John Lewis University

With all the changes in university funding, and Deputy PM Nick Clegg’s call this week for a John Lewis economy, is it time for a John Lewis University?

The John Lewis Partnership operates a UK-wide chain of upmarket John Lewis department stores and Waitrose grocery supermarkets. It’s unusual in that the business is owned by its 76,000+ employees, and also unusual in that it seems to be thriving in these very tough economic conditions.

As regular, long-standing readers will know (hello, and how are you both?), I’ve taken an interest in new providers of UK higher education – notably BPP and New College of the Humanities.

In that light, a partnership model for a new university seems very interesting indeed. But I can see some very formidable barriers in the way.

great mosque of damascus 709-15 AD, syria, easter 2004

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Commentary on New College of the Humanities

Something of a rocky debut for the New College of the Humanities (NCH @NewCollegeH), then – it seems that my instant reaction was mild by comparison to many others.

I’ve some points of accuracy to make, in an attempt to clear up a few things. And then I’d like to quote one commentator in particular at some length, because the quotes sum up much of my own view.

Mr. Grumpy Potato
This photo, (CC) BY-SA banger1977 on Flickr, is intended to illustrate a relevant facial expression in a lighthearted way and must not be interpreted as a suggestion that any of the people involved resemble a potato in any other way.

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New College of the Humanities

Well, it certainly is interesting times in UK Higher Education provision.

Today’s news is the emergence of a New College of the Humanities, with a professoriate of (15) academic stars, led by Professor AC Grayling, who will become its first Master when it opens to students in 2012:

A new British college aiming to rival Oxford and Cambridge has been launched by leading academics. [BBC]

They are aiming high – with fees of £18,000 a year, three times the ‘normal’ rate of £6,000. They are, of course, a private, for-profit company, with significant investment behind them. The inspiration is unabashedly from US elite liberal arts institutions. It’s going to be small and selective: they’re looking for three As at A level … and people who can spare £54k plus living expenses.

This appears to be yet another instalment of less than perfect policy coherence in UK academia. Hot on the heels of the Prime Minister very publicly blocking the Minister’s floating of the possibility of paying for ‘off quota’ places … a new venture emerges where you can do just that.  So you can’t buy a place at university … unless you’re able to pay twice the maximum cap on fee loans. I can’t see how this can possibly do anything other than reduce social mobility.

Sorry... Got to go now!

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The Sinister Sausage Machine

There’s a longstanding argument – currently very live in the UK – about whether higher education is or is not a market, or should or should not be.

If it is one at all, it’s not a straightforward market by a long chalk, no matter how hard you might try (if, for example, you are a Government trying to make it in to a market).

In a market, you have sellers, products, and buyers. But in HE these are all unclear.

In fact, I think, the confusion between all these, implicit in the market view of higher education, makes a university look like nothing less than a Sinister Sausage Machine.

Summer = Grill = Hotdogs!
photo (CC) Mike Johnson -

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There is no bubble in UK Higher Education

There’s increasing concern that there is a higher education bubble.

Is there a higher education bubble in the UK?

This is an easy question, with an easy answer: No. There is no higher education bubble in the UK.

(Whether there is one in the US is a very different and much harder question, to which I may return later.)

Free Baby Blowing an Enormous Bubble Creative Commons

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Willetts wants the private HE sector

David Willetts, the Minister for Universities and Science, has just given a speech to the Universities UK Spring Conference. (UUK claims to be the representative organisation for universities in the UK.) It seems that this is as much clarity as we’ll get in the short term on the direction of HE policy, since he announced:

[W]e have decided to take more time on developing the White Paper – in part to test proposals more thoroughly among the sector, students and other experts; in part to learn from how price setting works this Spring.

I’ve not time to analyse it in depth, and there’s some real detail in the first part of the speech that will have some substantial implications.

There’s some substantial stuff in the long-term vision too.

There’s very clear and unequivocal setting out of an increased role for new providers of HE – what I’ve been calling the coming of the private HE sector). It is increasingly clear, if anyone ever seriously doubted it, that this Government is committed to having an increased role for new providers of higher education, and is doing whatever it can to make it happen.

