Universities Going Private: Should We Ask ‘If’ or ‘When’?

Will any of the ‘big player’ universities attempt to go private any time soon?

With the news that Pearson is introducing for-profit private HE, “the first time a FTSE 100 company has directly delivered a degree course”, I wondered what other changes might be on the horizon for current universities.

In 2010, the Telegraph reported that an unnamed source from the University of Cambridge had suggested the university may have to go private in order to compete better and raise enough funds.

Which way to go? (photo by Lori Greig)

Which way to go? (photo by Lori Greig)

Labour MP Barry Sheerman was also quoted, saying “I was told by Cambridge they may privatise themselves because they are so aggrieved by the cuts and by Lord Browne’s proposals”.

While the Telegraph piece went on to say that a Cambridge spokesman dismissed the idea of going private, they were also vague enough to explain that “The university has reached no official position on these matters”.

Add the fact that Cambridge also had “a funding gap of some £9,000 for each of its 12,000 undergraduates in 2010/11”, the new level of tuition fees isn’t going to bridge that gap. While fees may be higher for students, those fees are effectively a change to where the funding was already coming from. Some institutions may improve their income slightly depending on the fees they set, but in most cases there won’t be much extra cash flowing in.

Cambridge is one of the few UK universities that is graced with consistently large alumni donations. But that doesn’t mean the university can rely on that to make up for any shortfalls. Cambridge has other income streams too, but I’m sure it doesn’t wish to use these as a backstop either. That wouldn’t make sense. And no matter how strong the future appears, that won’t stop further considerations over the way the university is funded.

Oxford and Cambridge have just come under fire over special funding for their tutorial and interview process. Criticism like this hasn’t stopped the funding yet, but it puts further pressure on policy makers to remove the funding, and further pressure on Oxbridge to find alternatives.

Pearson’s move into degrees is of the for-profit type. Perhaps Cambridge, or another established university, would consider going private under a ‘not-for-profit’ banner.

When Universities UK reported on private provision of HE, it said “The for-profit/not-for-profit distinction is important, but even within the not-for-profit sector there is a wide range of provider”.

UUK go on to explain that many not-for-profit outfits tend to operate very commercially and are businesslike in their dealings, looking to make ‘profits’ of a kind. However:

“…their key motive is to promote public good. This is a key distinction between them and the private for-profit providers which, although they may be working in the same arena and providing a public good, do so in the expectation that they can earn surpluses which flow into the private hands of shareholders. An essential distinction therefore relates to the distribution and uses to which surpluses are put.” (2.8, p.14)

Current universities may not consider making a complete push to become for-profit entities, but what about not-for-profit possibilities? I wouldn’t rule it out.

The government’s HE White Paper goes as far as saying that not-for-profit providers would be able to apply for HEFCE grants in the same way as HE and FE institutions. (6.29, p.73) Is there enough scope for universities to change their outlook and manage a win-win?

My guess is that should any institution find a suitable way to go down this path, they would opt for not-for-profit billing.

However, a HEPI report on private providers questions whether the difference between for-profit and not-for-profit really matters. It first suggests that the distinction isn’t automatically necessary, because “the public interest lies in education of high quality being provided and consumer interests being protected – whatever the status of provider”.

HEPI does goes on to say that careful scrutiny would be required to ensure this quality and that impact can be assessed. It concludes:

“Care will also be needed in shaping a new and comprehensive regulatory framework.  If an equitable and broadly comparable regulatory framework is developed for all institutions in the sector, it may need some mechanisms for monitoring surpluses and alerting a regulator where the amount given to shareholders might be considered excessive.”

Distinctions probably do matter and are likely to do so for now, which is why not-for-profit seems most likely.

How viable is it for universities to smoothly transition into private entities? I’m sure other commentators may have a better view on these matters than I do. Whatever the case is, you can be sure that a lot of consideration has been going on for quite some time now.

While the Telegraph’s suggestion of Cambridge going private was ultimately dismissed by the university, it was clear that the situation was under continued assessment. In addition, Wendy Piatt of the Russell Group (which includes Cambridge in its membership) said that going private may be a necessity in the future. Reported in the same Telegraph piece, Piatt explained, “That would require a lot of consideration and we would hope not to have to go there, but we would certainly have to consider more radical options”.

As things stand now, those radical options may be looking sensible to some institutions. Not just Cambridge. Therefore, of universities going private, which is the most important question to ask: ‘if’ or ‘when’?