, running a course that finishes after the end of the academic year)

What’s interesting about these is the overlap with certain conditions of ongoing registration, namely condition D (“Financial viability and sustainability”) and conditions B1 to B3 (“Quality and standards”).

Interestingness

If a provider breaches a condition of registration, the Office for Students would generally wish to intervene. And for a material breach, it would be expected that a condition of registration would apply (paragraph 167 of the regulatory framework sets out possible mitigating circumstances, but none seem to apply in this case). To be clear, it is within the OfS’ gift to decide how and where to intervene, but the framework does set up certain expectations.

Take for example, a provider notifying OfS that it has less than 30 days of liquidity. This is clearly a matter of serious concern under condition D of the conditions of registration, it could have a material effect on students, and there are few steps a provider could take to remedy the situation. Our reading of this situation would be that a formal condition of registration could well be applied.

Conditions of registration are generally public – they are listed on the OfS register. In all but a few cases, the OfS has shied away from applying these (only 25 have been used) and the reputational damage to a provider for one deployed over finances would be severe. Instead, it has tended to refuse registration, or to use the less damaging mitigation options of “enhanced monitoring” (261 times) or “formal communication” (306 times). There again, we imagine no provider has yet reported such a low and unexpected level of liquidity.

OfS could choose to disapply this condition of registration for the foreseeable future, using HERA powers reinforced by the Coronavirus Act. It has not, yet.

It’s not our fault

The annex to the letter notes that a number of circumstances may cause short-term financial problems. These include (but are not limited to):

  • A reduction in forecast student recruitment, from UK-based students, EU students, and international students
  • A reduction in forecast income from non-teaching or research activity
  • A reduction in forecast income from the provision of accommodation to students
  • An increase in payment of refunds or compensation to students as a result of changes to course delivery, accommodation, or other services.

We have no way of knowing how Covid-19 will play out, but it is a reasonable bet that all of these will have an impact on pretty much every provider. In the main, universities have scrambled to meet student needs, prioritise research, and offered flexibility over accommodation. Some providers have attempted to mitigate their exposure to recruitment risks by making unconditional offers to home students (most already holding conditional offers) – they have been slapped down for this.

All of this means that these situations represent risks that are external to the provider and that a provider has been unable to mitigate. We are entering a period of uncertainty lasting at least a year (and possibly two) – the last thing providers need is to run the risk of a condition of registration.

Interested parties

This, though, is where the question of the student interest gets really… interesting.

The regulatory framework does make clear that OfS will normally publish a specific condition and the reasons this has been imposed but, in considering whether to do so, “will take account of the potential impact of publication”.

It’s easy therefore to assume that OfS may well not publish a whole bunch of formal conditions because of a “run on the bank” risk. But wouldn’t applicants and parents (and students wondering whether to re-enrol this September) want to know if their provider of choice was at risk of dipping below 30 days’ liquidity (or the permitted equivalent for the real shoe-string providers)? It’s not at all easy to determine the “student interest” here. 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.

As we’ve said on the site before, the theory here that says an applicant’s “right to know” about risks is neutralised – because a stiff letter to the Chair of Governors will always prevent a moderate risk leading to collapse by nudging Governors into action. But that doesn’t really work now, does it?

And what we’ve not considered here are steps beyond formal conditions of registration. In theory, to remain on the register, 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.

Surely triggering that “30 days liquidity (or similar)” reportable event would mean some can’t be judged to meet that standard absolutely. Without a public shift in bailout policy, is OfS about to have to de-register a whole clutch of providers and trigger a bunch of inadequate student protection arrangements? Or will they be able to continue facing imminent collapse, banking student fee income in secret? What is in the student interest here?

Easing the burden

Conversely, a number of previously communicated Reportable Event cases (para 494 of the regulatory framework – we imagine you know the list by heart) no longer apply. Specifically, a provider no longer has to report to OfS if any of the following occurs:

  • “The provider becoming aware of legal or court action
  • Regulatory investigation and/or sanction by other regulators
  • Any new partnerships, including validation or sub-contractual arrangements
  • Opening a new campus
  • Intended campus, department, subject or provider closure
  • The implementation of a student protection plan except where this is covered under “cessation or suspension of delivery of higher education” in paragraph 23 above.”

