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What happens when a provider has to close?

The closure of GSM London is bad news for students, but - for Jim Dickinson - it prompts wider questions about oversight, regulation, and student protection.
This article is more than 4 years old

Jim is an Associate Editor at Wonkhe

So GSM London, the private higher education provider formerly known as the Greenwich School of Management, has gone into administration.

Teaching at its campuses in Greenwich and Greenford will cease in September – because it has been unable to “recruit and retain sufficient numbers of students to generate enough revenue to be sustainable”.

There’s some history here. GSM was a major expander in the early part of the decade when student number controls came off. In 2015 the Quality Assurance Agency upheld a complaint launched into its “concerns” scheme about the “promotion and operation” of a business management course. And a Panorama investigation in 2017 had footage of conversations with a GSM recruiter paid £600 for each student he brought in (with the offer of a local essay mill to do the work to boot). This thread on The Student Room paints an interesting picture, and glance at some of its courses on unistats suggests a clash between its commitment to widen participation and some of its outcomes – the sort of clash that OfS has been imposing regulatory conditions (or refusals) on throughout the year.

Thomas Hale over at the Financial Times has some of the interesting financial details – it’s had capital injections of some £22m since the end of 2016, but having failed to recruit sufficient students its board resolved in the spring to put it up for sale. GSM’s statement says that that “was not possible to achieve” and so it became necessary became “to seek the protection afforded by a formal insolvency procedure”.

Protect me

It’s protection that we’re interested in here – not least because GSM had £152m of public money in the six years to 2017-2018 – as of last year, 4,587 students were enrolled with government loans. As has been pointed out elsewhere, GSM only narrowly avoided collapse last year because its private equity owner waived £26 million of debt. It had applied for OfS registration by then, and OfS may well have been giving it feedback about its £10 million deficit. The obvious question is therefore why DfE gave a green light to the turnaround plan in its accounts, protecting it temporarily from administration via access to student loan funding, but leaving students exposed as a result.

Because it never appeared on the OfS register, the provisions of what would have been a mandatory Student Protection Plan can’t formally kick in. But what if one of the reasons that it was struggling to recruit students was delays to OfS registration preventing student loans applications – and what if the failure to agree a sale was based on an initial response of “minded to refuse” from OfS? We may never know now, but it would be ironic if the DfE ignored financial red lights to keep GSM going, only for its new “student interest” regulator to, in effect, kill it off.

In any event, there’s not even a draft copy of what would have been their Student Protection Plan on the website. Its statement does say that discussions are “already underway with other higher education providers to identify options”, and that it will now “implement a protection plan for all students… focused on minimising any disruption to students’ studies”. OfS and DfE are echoing that broad commitment – but there’s nothing anywhere that the affected students might be able to refer to, or indeed rely on.

The South West

GSM’s degrees were validated via a partnership with the University of Plymouth, so one of the things we’ve done is take a look at Plymouth’s SPP. It’s never been particularly clear whose SPP we should be looking at in relation to franchising and validation, but our assumption has always been that in the end it’s the university partner that’s responsible in a franchise situation and the provider itself in a validation scenario.

It’s therefore fascinating that there is in fact quite a bit of detail in the (OfS approved) Plymouth SPP on validation partners. Firstly, it makes clear that the university “undertakes risk assessments on each of its partners and regularly reviews them”, and that there are processes to “escalate risks through the university’s governance structures to ensure that interventions to mitigate them takes place”. Given the state of GSM’s accounts when they finally appeared late last year, it would be fascinating to find out how that risk assessment changed at Plymouth, and the nature of the mitigation interventions that then should have kicked in.

If Plymouth was getting worried by the risks posed in the accounts, it wasn’t letting on on its website. A now removed webpage on the partnership was excited that GSM had “received a national award for the way they have invested in their infrastructure” and was keen to push that former Leicester Vice Chancellor Bob Burgess was to be its new Chair of the Board.

The blurb continued: “By any measure, it’s been quite a story for GSM London over the past couple of years” (you can say that again). “One of the misconceptions of private providers is that they are something of a soft touch when it comes to regulation … maybe that was true in the past, but it certainly isn’t now”.

It went on: “We can be genuinely very proud of our partnership with GSM London…they have been on a remarkable journey”. It’s the sort of thing that would give students confidence when behind the scenes Plymouth could well have been losing it.

Plymouth’s SPP does have some details on protection for students where a partner institution is not registered with the OfS. First, the “principles of the university’s student protection plan will apply”, where it commits to “work with the partner institution and students affected to develop the most effective solution”. In the case of franchise or contracted out provision that includes an option to “relocate study to the University of Plymouth” to complete, but lovely as Plymouth is, I have a feeling that the sort of students GSM was recruiting might consider moving to the South West a bit of a barrier. That relocation option, by the way, comes “without compensation for travelling or other disruption expenses or a refund in fees”. That would look like pretty thin “protection” even if applied here – but given this is a validation agreement, not even that wafer thin commitment kicks in officially.

The Plymouth plan does say that in the event that students are unable to continue studies its “Refund and Compensation Policy” will apply. We can’t find that policy on Plymouth’s website, but we’re doubting that it will cover what is a legal relationship between students and GSM London.