The shift in funding from teaching grant to fees is explicitly intended to make this easier – and:

We will also allow alternative providers to access the generous system of student loans and grants, so their students will also be able to benefit from not having to pay upfront fees.

I look forward to new liberal arts colleges or specialist institutions. And the global higher education providers that operate in many countries from India to Spain to the USA need to know that we will be removing the barriers that stop them operating as universities here as part of our system – provided, of course, that they meet high standards which are a key feature of our higher education system.

There’s also a commitment to disaggregate accreditation/degree-awarding powers and teaching:

Another barrier to open access and contestability is the automatic link between degree awarding powers and teaching. Over the past 50 years, we have created a regulatory system which says that teaching students and awarding degrees must be done by the same institution. And that is certainly one way of doing it, as represented by the institutions in this room. But it is not the only way. Quality standards have to focus on quality alone. They must not protect one way of delivering higher education at the expense of others.

The OER world has long predicted this sort of change. You could describe this as an institution-driven pressure from outside the sector. There’s been some grassroots/bottom-up action here too, with teaching-and-learning activities decoupled from accreditation – think of MOOCs, P2PU, and so on. And now we have a Government producing top-down pressure. Institutions in the middle may well find themselves somewhat squeezed.

I certainly don’t agree with David Willetts on many things (or indeed most), but you can’t reasonably accuse him of not being on top of his brief and the history of the sector. He draws parallels with the HE system from 1850-1950, when the University of London awarded degrees for a wide range of teaching institutions. He also mentioned Matthew Arnold’s Dover Beach, which is an extraordinary bit of C19th melancholia to reference in a speech setting out plans for the future – ‘eternal note of sadness’ and ‘the turbid ebb and flow / Of human misery’ leap out, as does the conclusion:

[…] for the world, which seems
To lie before us like a land of dreams,
So various, so beautiful, so new,
Hath really neither joy, nor love, nor light,
Nor certitude, nor peace, nor help for pain;
And we are here as on a darkling plain
Swept with confused alarms of struggle and flight,
Where ignorant armies clash by night.

Admittedly he was raising it in order to deny it, saying that Universities are not being left alone in this way. But I know many in the UK HE sector – and indeed many others in Britain – are feeling very much that way, and I’m mildly surprised that Her Britannic Majesty’s Minister of State for Universities and Science chose to cite this at this moment in time.

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Apollo Group results – BPP and University of Phoenix

The Apollo Group – parent company of both the University of Phoenix and BPP (the first for-profit private University College in the UK) – reported its results a couple of months ago. It’s an interesting read, and they certainly seem to have a strong grasp of their situation.

I’m not going to look closely at the academic side of the University of Phoenix part of the business, because Tony Bates has done a comprehensive job of assessing their results from their Annual Academic Report. He gives them an A+ compared to the rest of the system for ‘meeting a real need, in terms of the market it serves’; a B- for quality assurance, “could improve on this a great deal, but then this is a challenge for the whole post-secondary system”; and a D for its graduation rate:

It should be finding a way to get more students graduated, especially given the high level of fees that UofPx’s students are paying, and the financial aid students are getting through Federal grants. On this I would give UofPx a D grade. (But then I would give more or less the same to public institutions on this measure).

He also notes that they make money “by the bucket: $1.04 billion profit in 2009 (before tax), which is more than the total operating budget of most research universities”. They do indeed make a lot of money, and in the rest of this post I’m going to dig in to some of the figures for the University of Phoenix and – closer to home – BPP.

(cc) mikebaird on Flickr

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On the costs of HE

As I mentioned in my last post, the Government has just created first for-profit university college in the UK. But is this a runner as a business model?

It might seem an odd question to even ask: surely BPP wouldn’t be doing it if they couldn’t make money? But my experience in the dot-com bubble suggests it’s worth a quick look. Back then, it seemed to me that there were an awful lot of businesses being set up that couldn’t possibly make money. At the time I thought that they obviously knew better than me, since they were serious business people with real, serious quantities of money at stake. Shortly after, of course, it became clear that they didn’t know any better, and it was then obvious to everyone that an awful lot of companies had been set up that couldn’t possibly make money.

