Risk of university failures demands 'insurance' scheme – Commission

Students attending universities at greater risk of institutional failure in the post-White Paper higher education market in the United Kingdom need an insurance scheme to protect them from the consequences, the Higher Education Commission said last week.

In a report on the inadequacy of the current regulatory framework in England, the commission, an independent body drawn from the higher education sector and the three main political parties, warned that lack of legislation to enhance regulation of higher education in England “is putting students at risk from failing universities and threatening the UK’s global reputation for higher education excellence”.

It called for legislation – or at least manifesto commitments for the UK’s 2015 general election – to create a "lead" regulator, which it envisages will be a council for higher education, incorporating the Higher Education Funding Council for England (HEFCE), the Office for Fair Access, the Office for Student Loans, and a new, lightly staffed Office for Competition and Institutional Diversity.

Each would retain its individual structure and purpose while other existing regulatory bodies, including the Quality Assurance Agency and the Office for the Independent Adjudicator, would be linked but independent.

At present, unlike publicly-funded universities, private providers are not required to undergo full institutional review by the QAA (except for the small number with degree awarding powers) or to subscribe to the Office of the Independent Adjudicator.

The report, entitled Regulating Higher Education is the product of an eight-month inquiry chaired by Lord Norton of Louth, Professor of Government at the University of Hull, and Professor Roger King, former vice-chancellor of the University of Lincoln.

The report warns that without appropriate regulation of the entire sector from small private providers to large, traditional universities, there is a real risk of institutional failures in the newly competitive environment that has been created by the 2012 White Paper and significantly higher tuition fees.

It draws on a study by the Department for Business, Innovation and Skills that found a total of 674 privately funded institutions with 160,000 students outside the current HEFCE framework.

While individually they pose no threat – 49.1% have fewer than 100 students – collectively they represent a significant proportion of the student population, the commission said.

The commission said that these institutions should be brought within its proposed regulatory framework.

And it warned that the likelihood of institutional failure had increased as the new funding regime ushered in a more competitive environment.

Institutional failures would have a huge impact, the commission said.

“Students would have to move universities, transfer loans and change accommodation – a significant upheaval that would mar their impression of UK higher education – whether they are domestic or international students.”

It recommends the formation of a ‘protection’ or ‘insurance’ scheme, coordinated by the lead regulator, paid into by all providers, to insulate institutions against possible future financial difficulties or failure.

One model it suggests should be explored further is analogous to the UK travel industry’s ATOL scheme, under which agents pay a passenger levy which is then drawn on in the event of a failure. But some traditional universities complained this would place an unfair burden on them – the least likely to fail – and that they would be forced to pay to help newer “more dubious” providers.

An alternative would be an insurance scheme based on individual universities.

The commission recognises the action taken by HEFCE to coordinate the response to the crisis at London Metropolitan University when it was stripped of its ability to recruit non-EU students – a function it has since regained.

But it expressed doubt over HEFCE’s ability to manage a similar situation in future.

Lord Norton said: “Regulation is fundamental to the health and success of our HE sector and will make or break the effectiveness of the institutions that have made the UK a world leader in higher education.

“In the context of current reforms, the absence of legislation to provide a coherent regulatory architecture for the rapidly changing and increasingly dynamic sector is creating major headaches for its players.

“It is a situation crying out for urgent rectification by government, a refrain that was a constant throughout the course of the inquiry from those who gave evidence.”

Professor Les Ebdon, Director of Fair Access to Higher Education, said fair access was too important to be rolled up within the wider concerns of a multi-focused regulatory body.

“An independent director, with a sole focus on access, can challenge institutions to set themselves stretching, widening participation targets and ensure that fair access remains high on the agenda, both for institutions and policymakers.”