Maybe a local student interests organisation could help – after all, that now deleted Plymouth post says that GSM has a “a vibrant students’ union”. It’s not immediately clear how “vibrant” an SU can be on an income (according to their accounts) of £15,136 over 18 months, but I’m guessing the SU won’t be able to fund detailed legal support. Neither its website, Facebook or Twitter seem to have clocked the collapse – and so far NUS has been quiet too.

When all said and done

Back when both DfE and OfS were trumpeting “no bailouts”, there were plenty in the sector arguing about the moral hazard of operating a market in higher education where a provider might be allowed to fail. This is an interesting case, because given the history of GSM and its “for profit” status there are probably few in the mainstream sector that will bemoan its collapse.

But there are real victims here. DfE’s nodding through of student loan cash in questionable circumstances, the “off register” status of the provider and both the validation (both morally and technically) of GSM from Plymouth all will have given staff and students at GSM false confidence about what was looking late last year like a failing institution. Despite the commitments from OfS, DfE, Plymouth and GSM itself to look for alternatives around London, some students will rightly want compensation.

If its non-appearance to date on the register was about finances or outcomes, arguably OfS has been doing the right thing – it’s a case study in regulation working to protect future students. My colleague DK wrote recently on the site about the fruitless hunt for Britain’s worst higher education courses – but maybe we’ve found them – the worst ones being the ones that students can’t complete because the provider’s about to go up the swanny.

It’s the present students we need to worry about. If DfE was happy to facilitate student loan cash that creditors will now be in the queue for, shouldn’t it be dipping into its pocket to compensate the students at the very end of that queue? In fact, out of courtesy, can we think of any reason why it wouldn’t just wipe the student debt now hanging around the necks of those affected?

7 responses to “What happens when a provider has to close?

  1. Even though the available evidence is slim, from my own experience with validation contracts and negotiations, the failsafe I saw in documents worked on with previous employers saw students taken on by the awarding University – be that a franchise or validation. I would be very surprised if this approach wasn’t taken by Plymouth in this situation. I can understand why that sort of detail wouldn’t be publicly available as it would lie within the contract between the university and the AP.

    At the AUA Annual Conference this year, there was an excellent case study by Open University from the perspective of the validation provider. They did a fantastic job when faced with a similar situation (albeit not at the scale of GSM) and their key concern was clearly ensuring those students are able to continue their studies with Open University. I’ve been a critic of validation agreements for quite some time, but their approach changed my mind on quite a few things.

    Hopefully, Plymouth are taking the same position and taking their duty of care towards the GSM students as seriously as Open University did.

  2. Trouble is, as I argue in the piece, the sorts of students GSM are recruiting are very unlikely to be the sorts prepared to make a move to Plymouth – especially if relocation/travel costs are not on offer.

  3. The space to watch here will be FE providers delivering HE programmes (and reliant on this income) that are not being put on the OfS register in time. We may see a collapse in FE delivered HE or worse FE colleges suffering financial hardships as they can’t recruit students, all down to the processes of the OfS

  4. Excellent and informative article.

    The (Conservative) government, like the Coalition and New Labour before them, wants to use the apparent teaching efficiency of the ‘private sector’ to drive costs down based on market factors. “Why pay for expensive student facilities, half empty estates most of the year, inflated public sector salaries, and professors/lecturers doing unfunded research, when most students don’t benefit?” goes the argument.

    Yet the GSM example shows that it is likely the costing framework for the sector as a whole (including both the likes of the OfS and the validating university/DAP) hopelessly underestimates the full economic cost of both initial and regularised quality assurance (QA) and risk management (RM). My rule of thumb from the past at institutional level was to always include at least 20% of the total cost for directy QA and at least 10% for risk management – including monitoring of accounts/financial environment/media output and reputational risk etc, and of course getting in a supply of tin hats for those professional administrators carrying out the risk assessment who have to advise senior institutional managers that perhaps a particularly institution might not be as stable as they make out … I think this is a significant underestimate in the post-2008 crash world. Institutions will also pay more for the cost of government regulation in the form of mandatory taxes, aka ‘subscriptions’.

    When you put in the real costs, the private sector, with possibly a few mainly philanthropic/charitable or focussed specialist exceptions like performing arts, are unlikely to ever be a lower overall cost to the system especially in the ‘pile ’em high and sell ’em cheap’ areas like business subjects. They may have lower unit costs of delivery but ought to be assumed to have much higher unit QA and RM costs.

    FE Colleges are traditionally public sector based though this has been changing over the last decade and it’s no surprise that given also the government’s approach to market factors in lifelong and skills learning that they are increasingly at risk of going to the wall as well as the fly-by-night private equity brigade.

  5. Absolutley agree. If I remember correctly, the Open University example took that into account and tried to find a local solution, rather than shift everyone on to distance courses. A lot of effort was put in and I hope Plymouth do the same. It is possible, though.

  6. As a niggle point, Alternative Providers had student number controls put in place for the first time in 2014/15 and continued to have these in place until the advent of full OfS powers (01/08/2019).

  7. The scandal here is surely the not being put on the register in time, which in a competitive market that the ofs wants has given those dealt with first an unfair advantage. The ofs should be forced to say how big its backlog is and how many have been waiting for more than a year since application.

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