Regulation needed to stem influx of private equity firms in education

25 October 2012 | last updated: 11 December 2015

The UK risks becoming embroiled in serious financial scandals if private equity firms 'circling education' are not proper regulated, warns a report released today.

Public Service Or Portfolio Investment: How Private Equity Funds Are Taking Over Post-secondary Education from the UCU surveys the impact of private equity takeovers in other public services in the UK, such as care homes, as well as the private equity-fuelled expansion of for-profit higher education, and the resulting scandals, in America.
 
In America for-profit companies offer derisory graduation rates, crushing levels of debt and degrees of dubious value. According to the US Education Trust, only 20 per cent of students at for-profit colleges complete a four-year course, and a fifth of those who do finish default on their loans within three years.

'They must stop parroting the for-profit companies' line about a 'level playing field', and start looking at the wealth of evidence warning that a drive to appease shareholders makes these companies high-risk for students and taxpayers.'

A recent report by Senator Tom Harkin into the for-profit scandal in America concluded that for-profit companies - especially those with private equity backing - need more regulation not less. Senator Harkin's report identified the US government's de-regulatory policies at the start of the century as a key factor in the growth of the current problems.
 
Today's UCU report shows how private equity funds are well-positioned in the coalition government. It details how key figures from the industry are advising on public service reform while their companies stand to gain from contracts in health, welfare and post-secondary education. It argues that the government needs to take urgent action to regulate against private equity firms buying out university departments or even whole institutions.
 
The report uncovers how far private equity has already penetrated the adult learning and vocational training sector. Five private equity funds have bought up many of the biggest private companies in the adult vocational training sector and now receive roughly a tenth of the entire government budget for adult skills - more than £300m in 2011-12, compared with £70m in 2007-8.
 
The report goes on to assess the likelihood of private equity entering the higher education sector, noting that the most likely routes in the short term are through joint ventures with established universities, buyouts of a failing institution, or through a further education college using new powers under the Education Act 2011 to become a company limited by guarantee.
 
UCU General Secretary, Sally Hunt, said: 'If ministers really have read the Harkin report then there is no excuse for them to get this wrong. They must stop parroting the for-profit companies' line about a 'level playing field', and start looking at the wealth of evidence warning that a drive to appease shareholders makes these companies high-risk for students and taxpayers. We need to regulate against private equity firms buying out university departments or even whole institutions.
 
'We are particularly concerned that the government appears blinkered by its ideology and is now arguing that these companies circling UK education should enjoy tax breaks.

'Ministers and the sector have a choice, we can take heed of the warning from America or we can push on and risk the futures of tens of thousands of students and millions of pounds of taxpayers' money.'
 
Public Service Or Portfolio Investment: How Private Equity Funds Are Taking Over Post-secondary Education [390kb]

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