Nine months before it collapsed, GSM London, a for-profit higher education college in the UK capital, applied to be added to a little-known government list.
The Office for Students (OFS), which became the UK higher education regulator in 2018, requires universities and colleges to be on its register in order for their new students to be eligible for government loans from this academic year, which starts next month.
When it went into administration last month, GSM, which offered bachelors’ and masters’ degrees validated by the University of Plymouth, had not been included on the database, raising the question of how prospective students would have paid their fees, even if the private equity-owned business had remained open.
The OFS register is part of tighter regulation of higher education, which aims to exercise greater control over a sector that has been transformed during the past decade by market-based reforms that opened it to alternative, or for-profit, providers.
As part of its stricter approach at a time when many universities face financial pressure, the OFS is demonstrating that it will allow institutions to fail. Last year Michael Barber, the OFS chair, said the body would not “bail out” struggling institutions.
In recent months, the regulator has declined to add three smaller providers to its register, and it informed 20 it was “minded to refuse” their applications. This would put their financing in jeopardy because students could not apply for government loans to fund their fees.
Many of the new for-profit providers have recruited students from disadvantaged backgrounds who depend on student loans to pursue higher education.
The OFS, which did not comment on GSM, declined to name institutions whose applications were pending. “The Higher Education and Research Act sets out provisions for providers to make representations before we finalise our decision,” it said. “We always consider any such representations carefully and so don’t publish the names of providers who we are minded to refuse.”
The regulator, which has approved 382 providers, assesses applications across 24 different categories, including quality of provision and consumer protection. The Bloomsbury Institute, which focuses on business, law and accountancy and is run for profit, was turned down in July because of concerns over student continuation rates, and job outcomes.
“We are disappointed with this decision and believe that the OFS has failed to fully appreciate the challenges some of our students face,” a spokesperson for the institute said, adding that it plans to reapply next year. Existing students will continue to have access to tuition fee loans until their courses end.
The regulatory clampdown can be traced back to tuition fee reforms, announced in 2010, which triggered mass protests for trebling the cost of tuition at traditional universities. The new approach also allowed alternative, for-profit providers, such as GSM London, access to government loans of up to £6,000 a year for each student.
Both moves aimed to increase competition and choice across a higher education sector which was increasingly reliant on tuition fees, as direct government grants fell. The changes also led to a rush of commercial interest, eager to tap in to cash from government loans.
GSM was bought by Sovereign Capital, a private equity firm, in April 2011. One of Sovereign Capital’s founders, John Nash, was in 2013 made a Conservative peer and schools minister, at which time he resigned from his role at Sovereign.
Lord Nash could not be reached for comment. Sovereign Capital declined to comment.
In 2012, Montagu, another private equity group, bought the College of Law, one of the largest law schools in the UK, which was renamed the University of Law. Three years later Montagu sold it on to Global University Systems, a Netherlands-based company.
In the years following the tuition fee reforms, alternative providers received hundreds of millions of pounds via loans allocated to individual students, which they would repay. According to a report in 2017 by the National Audit Office, parliament’s spending watchdog, £417m was paid to 34,000 full-time students across those providers in the academic year ending in 2016. GSM received more than £150m from 2011, according to data from the Student Loans Company.
The NAO report also reflected political unease over the alternative sector and its access to government funding. “Since 2011, the expansion of the alternative provider sector has led to concerns about whether the current regulatory arrangements are fit for purpose,” it said. It added that the OFS would take a “risk-based approach to regulation”, focusing on providers that “represent most risk to student interest and value to the taxpayer”.
St Patrick’s College, which is also owned by Global University Systems, has not yet been approved by the OFS. The college had its powers to grant visas suspended in 2015, after a controversy over teaching quality and admissions. According to data published on Unistats, part of the OFS, 80 per cent of students on business studies courses left before completing their course.
St Patrick’s did not respond to a request for comment.
Despite GSM’s failure, the government has not abandoned its push for a more commercial approach to education, an angle highlighted in the Augar Review, a major assessment of UK higher education published in May. The review, however, said market competition had not evolved in the way intended, arguing there was “extremely limited competition on price but intense competition for students”.
The need for closer regulation has arisen because of the move away from more direct government involvement; universities now rely more heavily on fees from their customers, rather than direct grants from the state, which were monitored by a different body.
Concerns about this transition linger. “When it comes to regulation, the suggested dynamism and creativity of the private sector is hard to balance against the financial and governance standards of traditional universities,” said Mark Leach, chief executive of Wonkhe, a higher education think-tank.