We checked with OfS, and bullet point five happily does not remove the requirement to let the regulator know if you decided to shut up shop for good. Paragraph 28 lists the situations where events remain reportable:

  • changes of legal status of the provider
  • changes of ownership or control of the provider
  • the provider resolving to cease to provide all higher education on a permanent basis
  • any material suspected or actual fraud or financial irregularity.

There’s a few surprises in both lists. OfS is no longer interested if you get taken to court, or sanctioned by another regulator – but if you want to change your legal status you’d better be on the phone straight away. If you temporarily close your provider you don’t even need to press send on an email, but if this temporary closure becomes permanent they need to know (surely the former could be a “lead indicator” of the latter?)

And if you apply a student protection plan, save under the paragraph 23 circumstances (basically suspending or closing an existing or planned course without offering reasonable equivalent alternative study options) there’s no need to send that text message. You could hive off a whole faculty to be delivered by the local FE college (whether or not you have an existing relationship with said college, or whether this features in your student protection plan), and OfS wouldn’t bat a regulatory eyelid.

Desperate times do indeed call for desperate measures. But to us this feels like the kind of thing a student focused regulator would want to know about. We’ve done the maths as best we can, and we know that students registered at one provider and taught by another are less satisfied in pretty much every way. The student experience will be all over the shop for the next couple of years (it’s almost enough to make one contemplate pausing the NSS for the duration) and the Office for Students arguably needs to be on top of that.

Oh – and as C3 (Student Protection Plans) remains in force, there’s no way on earth that the risk assessment any provider has put in their current plan is still accurate – so folks better begin the process of a rewrite now. And it would probably be hard to submit one of those new “reportable events” whilst still publicly judging your risks all to be low, wouldn’t it?

Secrets and lies

The cover letter does a few other things worth noting. Next week we’re getting “further information” about how OfS will support providers to maintain standards and teaching quality during this period. The advice on unconditional offers is even more unequivocal than last week’s press release – “we do not consider that changing a conditional to an unconditional offer in response to the current situation is likely to be in the best interests of students”. And the letter takes the opportunity to remind providers that consumer protection law continues to apply – which is going to make things very interesting as the sector works out what to say to students (both new and continuing) about next academic year.

What we don’t get is any real sense of what OfS will say out loud and in public to applicants, students, the DfE, or even annoying wonks like us. HERA does give it statutory duties to report in public on the financial sustainability of the sector annually – but that’s not going to cut it with this sort of rapidity. All of us do have the right to make some judgments – about whether OfS is doing the right thing “in the student interest”, and whether DfE is doing the right thing having been told things by OfS both “in the student interest” and in “the public interest”. OfS told us “We will continue to monitor the financial health of the sector and will report on this at the appropriate times”.  Its definition of “appropriate” remains unclear.

3 responses to “Covid-19: Is secrecy over university finances in the student interest?

  1. The new guidance also says that full compliance will be expected once this temporary period ends. OfS will expect that processes that should have been in place at providers prior to the temporary relaxation will continue to be in place – this won’t be a requirement that the OfS will allow providers time to meet.

    Many providers don’t yet have processes in place to ensure and monitor their compliance and to report on this to the governing body – most of those that do report to the governing body on regulatory compliance do so at a very high level without documentation of the underpinning evidence of how they know. This is highly unlikely to be sufficient when the OfS rings the future random sampling bell…

  2. It’s still a mess isn’t it? The OfS is still all over the shop, though at least it’s signing emails with names now. And as for secrets, I wonder whether students and their parents and advisors really appreciate what the government has done by way of turning HE into a market but in a haphazard way that did not create a level playing field. So many providers across the piece are stretched financially and Covid-19 is not going to help, especially if, apart from accommodation and other fee refunds, students have been hit by strikes and are successful in campaigning for tuition fee refunds. Plus many HEIs have commercial income that will be being impacted now. All an exceptionally challenging set of circumstances.

  3. It’s still a mess isn’t it? The OfS is still all over the shop, though at least it’s signing emails with names now. And as for secrets, I wonder whether students and their parents and advisors really appreciate what the government has done by way of turning HE into a market but in a haphazard way that did not create a level playing field. So many providers across the piece are stretched financially and Covid-19 is not going to help, especially if, apart from accommodation and other fee refunds, students have been hit by strikes and are successful in campaigning for tuition fee refunds. Plus many HEIs have commercial income that will be being impacted now. All an exceptionally challenging set of circumstances.

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