This all comes with a big health warning: I’m not an economist, this is not my main area of expertise, it’s done in terrible haste in broad-brush oversimplifying terms.

(And, I should add, even when I can get such sums correct, my business acumen is not perfect. Last week  someone (jokingly) suggested I set up as a Bicycling Barista, bringing rapid-delivery top-quality espresso to the local community using sustainable transport: phone me up, get me round to your door in minutes with my portable espresso maker to make you a perfect cup. I did some quick sums and proved to myself that it couldn’t possibly make money. Other food delivery services need an order of least £10-£20 to make it worth turning up at your door. People will pay about £1.50 for a cup of espresso. Even if they’ll pay double for at-the-door service, and I also sold cakes at high markups, it’s not a goer as a business. Two days after thus satisfying myself that it couldn’t work, I met a guy who has a Transit van with a full espresso machine in the back, who’s making a living that way. His model is different: he goes to busy places – including events – parks up, opens the back door, sticks up a sign, and sells the full range of espresso-based coffees to lots of people in one go.)

Ok. Caveats aside, how much does a degree cost at retail?

Well, current UK tuition fees are capped at £3,290 per year, which is just short of £10,000 for a three-year degree. That’s a lower bound for the cost.

But – as is widely reported – that is a huge underestimate. This gap is met mostly from the funding bodies (HEFCE, HEFCW, SHEFC and DELNI) grants, but many universities are operating at an annual deficit, some serious, and there is considerable pressure to raise the tuition fees cap, perhaps substantially. HESA finance statistics for the whole sector give a breakdown of income as 34.8% grants, 28.7% fees, 16.3% research, 19% other, and 1.4% endowments and investments. (I’ve no idea what the ‘other’ income is and whether it contributes to the cost of students – it pretty significant.) This suggests that grants are worth about 20% more than fees, which is about another £4,000 per year, giving a grand total of £7,300 per year or £22,000 for a three-year degree.

Fees for foreign students are not capped, and they pay significantly higher fees – to take one example, the University of York charges Overseas students £11,300 or £14,850 a year. That works out at about £34,000 to £45,000 for a three-year degree. This is probably an upper bound: famously, foreign students provide a significant subsidy to UK students.

What about different models, like the OU?

Our students study part time, at a distance, with a hybrid/blended tuition model – some modules have face to face tutorials and print materials, some are entirely online, and we’re moving in the online direction. Our costs are quite different to traditional universities: we don’t have to maintain the campuses and student facilities that other universities do, and we work on an at-scale basis for most of our courses: they cost a lot to produce, but we defray that cost over many students – up to tens of thousands on one course. Most students study part time while employed, or with significant care responsibilities (children, others), and take at least six years to complete a degree.

So what does the OU cost?

The OU’s What can you expect to pay? page reckons the fees are about £4,560 for a UK student for a BSc(Hons) in Psychology, based on 2008 prices – rounded up to £4,600 that’s still considerably cheaper to the customer than £10,000 for a traditional university.  But, of course, that’s only the tuition fees.

The OU’s financial statement for the year to 31 July 2009 gives headline income figures of £233.7m from funding bodies and £141.6m from tuition fees , giving a total of £375m. (Lumping tuition fees paid by employers – including many public sector employers like the NHS and Social Services Depts – and entirely ignoring research, investment/endowment and other income, a total of about £45m.) . We taught 251,639 students that year, or 78,110 full-time equivalents (FTEs). That gives £4,800 in total per FTE year, made up of £1800 in tuition fees and £3,000 from funding bodies. We made a modest surplus of £9.6m, the equivalent of £100 per FTE per year.  Multiplying by 3 to give an entire degree cost gives us £14,400 in total, made up of £5,400 in fees and £9,000 from the state.

(Note that this is an average over all of the OU’s provision, which includes significant postgraduate provision, and a small number of non-UK students who pay premium rates.)

So, to sum up, the current cost of a whole three-year undergraduate degree is probably somewhere between £22,000 and £45,000 at a conventional university, or around £14,400 at the OU. Students pay £10,000 of that themselves at a conventional university, or £4,600 to £5,400 at the OU.

