If a provider is in trouble, who will take the force of the blow?

If you’re studying at a provider close to going under, OfS has new plans. Jim Dickinson wonders if they’ll work.

Jim is an Associate Editor at Wonkhe

I’ve said it before, and I’ll say it again. Enrolling on a course of study at a higher education provider is quite a risky business at the best of times and involves a major investment from individuals.

The general position of the Westminster government is that its system of autonomous, competing providers normally works well – but on the occasion that it doesn’t, its regulator insists that an appropriate safety net has been developed so you can be confident you’ll be able to continue and complete your course.

So in both the context of the pandemic, and its review of the process of initially registering providers, the Office for Students (OfS) concluded last summer that its general arrangements under Condition C3 (Student Protection Plans) weren’t going to cut the mustard if a provider looked wobbly.

Add in common weaknesses with student protection plans and the speed at which this sort of thing becomes a problem, and the regulator concluded that it needed a new tool in its box to protect the student interest. Now over eight months on we have the response to a consultation it launched on what it is calling “Student Protection Directions”.

The new powers give OfS the ability to direct providers to take certain actions – for example to arrange student transfers, provide information advice and guidance to students, or provide refunds – when a provider faces potential closure. It can also require a provider to scoop all of that up into a special new type of document setting out those measures in something ominously labelled a “Market Exit Plan”.

As well as our initial look at the proposals back in July 2020, elsewhere on the site you can find OfS’ Director of Regulation Susan Lapworth summarising the (case for and the) new powers.

It’s worth noting that the narrative response to the consultation on OfS’ entire Regulatory Framework was only 24,000 words – this response, to a tiny part of that framework, runs to 28,000 words. The answer to the question “why” tells us something – about the developing character of the regulator generally, and the impossible position ministers have placed it in specifically.

You tell her she can manage

We perhaps shouldn’t be surprised that OfS reports that many respondents opposing the proposal raised concerns about institutional autonomy and regulatory burden. I always worry a bit when I see this knee jerk from the sector – the danger is that it comes off looking like it’s trying to claim the “freedom” to let students down, or remove the “burdens” of providing the education they promised to students.

In any event, there’s some reassuring words here – the narrow scope of Condition C4 means that its use will be targeted only at those providers at material risk of market exit and when OfS considers a student protection direction to be necessary. And anyway, OfS has updated the guidance to clarify that in its decision-making, it will consider all relevant factors and “place particular weight on the interests of students”.

One issue raised in the consultation was why condition C3 (the one that requires everyone to have a student protection plan) couldn’t just be adapted. It’s a fair point given that OfS says that SPPs set out what students can expect to happen should an institution close and should ensure that students can continue and complete their studies, or be compensated, if this is not possible.

The basic justification on offer here is detail. OfS argues that the sort of granularity you might see in an SPP – to cover lots of different risks to continuation of study in multiple scenarios – is a different kettle of fish to the sort of thing it might want to see if a provider is on the wobble – a “specific timeline exploring the risk a provider faces, with appropriate milestones and trigger points for the implementation of specific activities”, for example.

There’s also the back and forth of an SPP’s development. If OfS gets worried about a “material risk” of a provider falling over, it argues there’s not really the time to return a plan to a provider for amendment multiple before it can be approved. That all makes sense – but it does raise the question about the interaction between a published Student Protection Plan and a (doesn’t necessarily get published) Market Exit Plan. We’ll return to that below.

A few respondents suggested that OfS’s ability to impose specific ongoing conditions of registration would be a good alternative to MEPs. Here OfS says because “conditions” have a statutory consultation period of 28 days, this could result in a delay in action being taken to protect the interests of students. It wants to act fast.

But are those the real reasons for having separate plans?

Fidelity Fiduciary Bank

The real crux of all this – buried down on Page 55 (Section F) of the consultation response – is all about an ongoing dilemma for OfS. Should it, or will it make public when it’s taking regulatory action over a particular provider generally, and should it or will it make public a “Market Exit Plan” specifically.

We’ve written about this dilemma on the site before; suffice to say that the obvious concern here is that if a “Market Exit Plan” is made public, providers argue that it’s more likely that provider will exit that market as students leave the sinking ship. On the other hand, if and when a provider does go under, students and their parents will want to have been warned. In other words – where’s the student interest? Protecting the failing provider from a fall in recruitment, or warning people it’s in trouble?

I say “crux” because for all the words on why a separate condition of registration is necessary (and there are a lot of words), what this really all comes down to is as follows. Student protection plans are public documents, things that prospective students can in theory rely on if things go wrong. So if you don’t create a separate and new kind of plan to handle this “gonna fall over” issue, you have to insist on the plan being public. And that might not be in the student interest. Hence “Market Exit Plans”.

The proposal last July was complicated:

Where a Student Protection Direction requires the production of a Market Exit Plan, or requires a provider to put in place and/or implement any Student Protection Measures, the OfS may or may not direct the publication of that plan or of information about those measures. The OfS’s expectation is that, if the OfS judges that a provider is reasonably likely to exit the market, it will require the provider to publish its Market Exit Plan and/or information about Student Protection Measures.

