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Sometimes, the problem with both media coverage and regulation is that critique of a part of the sector taints it all.

When ministers or media outlets find sharp practice in recruitment or failings in student support, everything from OfS Insight Briefs to Sunday Times splashes can feel like the whole class being kept in for lunch when you weren’t making any noise.

So has been the case for franchising. A specific group of universities has been subcontracting out to a specific group of private colleges in recent years – a group which has rightly picked up attention from the media, the National Audit Office (NAO), the Public Accounts Committee (PAC), the Office for Students (OfS), the Student Loans Company (SLC) and the Department for Education (DfE).

Independent HE, for example, have argued elsewhere on the site that while they strongly support a tougher regime around franchising, the proposed approach of requiring only larger providers (300+ students) to register would be insufficient – missing many bad actors while creating administrative bottlenecks and failing to hold lead providers properly accountable for their partners. Instead, they advocate for universal basic registration for all teaching providers.

Now, following last week’s long-awaited publication of data on subcontractual partnerships from OfS, we’re pretty confident that it’s possible to isolate and identify a specific subset of undergraduate providers in the English sector.

Its defining characteristics are that its providers are privately owned, are (very much) for-profit, deliver non-specialist courses principally in Business and Management, and have been (very) rapidly expanding in recent years.

Last year OfS said that in some cases there has been an “exponential growth” in student numbers in subcontractual partnerships over the last few years, with some lead providers now teaching more students through these arrangements than directly on their own campuses.

It said that among other potential concerns, this raises questions about the direction of travel for the lead provider’s own strategic identity, aims and objectives.

Our definition of a specific sub-sector is not perfect. There are a number of providers whose wholly-owned or directly-delivered satellite campus operations share some of those characteristics. Student numbers have not been formally published, and as ever there is lag in the data in general.

In 2023-24, OfS’ student characteristics data dashboard shows that there were 101,950 students enrolled overall on subcontracted Business and Management courses – up from just 5,630 a decade ago.

And if we derive from full-time, first degree continuation statistics, aggregate where companies are owned by the same parent, and attach those characteristics to partnerships where the entrant population was 100 or more in 2023-24, we can see 16 providers that enrolled over 40,000 FT FD entrants in 2022.

Below threshold

Aggregating both multiple providers in a group, and this sub set in general, is not an exact science. For each partnership between a university and private college, OfS has only published a denominator population rounded to 5 – which makes precision impossible. But we can estimate this sub group’s outcomes “performance” by implying a numerator from the percentages, and recompiling the numbers.

The result is not stellar. In OfS’ press release to accompany the data, we learned that 77 per cent of FT FD subcontracted students continued courses into a second year, compared to 88 per cent in the sector as a whole. Against a regulatory minimum of 80 per cent, this group of providers averaged just 70 per cent.

We learned that 74 per cent of subcontracted students completed their course, compared to 87 per cent for the sector as a whole and a regulatory minimum of 75 per cent. This subgroup scored just 70 per cent.

The further out that a metric is from when students start, the longer it takes to pick up results – a real regulatory issue in a subsector that is expanding so rapidly. But when we look at progression to a graduate job or further study, it’s 71 per cent for the sector as a whole, 57 per cent of subcontracted students, and just 53 per cent of this subsector – against a regulatory minimum of 60 per cent.

These providers are almost certainly inflating the sector’s performance on access – especially for those who are doing the franchising-to – access and participation stats are not (yet) split by partnership. But they are also dragging down the sector’s performance on outcomes, and giving subcontracting a bad name – all three of the key metrics would likely be above threshold if this group was removed.

More importantly, if we follow OfS’ logic on outcomes and thresholds – that the figures are signals of whether students have the potential to succeed on the course, and receive good teaching and support through their studies – the group has been expanding yet failing.

One area, though, where the group is not failing, is on financial performance.

Healthy profits

In 2023, the Russell Group estimated that in 2022/23, English universities on average supplemented the cost of educating each UK undergraduate student by £2,500 per year, with all subjects now making a loss on average.

Not so much here in this sub sector. Because most of the 18 providers are not on the OfS register, the format (and even visibility) of annual accounts is uneven. Financial years and levels of disclosure differ, some are showing on Companies House as posting accounts late, and in many cases some of the income from fees moves up into a parent company in a way that prevents proper transparency.

But on the basis that the bulk of their income is tuition fees after any franchising fee retained by the university passing on the SLC money that it gets, and assuming that “cost of sales” usually covers the provision of education rather than administrative expenses that are often dominated by acquisition costs, we can calculate a gross profit for the latest year that figures are available for.