What’s the private sector doing?

Well, the University of Buckingham charges £17,880 in fees for a 9-term two-year undergraduate degree starting in September 2010, or £29,520 for international students. That’s below the cost of conventional universities, but above the OU, which makes sense: one would expect that they might work out cheaper to provide than the conventional sector, particularly with the two-year model. It’s still in business after nearly 40 years, so it isn’t hopelessly unsustainable, although according to HESA it did have a 2.5% deficit in 2008/9 (income £12.0m, expenditure £12.3m, deficit £300k).

What about BPP?

It’s currently charging £9,675 to UK students for a BSc Business Management or BSc Professional Accounting. It charges £19,500 for international students.

That’s considerably less than Buckingham, substantially lower than conventional universities  – like about half the cost, and lower even than the OU. They have cherry-picked, of course, which is presumably how they manage it. And they have no research to subsidise. Interestingly, they offer fully flexible tuition modes: students can study face to face or online, synchronous or asynchronous – with the students choosing.  My guess is that with careful choice of subjects, and building from scratch for price, this is doable. Especially if they can keep the proportion of international students high.

Back of an envelope conclusion: it’s a potential goer. It’s a great time to start such a business: public sector under huge pressure, HE is traditionally a safe haven in economically straitened times, and there’s as friendly a Government as one could hope for. And a recession is famously a good time to start a business.

Only question is whether people will turn up and pay. I suspect they will, in considerable numbers – something like 170,000 people will want a university place this Autumn and won’t get one, and that shortfall will increase over time. Obviously not all of them will be willing or able to pay these levels of fees, but many will, and a lot of money will be made.

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Here comes the private HE sector?

Potentially huge news this morning: the Government has granted a private sector enterprise – BPP – the right to call itself a university college, as the BBC reports:

The UK’s first new private sector university college for more than 30 years is being announced by the universities minister.

David Willetts will allow London-based BPP, which has 14 regional branches, to become a university college.

The new college, which offers law and business degrees, wants to expand into health and teaching degrees.

BPP College of Professional Studies was granted degree-awarding powers in 2007. It was owned by BPP Holdings plc, which was acquired by Apollo Global, Inc in July 2009 for $607m. Apollo Global is part of the same group that owns the University of Phoenix – the largest and possibly the most controversial private for-profit university in the USA.

I think this is even more significant than the press is making out. “First new private sector university college for more than 30 years” is true, but misleading. So far as I know, this is the first time ever in the UK that a private, for-profit company has been given the title of university college. And few will doubt that the full ‘university’ title will follow.

The only other private university in the UK is the University of Buckingham, founded 30 years ago. You could also count the College of Law, which doesn’t get direct state subsidy and now has its own degree-awarding powers. It’s worth noting that the University of Buckingham and the College of Law are both not-for-profit charities, not companies. Buckingham is has a Royal Charter and Statutes and everything, it just doesn’t get any money (directly) from the Government.

As you’d imagine, this development is not wholly welcome. The BBC quotes Sally Hunt, General Secretary of UCU, the university teachers’ union:

“Today’s news could mark the beginning of a slippery slope for academic provision in this country,” she said.

“Encouraging the growth of private providers and making it easier for them to call themselves universities would be a disaster for the UK’s academic reputation. It would also represent a huge threat to academic freedom and standards.”

“Private providers are not accountable to the public and do not deserve to be put in the same league as our universities”

I suspect that whether you want them or not, there will be a substantial expansion of private provision of higher education in the UK. The public sector is facing huge, huge cuts across the board, and HE is emphatically included. This is on top of a long-running funding crisis, with many universities in perilous financial straits already. The capacity to supply degrees is clearly going to fall far short of the demand this Autumn. It’d be very, very surprising if this new Government were not to welcome any offer from the private sector to fill the gap with open arms. One might hope that the whole situation will not get anywhere near as bloody as that artlessly mixed metaphor might suggest.

In my next post, I’m going to do some back-of-the-envelope sums on whether providing HE is a runner as a business model.