Private universities and branch campuses ‘technically insolvent’

Many of Malaysia’s private universities, including foreign branch campuses, are facing financial and managerial problems and more than half will experience financial distress as a result of recent changes to the national student loans scheme, according to a new report.

In a bleak assessment of the outlook for the private higher education sector, the report by the Penang Institute says the performance of private universities lags behind public institution and many are struggling to maintain educational standards amid a deteriorating financial situation.

It says up to three quarters of foreign branch campuses and 70% of other private institutions could be affected in the coming year. The report notes that 35% of all private universities were “running on negative reserves, meaning that their total debts exceeded their total assets”.

“This means that they are technically insolvent,” it says. "The causes may be due to poor management from the top and tight financial conditions which are taking their toll on the quality of education in Malaysian private universities, leading to high graduate unemployment and poor international rankings.”

More than half of the eight foreign branch campuses failed to make a profit in the period covered by the institute’s analysis, which is based on company reports and a study of Ministry of Education data for 2013 – the latest available.

The report covers 41 private universities, eight foreign branch campuses and 27 tertiary colleges. About 28 of the local private universities and colleges were registering losses year on year, according to data drawn from the Companies Commission of Malaysia.

The institute cited the case of the Allianze University College of Medical Sciences which was forced to cease operations last year because of funding problems. The closure affected 2,000 students and 500 staff.

Lagging behind public universities

The analysis shows that private institutions are lagging behind public institutions on major indicators of quality and it reflects national concerns for almost a decade about standards in private universities. This followed their speedy growth from the early 2000s when Malaysia had just a handful of private universities.

Graduates of the burgeoning private sector are more likely to be unemployed: Ministry of Education data quoted in the report show that 27% of private university graduates were unemployed six months after graduation compared with 24% of those from public universities. Other statistics reveal that only 13% of academics teaching in the private sector hold a PhD compared with a third in public universities.

Only half of private universities received an ‘excellent’ rating in a quality rating exercise conducted by the ministry between March and July 2013, compared with 81% of public universities. One in six private institutes were rated ‘good’ on the six-level scale, and a third of institutions had no rating.

A number of branch campuses of foreign universities, such as Curtin University Sarawak, Monash University Malaysia and Swinburne University of Technology Sarawak Campus, are offshoots of Australian universities and they, along with the University of Nottingham Malaysia Campus, a branch of the UK institution, received ‘excellent’ ratings.

Private universities were also less likely to appear in international rankings with only five institutions appearing in the QS-Asia rankings, the report says.

Student loan game-changer

Of major concern are changes made last November to publicly funded student loans known by the Malay initials PTPTN. The changes could cause even greater financial distress to institutions that are not on a sound financial footing, the institute report states.

Late last year, the education ministry cut the level of student loans by 5% for public universities and 15% for private universities, while leaving loans for medical courses unchanged.

The institute report says the new loan rules could force an estimated 69% of local private universities to the “brink of financial ruin in the coming year”. Around 76% of university colleges and three quarters of foreign branch campuses will face the same squeeze on their finances, it says.

Mergers and shared services

Penang Institute’s general manager, Dr Ong Kian Ming, a member of parliament for the opposition Democratic Action Party, or DAP, said “merging institutions, to consolidate the universities by areas of expertise” could help them survive.

“Shared services models in which management functions are provided jointly across institutions or are outsourced to specialist providers are also a way of controlling costs and improving quality for newer universities,” Ong said.

Iskandar EduCity project in Johor was an example of such a model where shared common facilities were financed jointly by several universities, including a number of foreign branch campuses, he said, adding that the institute’s findings would have “serious implications” for the sustainability of the private higher education sector.

Some 120,000 students were currently enrolled in the private universities facing financial stress and this could rise to 215,000 students, or 45% of total private sector enrolments because of the funding changes, Ong said.