The extent and scope of private-sector participation in higher education is highly variable from country to country. But there are increasing signs that private capital is playing a bigger role in higher education worldwide and that it will continue to do so in the years ahead.
National governments are adopting private-sector-friendly policies as they look to shift the investment burden of expanding or improving domestic education systems to the corporate sector. As the Chronicle of Higher Education notes:
Among the many seismic shifts taking place in British higher education today, one of the most significant has been the government’s embrace of private and for-profit institutions. In a country with just a single private university, the Cameron government’s concerted efforts to create opportunities for private providers – combined with drastic cuts in the public system and imminent, large tuition increases – could profoundly change the nature and shape of higher education.
Included with the proposed higher education reforms currently on the table in the UK is a plan to shift roughly 6% of government-backed university spaces to the private sector.
At the same time, universities in many countries are on the hunt for new sources of capital in an environment of declining public funding and in the face of increasing competition in both domestic and international markets.
A newly released report from global consulting group Bain & Company paints a stark picture of the challenges facing US institutions:
University debt is increasing annually at 12 percent per year and nearly two and a half times the rate of instruction-related expenses at a time when demographic, economic and market forces have challenged traditional revenue sources and endowment growth. The result, the authors say, is that approximately one-third of all institutions have an unsustainable business model.
American universities, notably those in the Ivy League, have a long history of going to the capital markets – that is, to institutional investors – by issuing bonds to finance facilities improvements or other major initiatives. Britain’s De Montfort University recently made waves as a rare UK institution following the path to institutional capital with a bond issue of its own.
Observers have wondered if the De Montfort example marks the beginning of an increasing trend toward non-traditional sources of capital among British institutions.
Beyond the prospects of a larger field of private-sector institutions or of greater private-sector financing in higher education, there is one other model of private equity participation that has been quickly gaining traction in recent years: pathway programmes operated by private-sector providers in partnership with universities.
Such programmes are more commonly observed in Australia or the UK but more recently they have begun to take hold in North America as well.
The pathway market is dominated by a small number of large players, all backed by private capital, with Kaplan, Navitas, INTO, and Study Group being among the most prominent providers in this space. Each of these privately controlled firms has registered significant expansions in their respective portfolios of university partnerships in recent years.
The terms and structure of individual pathway programmes can be highly variable but generally speaking the pathway provider is responsible for recruitment and for providing some preparatory, bridging, or foundation programming, at the conclusion of which, pathway students transfer smoothly to academic studies at the university partner.
A 2011 article in the Boston Globe sums up the business case for such pathway arrangements:
Navitas and other “pathway programmes’’ have won fans among college administrators trying to globalise their operations on tight budgets. The pathway programmes boast recruitment expertise most schools could never hope to develop in-house. They bring in students who diversify campus culture and who, crucially, pay out-of-state tuition and typically require little financial aid.
Not only do pathway providers have the recruitment expertise that the Boston Globe attributes to them, but they have the means to invest in building, supporting, and expanding substantial recruitment networks worldwide, to a degree that very few individual institutions could match.
This is perhaps one of the more telling aspects of greater private equity participation in higher education in that the emergence of such pathway providers is accompanied by a potentially game-changing investment in marketing and recruitment.
However, such programmes can be magnets for controversy and debate as well, both from a strategic and a philosophical point of view. Writing on the subject in 2010, Inside Higher Education notes:
The suggestion that a university can best serve – and retain – its international students by outsourcing their recruitment, support services and even academic instruction to a company with a profit motive is a controversial one. The expansion of pathway programmes has proven contentious in Britain and, more recently, Canada, where faculty unions have waged campaigns against the outsourcing of teaching functions and have argued against providing a “back door” for students whose preparation or English language test scores wouldn’t otherwise qualify them for admission.
As pathway programmes grow increasingly popular in the United States… a debate arises about whether US colleges could best serve their students by taking advantage of private-sector expertise or if they instead should focus on building their capacity for better recruiting and supporting international students on their own.
Regardless of which side of the debate you favour, it seems clear that this concentration of recruitment capacity – in combination with a growing field of privately held entrants to the higher education sector and expanded corporate-sector financing of universities and colleges – illustrates a growing role for the private sector that will help shape the global recruitment landscape for years to come.