…and what we get here is a classic OfS hedge:

When making a decision to require a provider to publish an MEP or other information, the OfS would need to consider the potential impact on the provider’s operations (including its financial arrangements) and any information about the provider’s financial position. The OfS would consider each provider on a case-by-case basis in this regard, and take into account the factors specific to the provider’s circumstances and context.

Our priority in considering publication issues would be to ensure that the interests of a provider’s students are protected. Our intention would be to ensure that appropriate information is available to students when we consider that to be necessary for them to make decisions about their future studies – this is the case for current and prospective students.

And most importantly:

Where a provider is at material risk of market exit, the OfS does not have a fixed view about when students would need to have access to information and therefore when it might require a provider to publish information. We do not consider it possible to set this out in a general policy. This is because we will consider information and evidence at the time and make decisions on a case-by-case basis.”

Clearly there will be different views on this – the bulk of which in the consultation came from providers – but let’s step back a second here. OfS is saying that it will be possible for a provider to remain on its register if it thinks there’s a reasonably likely possibility that it could go under. It’s also saying that it may well then give a series of directions to that provider, make it make a sort of funeral plan for if it goes under, and could well keep all of that a secret from students applying to (or preparing to re-enrol) that provider.

At best, that all feels like OfS is trying to manage provider precarity without the appropriate tools to do so. At worst, that sounds unforgivably deceptive to students and their families.

It makes me wonder how I keep from going under

There were other ideas. Some said it would be more helpful to providers and students for OfS to address the underlying issues causing market exit, the old “tough on crime, tough on the causes of crime” approach. Another had a go at relieving the HEFCE days by suggesting that OfS could provide funding to prevent providers from exiting the market. Another wise old owl said that there should be a sector-wide approach to ensure adequate protection for students, such as a central funding source for protection arrangements.

Some said that the establishment of a “re-brokerage scheme”, similar to that operated by the DfE in relation to multi-academy trusts, or the extension of the further education special administration regime to cover higher education, would be a good plan. Others said that new legislation to allow OfS to act as an administrator (under insolvency law) with powers to prioritise students’ interests over creditors’ interests would be better. Some said we need new legislation to enable OfS to “step in” and replace executive and nonexecutive posts.

They’re all perfectly decent ideas – and maybe inside OfS there are some that would agree – but OfS does what it has to do here and refer much of that material to ministers, not least because a lot of the above would require change to the Higher Education and Research Act. Crucially, OfS gets its defence in early – pointing all of that out means that a minister under fire for the political fallout from provider collapse would find it difficult to pin the blame tail on the regulatory donkey.

But you could put your arms around her

There’s a few other bits and bobs in here – some stuff on terminology and nomenclature, interaction with other requirements like insolvency law and employment law, whether applying to DfE’s restructuring regime would trigger this process and small/specialist or new providers arguing that the proposals would be unfairly burdensome.

More usefully, OfS says that many respondents commented on the potential practical effects of a market exit, or a potential exit, on students – suggesting that:

  • Cost cutting measures implemented by a provider to try to avoid an exit could have a detrimental effect on the student experience (with the implication that providers and students should not have to face such circumstances);
  • International students may experience difficulties with visa sponsorship if their provider were to exit the market;
  • Students from underrepresented groups may need additional support to understand MEPs and may require support through any decision-making process about the future of their studies;
  • For students who incurred additional costs as a result of a market exit, it was suggested that adequate financial support should be provided (suggesting a view that this should be provided from public funds);
  • It was important to preserve student choice in the event of market exit, particularly for students with protected characteristics including, for example, students with disabilities or caring responsibilities.

And there was feedback too on the sort of things you see generally in SPPs:

  • Major practical difficulties with teach out arrangements;
  • Some respondents said that students may not want to transfer;
  • Some took the view that it is not within any provider’s power to “ensure” that its students are able to transfer to another provider;

And in another “yeah well there’s the crux” moment, a para on P54 notes that “refunds and compensation particularly in relation to how providers would be able to fund these measures while going through a market exit” might be a problem. Do you think?

The response on all of those is a classic of the genre:

While not all suggestions provided would be possible for the OfS to implement based on our legal powers, we consider these comments to be valuable feedback about the challenges and practicalities of implementing student protection measures. This will be helpful in shaping future thinking on implementing student protection directions, although noting that any such direction would be determined on a case-by-case basis.

28,000 words later, and you are left with the feeling that OfS’ strenuous efforts to justify its approach every time something like this is published are looking more and more like trying to defend the indefensibly complex and opaque. So naturally I turn to Twitter and realise that even my efforts at getting a summary of the problem here down to manageable chunk of text are nothing in comparison to wise colleagues in the sector. I give you Push/EPC’s Johnny Rich:

He’s right, of course. But is it really going to take another big provider to collapse for ministers to realise it and act accordingly?

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