Below that line often huge dividends, director remuneration, domestic agent fees and the costs of renting space or borrowing from a parent co deflate the final profit figures. But in gross terms, notwithstanding that some of the group were micro-entities and exempt at last accounts publication, the group in scope posted gross profits of £504m on an income of £815m.

Figures like that should push any sensible policymaker into windfall tax territory – or at the very least taking some of that profit and using it to relieve students burdened by a lifetime of debt of some of the balance. But more broadly, perhaps policymakers should take a step back and ask whether what’s being facilitated here should be.

Avoiding scandals

Ever since I was sent a photo back in 2022 of a domestic agent’s pull-up banner in a London shopping centre inviting students to claim their £15,000 in maintenance support, we’ve been trying to get to the bottom of what’s been happening with franchising.

There’s a compelling reason for that. Franchising scandals over the last decade caused huge reputational damage for the sector and created an enormous regulatory distraction. When HEFCE and the Department for Education were spending their time devising ways to crack down on sharp practice, they weren’t focusing on improving the sector. The opportunity costs of franchising scandals are significant.

We could see what was coming – a repeat of the problem. The Office for Students, already stretched, would end up spending much of its time attempting to regulate the rapid expansion. There was real danger of further reputational damage for the sector.

What we’ve found are highly litigious providers, and real difficulty in getting the data we needed. We wanted to see who these rapidly expanding private companies were – companies specialising in “widening access” students, and lead providers appearing in graphs showing students claiming maintenance loans without fee loans.

And from a student perspective, one of the issues has long been that if they want to find out what the outcomes would be like, they can’t really tell.

This matters because almost all higher education advertising says “here’s what this has been like in the past, and so here’s what might happen to you.” The big problem was that when they apply to those providers, they are often told about the franchising provider’s outcomes – not the franchisee provider’s. They hear about the university’s figures for business studies, but can’t see the actual provider’s numbers.

Franchise partners change frequently, and course names change often. The historical data needed to support statistics on Discover Uni simply aren’t available. Given that providers often have franchising deals with multiple universities, it can’t be unreasonable to ask how well these colleges perform on continuation, completion and graduate employment – especially when so much advertising focuses on careers and improving life chances, while obscuring debt.

In OfS’ words:

This [data] will be useful for prospective students, lead providers responsible for registering the students, and institutions responsible for teaching students on these courses.

Even if the regulation was tightened, the incentives for the latter two of the parties on that list may be too strong to ever aspire beyond minimums. And for students – who have characteristics that are least frequently associated with an “informed actors in a choice market” ideal, even OfS’ data doesn’t show each of the franchised-to providers in aggregate.

Why?

This leaves us with a simple question. If the problem is non-specialist franchised provision – which certainly appears to be the case – why is the Department for Education funding it?

It’s not provision that’s otherwise unavailable. It’s not serving some niche that doesn’t already exist. Students with talent, drive and aspiration would still access traditional universities. Students unsuitable for full-time study would pursue other routes. Students who need more support would have more money spent on them if it wasn’t being delivered to the bottom line in profit.

This is, lest we forget, a part of the sector where expectations on harassment and sexual misconduct, or free speech, or charter work on mental health or fair admissions, are established only in part and often only in theory – and where student protection in the event of course, campus or provider closure is even thinner than it is elsewhere. Why are these risks concentrated on some of the least advantaged students in the sector?

There are now real risks in contraction. Already some of the providers on the list have closed campuses and shuttered courses. Have reportable events been made? Are students being compensated for any breach of contract? And what happens if any of these companies just collapse – when the lead provider is often hundreds of miles away? These are tasks the government needs to take on.

There are risks to allowing franchising, risks to allowing private providers to access the loan book, and risks to having no student number caps. In the last decade, the view was that the potential rewards were greater than risks. But notwithstanding the need to contract with care, it simply cannot be true that the world would be worse if these providers didn’t exist.

Many things could be done. We’ve made proposals over on the Post-18 Project on different ways to regulate and restrict what’s happening here that draw on valuable lessons from colleagues in FE. But at the simple core, it comes down to this – why does DfE think it’s worth the risk to keep open the student loan book to private providers through franchise agreements for non-specialist subject higher education?

The faster the government changes course, the faster all of us can turn our attention to improving higher education’s contribution to society and economic growth – rather than chasing around owners of colleges who, collectively, are getting rich off outcomes which OfS says are unacceptably poor.